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Throughout his decades-long business career, billionaire entrepreneur Mark Cuban has seen many people waste fortunes making bad investments. In a recent appearance on Shannon Sharpe’s Club ShayShay podcast, Cuban gave his thoughts on the types of investments he likes and which he sees as money sinks that can sink even the wealthiest investor. Keep reading to learn more about his approach.
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It should come as no surprise that Mark Cuban takes a common sense investment approach. That approach starts with avoiding investments with a low chance of success that also burn a lot of capital. Cuban lamented that these investments often have a strong emotional or cultural appeal for people who have recently made money or are investing for the wrong reasons.
He said directly to Sharpe, “Don’t invest in the restaurant, don’t invest in the clothing label, don’t invest in the liquor company… or music. That’s death!” Cuban noted that these types of investments come with a lot of buzz, but there are no real “barriers to entry” other than someone with deep enough pockets to write a check and start one.
He asked Sharpe (an NFL Hall of Famer), “Do you know the label of an athlete who has done something good?” Despite playing in the NFL for more than a decade and having a near-endless list of contacts who are both active and retired players, Sharpe couldn’t name any.
Cuban’s advice is not due to any personal enthusiasm he has for fashion, liquor or entertainment. He realizes that while all of these sectors can be incredibly lucrative, the most successful companies are led by people with years of experience and a deep network of industry contacts. Most famous investors miss both and therefore end up throwing a lot of money into problems that can only be solved through years of experience and contacts.
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Cuban told Sharpe that his best advice to anyone making a lot of money and looking to invest is to find an experienced financial professional and let them grow their wealth. He also emphasized that this financial advisor must be someone with experience and must be outside the circle of the investor. ‘It can’t be your friend. It has to be someone who has done it for big people,” Cuban said.
Cuban realizes that experienced money managers won’t be distracted by bright, shiny objects like the “cache” that comes with being a restaurant owner or a record label executive. An experienced money manager is much more likely to grow his client’s wealth by investing in securities that produce passive income, such as shares of Dividend King stock or real estate investment trusts (REITs).
It is not the case that these investments are without risk. However, publicly traded companies and REITs must overcome significant barriers to entry before anyone can invest in them. These barriers include mandatory public reporting, minimum liquidity standards and market capitalization requirements. To start a clothing business, on the other hand, all you have to do is write a check.
Then you keep writing checks until it makes money or you run out of money. According to Mark Cuban, running out of money is often the only part of capital-intensive, risky investments like restaurants and record labels. Therefore, you would probably do well to consider Cuban’s advice before investing, regardless of how much or little capital you have to invest.
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This article Mark Cuban names the investments most likely to send rich people to the poorhouse and describes how he would invest instead. originally appeared on Benzinga.com
