Mark Cuban, Is the Stock Market Still for Suckers? 30 comments
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In my professional day life I'm an investment advisor. By way of disclaimer, this post is not intended as investment advice in any way shape or form. Past performance is not indicative of future success, blah, blah, blah, etc.
"I've
said a lot of this before. The stock market is by definition a ponzi
scheme. As long as money keeps on coming in, then there is someone to
take the stocks from the sellers. If the amount of money coming in is
reduced, the stocks, indexes, et al go down. What if, for who knows
whatever reason, the amount of money going into stocks declined
significantly ? Who would buy stock from the sellers. I mean goodness
gracious, you could see something disastrous happen. Like the Nasdaq
dropping from 5000, to under 2000 in just a few years. It's happened
before, it can happen again."
Mark Cuban, January 3, 2006
Two years ago in post titled "The Stock Market is for Suckers," Mark Cuban responded to comments I'd made suggesting that over long periods of time the stock market was a superior investment to cash equivalents. 100% of my long-term retirement plan assets are invested in buy and hold equities.
More from Cuban: "Wall Street has done an AMAZING job of creating conventional wisdom. "Buy and Hold " is the 2nd most misleading marketing slogan ever, after the brilliant "rinse and repeat" message on every shampoo bottle. We as a country have fallen for it. Every message from every marketer of stocks tell us. Young or old, if you can hold for the long term, things will work out for you.
That is total bullshit. It's for suckers."
So in the spirit of agreeing to disagree, two years ago I decided to keep track of how two investors who followed Cuban's advice or didn't follow his advice would have fared. Each year I'm going to continue doing a recap of how a hypothetical $100,000 investment would have faired between Cuban's advised cash investing vs. investing your money in the Vanguard Total Stock Market Index (VTI), a low cost no load equity mutual fund.
Mark, if you don't think the stock market is for suckers anymore let me know.
Last year was my first annual recap. For last year I tracked how a 100,000 investment would have fared in the Vanguard Prime Money Market fund vs. The Vanguard Total Stock Market Index. The results for 2006? 100,000 invested in cash (as Cuban advised) would have grown to $104,882.60. $100,000 invested in the Vanguard Total Stock Market Index would have grown to $113,890.00.
So what happened in 2007?
Well, assuming you continued using the same two funds (i.e. buy and hold). The ending value from January 2, 2006 to December 21, 2007 using the Vanguard Prime Money Market Fund [VMMXX] would have returned $110,280. Not a bad return for your $100,000 in two years... perhaps....
Had you invested the same $100,000 in the Vanguard Total Stock Market Index [VITSX)] over the same time period you would have grown your $100,000 into $122,130.
So the question is, if for the last two years you'd dismissed Cuban's "stock market is for suckers" advice and netted an extra $11,850 on your investment does that still make you a sucker?
Cuban says that by skipping the stock market you'd have slept like a baby. But at what cost? Is it worth $11,850 over the past two years to have slept like a baby. Personally 100% of my retirement assets are in stocks (I'm 39 and have a long time until retirement) and I slept just fine the past two years.
Another part of Cuban's argument seems to rest on the fact that investing is confusing and Wall Street only makes it more so. But following a simple strategy of buying low cost diversified index funds does not have to be confusing at all.
Will 2008 be the year that vindicates Cuban in his great "stock market is for suckers" post of 2006? Who knows. But let's come back here in January 2009 and check it out. Between now and then with a historically low P/E ratio on the Standard and Poor's 500 of 17.53, I'm sticking with my long term buy and hold strategy.
Of course what do I know, Mark Cuban's a billionaire and I'm not.
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Wonder if the pending bankruptcy of MBIA, Ambac, and Countrywide will put a little damper on the 2009 rendition of this article.
Best of luck to you all, I've been locked into Gold since $400 and short housing and financials since 2005. I really wish I could find a reason to be long the market. Maybe if I just did buy and forget but I can't do that :-)
Those who are not that lucky could make up through work and saving. yes, saving. but not by buying t-bills, long-term, but instead fundamentally sound companies paying consitents dividens or reinvesting their profits wisely.
anybody talking of "risk-adjusted" superoir profits thorugh t-bills as compared to stocks should please, define the risks first. For both investments - and all of the risks involved.
Philosophically, one might question the idea of 'inherent value', since we can't be sure that other people will continue to find value in owning an oz. of gold, a parcel of land, or partial ownership of a company. But realistically, the odds of any of those things being considered valueless by the society we live in are pretty much nil.
As long as there are people who want to own money-making businesses, there will be money in the stock market.
Cuban was right on when he said that most stocks are like baseball cards. GOOG is a baseball card. It pays no dividend and doesn't have any inherent value to its holder other than the desire for another person to own GOOG's rookie card. As a result what you have left is an investment that's subject to the manipulation of much larger players in the market which is 90%+, I'm guessing, of the money pushing things around everyday in the market. And at the end of the day if GOOG goes back down to $100 what do you have to show for your "investment"? Nothing because the insiders and Wall St. crooks have taken all the value and provided nothing back to shareholders. That's not an investment that's a craps table. Give me a 7% dividend on a stable growing company whose stock price goes up steadily 5% a year or so who doesn't feel the pressure to continually seek out unwise risk in order to grow profits and I'm there (as would everyone else because there is no such thing that I've seen)
The market is a rich man's game and anyone playing it that doesn't realize that is only fooling themselves. You may get lucky by being in during the right timeframe when bubbles are being blown like in the last 20 years but why do you think so many people bailed on stocks and moved into real estate? Because it's inherently obvious that most stocks have become too expensive. I wonder what Benjamin Graham would think of today's market.
America's about to have a rude awakening. We've now blown the one thing that has allowed us to live so wrecklessly.... the most stable, strongest, and the least corrupt financial system. That's being tossed out the window as we speak along with the dollar. Nobody believes the rating agencies anymore and nobody wants to buy our overpriced, non-dividend paying stocks in a currency that's getting riskier by the day.
The way I see it is the entire 401(k) system is viewed by the Federal Government and the corporations that rely on its tax and spend power for billings - they view it as an account receivable. It is reasonable to assume that current tax rates will not be sustainable unless the US government defaults on its obligations to lots of people. They already spent $2 trillion out of the social security trust fund that people paid to social security - they used it for general fund tax expenditures like war and they are going to double tax the same people who paid in to pay them back reduced benefits. That's the biggest regressive tax scam in history.
Additionally, an incredible amount of money is pilfered from the stock market by brokers, dealers, and firms that control things. Look at the spread between bid and ask prices on call and put options. It's incredible - like sometimes 10% or 12%. Look at mutual fund "management" fees. Look at firms like EverBank that provide a "New Zealand Dollar Denominated CD" at an interest rate of 6.75%, which is great except that actual banks in New Zealand are offering 8.8% and EverBank probably keeps the more than 200 basis point interest rate spread as profit. Now there's nothing wrong with profit, but there is an awful lot of profit built into the ethereal investment markets in the United States - enough where the people running that are more likely to be heading to dinner on a private Lear Jet than most of their investors.
The timing is also hugely important. Look at the NASDAQ today? 2,500? It was at 5,000 in 2000 and here we are almost eight years later. Inflation losses are also not usually considered when figuring stock market gains.
The whole economy is wired to make it tough to deal with things here because they inflate the money supply and credit to produce a constant positive rate of inflation that is difficult to accurately measure and is hugely misreported and then they tax you on capital and income gains from interest and capital gains including the amount that just made up for lost purchasing power from the inflation that they cause and control. That's quite a racket. It goes at least a little ways in explaining the savings rate here and the huge consumer and mortgage debt. It makes borrowing lots of money feel smart and saving money seem quite risky.
It's easy to crow when the wind blows your way, but we all know the market is just as fickle. Had the banks and fed not propped up the housing (market of) cards last year, Cuban would be getting the last word.
www.post-gazette.com/p...
Mojo