The Mark Cuban Effect

Mark Cuban recently was quoted in a Bloomberg article reaffirming his dislike for the stock market.  He restated his view that most people should keep their investments in cash and “keep your money anywhere but the stock market.”  While Mark is not a world renown stock picker he does have high visibility in the news and for some reason keeps popping up with investment advice.  As it turns out it appears that Mark has an uncanny ability to call market reversals.  Unfortunately he has historically made the OPPOSITE call.

It is something I have termed “The Mark Cuban Effect.”

As the chart below reveals, Mark’s comments often coincide very close to market reversal.

A few highlights:

He made a Bullish Call in October 2008 right before another major pullback.

He made 2 Bearish Calls in August of 2010 and 2011 which just nearly turned out to be the market low for both years.

Is it unfair that I picked 6 month returns?  Maybe, but not really.  Mark Cuban often touts that “Buy-and-Hold is dead” so it is really only fair we analyze the short term performance of his investment advice.

Now maybe I am being a little hard on Mark.  He does consistently say that people should pay down debt and not use credit cards.  He has also warned about the terrible track record of brokers’ stock recommendations.  That is very good advice.  But you can see that even people as successful and bright as Mark Cuban are susceptible to the same behavioral biases that the average investor faces.  His focus is on the short term.  He even made the comment “This time is different.”  In the words of the famous investor John Templeton, “The four most expensive words in the English language are “this time it’s different.”  How has the market done since Mark made that statement? Up 54%.  A very expensive statement indeed.

While never a guarantee, a basic globally diversified portfolio of 60% stocks and 40% bonds has returned around 6% annually the past 10 years, a period which is one of the worst 10 years for investors of all time.  Contrary to Mark’s advice, that is the power of diversification and staying invested.  It is also a return that will generate income in retirement, unlike the 0% someone will earn remaining in cash.

While we will not be implementing investment strategies based on the Mark Cuban Effect just yet, let’s all hope it is accurate and we see a large market gain over the next 6 months….

Mark Cuban References:
 WSJ Video- Diversification is for Idiots, Buy and Hold is dead, Stock have not fallen enough August 2011The stock market is for suckers August 2010The best investment advice you will ever get “Cash is King” August 2010“If you have under 100k dollars in liquid assets,  your net worth will be higher in one year if you follow this advice  than if you follow ANY other investment advice any broker or banker will give you this year.”Buy and Hold is Dead June 19th 2009Buy and hold is dead Nov 2008This time is different Oct 2008Where to put your Money Right Now Oct. 15 2008For any stock or bond at a brokerage account that is yielding less than what you are paying in interest rates on your credit cards, and for which the current price is less than what you paid for it. YOU SELL IT. When you call your broker to get the prices, you do not let them give you a bunch of BS about why you shouldn’t. YOU SELL IT.I’m Still Long Oct 10 2008I’m going long Oct. 8 2008 “Now Im short puts”

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