Wednesday, March 01, 2006

Alternate Retirement Investments?

Thomas pointed me to Blog Maverick, the blog of Mark Cuban, the semi-crazy but very successful owner of the Dallas Mavericks. He's got a lot of interesting commentary about the NBA and business, especially the theater business which he's into now. But one post caught my eye the most, where he claimed that the stock market is for suckers. Basically, his point was that the value of stocks has ceased to relate to the profitability of a company, and thus is no different than any other gambling arena. As such, the advantage goes to those who can meticulously research companies and buy significant portions of them. Everyone else, especially people who own mutual funds, are solely at the mercy of others. He even goes so far as to call the stock market at Ponzi scheme, and he makes a pretty good case for it.

What he didn't do is recommend an alternative investment strategy for those of us who can't afford to trade with the big dogs, but who cannot possibly expect any pension or Social Security to take care of us. So what other venues might there be for investing? Obviously there are all other kinds of assets, like real estate, precious metals, rare stamps, etc. You'd like to think that you should invest in things that provide added value through your investment. I think this is why the stock market had previously been a good choice because companies were supposed to take your investment in stock and turn that into new employees and equipment, who would go on to make new products with which to sell for a profit. This is a way to generate wealth in a non-zero sum way, right?

But Cuban seems to believe that it is all purely gambling, where there are equal numbers of winners and losers. Are there other assets that could provide growth? Or could you build a retirement investment strategy based entirely on gambling? I don't mean playing blackjack, but on things like online futures markets, or sports, or just basic futures markets? Maybe there's an opportunity to package non-traditional gambling into something like a mutual fund. What do you think?

4 Comments:

At 11:54 AM, Blogger Kevin said...

I think Mark Cuban is a sensationalist. Any way I look at it, I have to accept that there is net value being created in publicly traded companies. It's not a zero-sum game. I do agree that certain parties have advantages investing in public markets.

 
At 12:08 PM, Blogger Dan Craig said...

The question, though, is where does that net value go. I also agree that companies create value. But does that only come out in the dividend? If not, the price of the stock is still arbitrary, right?

Cuban has another post where he's a little more optimistic about investing in new technology companies. His thought is that it's cheaper now than ever to startup a tech company that can actually create real value, and these are the kinds of places to invest. Again, we have the same problem that I posed at the beginning: what about those of us who can't afford to inveest like that? I may just not know about them, but are there mutual fund-like accounts that invest in venture capital instead of publicly traded compaines?

 
At 5:45 PM, Blogger Anthony said...

One obvious answer: bonds (just remember, you've gots to diversify them). Yields are not as attractive but significantly more stable assets than equities. Think Cuban has an interesting perspective but it's too extreme to be broadly applicable. I think I'll take Benjamin Graham over Mark Cuban in this debate ... has a better trackrecord and less of a tendency to be a jack-ass.

 
At 11:57 PM, Blogger Thomas said...

I think there are way too many arguments caught up in this post/comments section. Is there value in holding equities (yes). Is trying to "beat the market" a smart play for your avg joe (probably not). I really don't want to type out all my thoughts here but if all you really want to do is get equity exposure you can buy some index fund that has really low fees since there is minimal thought process involved (they just track the index). And just like that you have pretty good equity exposure for cheap and if you are talking about small investments you probably are much better off in a risk/return basis than you would be trying to pick stocks.

Now if your question is should you even want equity exposure that is an argument for another day.

If your argument is does buying stock equate to some mysterious "value add" than I am not sure what you mean

 

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