Mark Cuban Calls Out Wall Street, He’s Wrong On This One!

By: ispeculatornew
Date posted: 08.22.2011 (5:00 am) | Write a Comment  (0 Comments)

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A disclosure to start off: I admire Mark Cuban! He emerged in the dot com bust after building a website that he ended up selling near the top thus avoiding the downfall that many other Silicon Valley stars endured. As if that wasn’t enough, he used the money to buy his own NBA team, the Dallas Mavericks, winning his first NBA championship last year when he defeated Lebron James and the Miami Heat in the final. He continues to make tech investments mostly as angel/private investments. To say that he is living the dream life would be an understatement. He did not build this through luck, he is brilliant and has many “outside the box” ideas such as his post about restarting the US economy.

That being said, a few days ago he wrote about diversification and called it a Wall Street fabrication in the same way as “buy and hold”.  I think that if he had specified that he was talking about “sophisticated investors”, that might have made sense. But saying that the average American should both avoid buy and hold and diversification sounds crazy to me. Those are certainly not perfect methods to invest, far from it. But my question would be, what are the alternatives? The example he gave was a good one but that would be an argument about what a diversified portfolio should include rather than the benefits of actually doing it. What is a sophisticated investor? Someone that not only understands the markets very well but also can afford to lose a large percentage of his money. What exactly is Mr. Cuban suggesting? Buying 4 or 5 companies that we believe in? That sounds like a recipe for disaster if one of those happens to be the next Enron, Lehman Brothers, etc. I don’t think you need to hold 10-15 ETF’s either but there’s a major difference between those two solutions.

Buy and hold and diversification remain the best option for most of us and that is even what I use for my retirement account while my speculative stocks bucket use stock picking a lot more. If we consider the fact that a diversified buy and hold portfolio with low fees (ETF’s!!) will beat 70-80% of managers at a minimum, what is this better investing idea?

What are your thoughts on diversification? Am I the only one to disagree here?

 

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