7 ms·

Mark Cuban: How Stocks are like Baseball Cards (2004)

31 points by rms 17y ago

JacobAldridge 17y ago
Basically - The big Funds drive volume, and therefore stock price. They're looking for a return on investment, through either Dividends (small) or Equity Growth (potentially massive). When they buy a Share, they want to know it's going to be worth more to them in the future. Since no company is going to pay dividends at 30% of the share price, but the market can move that much fast (up 50% in Australia since the March 09 bottom), Funds care about Equity Growth. And they know that growth is driven by volume. When they buy today, they don't care what the fundamentals, profitability etc tells them - they just want to know will there be more Volume in the future? Did we mention these are the same companies that drive the actual Volume? Cuban calls it a Ponzi scheme. It can certainly turn into a circle-jerk, where every Fund drives Volume by buying because they expect every other Fund to drive Prices up by driving Volume by buying. But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore.
- joshu 17y ago
  volume alone does not drive price.
  - JacobAldridge 17y ago
    No, that was my fairly basic reading of the OP. Of course, excess Volume in either Supply or Demand will affect prices (down or up respectively).
- salvadors 17y ago
  > But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore. A wise company with poor fundamentals but a good image and an inflated share price could, however, use that overvalued currency to buy other companies (with better fundamentals) in an all-stock deal. There are some who would say that this is pretty much how the entire internet industry works...
lionhearted 17y ago
I remember this Mark Cuban quote from another entry, it really made me think (emphasis mine): > The stock market is probably the worst investment vehicle out there. If you won’t put your money in the bank, NEVER put your money in something where you don’t have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn’t be a broker, they would be on a beach somewhere. http://blogmaverick.com/2009/05/13/success-motivation/ http://blogmaverick.com/2009/05/13/success-motivation/
tocomment 17y ago
So where are we supposed to put our money then? Especially with inflation becoming a big concern in a few years.
- lftl 17y ago
  If you're worried about inflation, then you might want to take a look at TIPS http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...
  - tocomment 17y ago
    that's kind of cool. Ok, don't shoot me, but that is probably based on the CPI and folks on reddit say government published inflation data understates inflation. Maybe I should just stop reading reddit ...
    - kdw 17y ago
      Frankly, reddit is a truly horrible source of information about business and the economy. The loudest commenters on those topics tend to be educated primarily via blogs. Personally, I'd advocate a subscription to the Financial Times, which is brief and factual in nature, with opinions kept to the opinion page.
      - bokonist 17y ago
        Keep in mind that the mainstream, professional economists did in fact lead the economy of the cliff. So mainstream views of economics are not exactly error-free. Blogs, reddit, etc. are full of populist myths. But the blind squirrel occaisionally finds some nuts. Or an elephant. The CPI is the elephant.
        maukdaddy 17y ago
        Economists did not lead the economy off a cliff, the financial firms did. Big difference.
ad 17y ago
Cuban makes a lot of good points in this series, but fundamentals do exist. Compare his philosophy to Warren Buffet. Sure, Buffett does often get better deals not available to retail investors, such as the recent Goldman deal, but Buffett also buys plenty of common stock as well. (There is plenty of overlap in the philosophies as well...looking over his 2008 letter, seems like he favors dividend paying stocks, but don't hold me to that).
- kdw 17y ago
  Personally, I take the approach advocated by Benjamin Graham. I have separate accounts for investing, and speculation/trading. I just view them as fundamentally different activities, with different risk profiles, and different sorts of analysis required prior to taking or selling any given position.
  - davidw 17y ago
    I read the 'snowball' book about Buffet, and it seemed to me like the advantage Graham had was that they went over information in a way that would only take a few minutes with a computer, but that wasn't done so systematically at the time, by most people. So, 'fundamentals', yes, but fundamentals driven by data. In this day and age, when everyone can comb out the same stocks in a matter of minutes, does that approach work?
    - deleted 17y ago
      [deleted]
- kingkongrevenge 17y ago
  It's kinda ridiculous to try and extract personal investing lessons from Buffett. He cultivates this image of some grandpa who is just good at picking stocks, but it's baloney. He has always operated with an edge. Information advantages or super cheap capital from insurance companies.

31 points by rms 17y ago

Basically - The big Funds drive volume, and therefore stock price. They're looking for a return on investment, through either Dividends (small) or Equity Growth (potentially massive). When they buy a Share, they want to know it's going to be worth more to them in the future. Since no company is going to pay dividends at 30% of the share price, but the market can move that much fast (up 50% in Australia since the March 09 bottom), Funds care about Equity Growth. And they know that growth is driven by volume. When they buy today, they don't care what the fundamentals, profitability etc tells them - they just want to know will there be more Volume in the future? Did we mention these are the same companies that drive the actual Volume? Cuban calls it a Ponzi scheme. It can certainly turn into a circle-jerk, where every Fund drives Volume by buying because they expect every other Fund to drive Prices up by driving Volume by buying. But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore.

joshu 17y ago
volume alone does not drive price.
- JacobAldridge 17y ago
  No, that was my fairly basic reading of the OP. Of course, excess Volume in either Supply or Demand will affect prices (down or up respectively).
salvadors 17y ago
> But they forget that the Fundamentals can destroy a company. And a company that doesn't exist, doesn't trade anymore. A wise company with poor fundamentals but a good image and an inflated share price could, however, use that overvalued currency to buy other companies (with better fundamentals) in an all-stock deal. There are some who would say that this is pretty much how the entire internet industry works...

lionhearted 17y ago

I remember this Mark Cuban quote from another entry, it really made me think (emphasis mine): > The stock market is probably the worst investment vehicle out there. If you won’t put your money in the bank, NEVER put your money in something where you don’t have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn’t be a broker, they would be on a beach somewhere. http://blogmaverick.com/2009/05/13/success-motivation/ http://blogmaverick.com/2009/05/13/success-motivation/

tocomment 17y ago

So where are we supposed to put our money then? Especially with inflation becoming a big concern in a few years.

lftl 17y ago
If you're worried about inflation, then you might want to take a look at TIPS http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...
- tocomment 17y ago
  that's kind of cool. Ok, don't shoot me, but that is probably based on the CPI and folks on reddit say government published inflation data understates inflation. Maybe I should just stop reading reddit ...
  - kdw 17y ago
    Frankly, reddit is a truly horrible source of information about business and the economy. The loudest commenters on those topics tend to be educated primarily via blogs. Personally, I'd advocate a subscription to the Financial Times, which is brief and factual in nature, with opinions kept to the opinion page.
    - bokonist 17y ago
      Keep in mind that the mainstream, professional economists did in fact lead the economy of the cliff. So mainstream views of economics are not exactly error-free. Blogs, reddit, etc. are full of populist myths. But the blind squirrel occaisionally finds some nuts. Or an elephant. The CPI is the elephant.
      - maukdaddy 17y ago
        Economists did not lead the economy off a cliff, the financial firms did. Big difference.

ad 17y ago

Cuban makes a lot of good points in this series, but fundamentals do exist. Compare his philosophy to Warren Buffet. Sure, Buffett does often get better deals not available to retail investors, such as the recent Goldman deal, but Buffett also buys plenty of common stock as well. (There is plenty of overlap in the philosophies as well...looking over his 2008 letter, seems like he favors dividend paying stocks, but don't hold me to that).

kdw 17y ago
Personally, I take the approach advocated by Benjamin Graham. I have separate accounts for investing, and speculation/trading. I just view them as fundamentally different activities, with different risk profiles, and different sorts of analysis required prior to taking or selling any given position.
- davidw 17y ago
  I read the 'snowball' book about Buffet, and it seemed to me like the advantage Graham had was that they went over information in a way that would only take a few minutes with a computer, but that wasn't done so systematically at the time, by most people. So, 'fundamentals', yes, but fundamentals driven by data. In this day and age, when everyone can comb out the same stocks in a matter of minutes, does that approach work?
  - deleted 17y ago
    [deleted]
kingkongrevenge 17y ago
It's kinda ridiculous to try and extract personal investing lessons from Buffett. He cultivates this image of some grandpa who is just good at picking stocks, but it's baloney. He has always operated with an edge. Information advantages or super cheap capital from insurance companies.