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I think Cuban is wrong. It's WORSE when ordinary investors are risking their money. Today, you've got angels and VCs that have risked their money. And this i

I think Cuban is wrong. It's WORSE when ordinary investors are risking their money. Today, you've got angels and VCs that have risked their money. And this is money they don't need. Big deal if everything implodes, what do they lose? Simply their bets. Back in 2000s, a lot of ordinary people lost money they couldn't afford to lose.

adventured 12y ago
Yep, Cuban glosses over that obvious detail when it comes to median net worth individuals ($50k - $100k). Like when ordinary people invest into the stock market, and buy a company like Adept Technologies (ADEP) that goes from $21 to $6 in ten months (ADEP has been publicly traded for 20 years). Or buy into a company like Dendreon (DNDN) which goes from $40 / share and a ~$10 billion market cap, to literally worthless in 36 months. A person with $1,000 can easily lose all of it in the public markets. There's nothing stopping them from drowning in their own ignorance.
- bluedevil2k 12y ago
  Someone in the public market could lose a lot, but they also have the option to sell at any time, preventing losses. Private markets with no liquidity will simply cause total loss, as selling is not even an option.
  - adventured 12y ago
    Being able to sell at any time is of course understood, and that in no way prevents the kind of ignorance that leads to total losses in the public market. Investors often ride investments down, telling themselves in a delusional fashion that their investment will turn around if they just hold out. This occurred rampantly during the collapse of the Nasdaq in 2000/01. Or companies like Bear Stearns or Lehman, that vaporized in a matter of weeks (Bear went from like $60 to $2 in two trading days), essentially completely wiping out public shareholders. Worldcom and Enron are other similar examples. It's also quite easy for investors to play with options in the public market and rapidly lose everything. All it takes is filling out one form.
shockzzz 12y ago
What he seems to be implying is that there are investment funds that exist solely for private equity investments, i.e. investments in startups as "VC" money. If that's true, and it's true that stuff like pension funds are sinking money into these "Equity Crowd Funds," then we're in real big trouble.
- adventured 12y ago
  Pensions have been getting destroyed on private equity investments for as long as pension funds have existed. Most venture capital funds return between almost nothing and nothing. Most venture capital companies are horrendous stewards of institutional money. You can look up the available data, it's ugly for everything outside the best of the best. I fail to see how it's worse to take a 97% loss on the bottom 3/4+ of VC firms, as opposed to taking the same total loss on a spread of crowd equity funding investments.
- dogma1138 12y ago
  It's not only pensions, it's insurers and worse underwriters, universities, local governments, non-profit organizations and more. The amount of actual "private equity" in most VC's is minimal to non-existent, people with those amounts of money have much better investments options and more importantly they know better.
  - avn2109 12y ago
    Genuine question, what are those "much better investment options?" I have long suspected that super rich people are doing different things with their money than I am, but I have never figured out exactly what.
    - rlucas 12y ago
      There are two true answers here. 1. Very large investors actually don't do anything different. The best game in town is the efficient frontier (modern portfolio theory; essentially, spread the bets around so some zig while others zag). Once you have more than $10 M or so, it becomes worthwhile to start optimizing at the margins; there are things that can be done with tax efficiency that have tiny but real gains, and there are things like exploiting the short rebate and negotiating for special concessions. But as a passive, financially-oriented investor, you're basically playing the diversification game. 2. That said, very large investors almost all get to be that way not by the diversification game, but by the concentration game. Think about the wealth generation period of any industrial fortune: it comes from highly concentrated equity holdings in a corporation undergoing a massive change in valuation (archetypally, profitable growth, although many an investor has done well by changing the valuation through other means, see ESL and K-Mart). So. The way a person gets super rich is by doing something very different than what you are (should be) doing. And so while they are in that period, their portfolio looks very different. But once they are super rich, if they go to the world's best advisors, they are likely going to get something that looks like a well-diversified asset allocation according to modern portfolio theory.
TheMagicHorsey 12y ago
Exactly. Dude has some sort of axe to grind. The situation could get bad ... yes ... but not for the reasons he explains. These Angels aren't going to bring down the economy when they lose their bets. When the market crashed after the dotcom boom regular people lost significant parts of their savings, and that contracted demand across the economy. The only part of the economy that contracts in the Cuban scenario is the market for Yachts and Teslas (exaggerating, but you get the point). The only way it spreads is if there are other macro factors that we haven't been told about by Cuban (because he doesn't know or understand them).
DINKDINK 12y ago
>what do they lose? Simply their bets. They will definitely lose their bets but it would be excessively simplistic to assume that if a bunch of VC's bust, their bust will not affect the market (stock market, etc) in any way.
dogma1138 12y ago
VC's are not risking their money they are risking yours. VC's get money from your insurer, pension provider, 401K and similar saving options. While you might invest and gamble with your own money, VC's are literally gambling with everyone's future. And these days the regulations limiting insurance companies and private pension providers in investing their money in a VC or other types of risky capital are looser than ever. While I won't to pretend to understand the details behind the article, but just looking at the many "startups" without a clear business plan, revenue stream not to mention profits which are valued in billions of dollars all of a sudden should make everyone's eyebrows rise if just a little. 10-15 years ago if you made an exit in 100's of millions it would be a worldwide sensation, these days it seems you sneeze and get 100M in funding and the WSJ posts an article about your company being valued higher than the GDP of some developing nations. I remember when in the mid 90's Checkpoint got like 70M $ in it's NASDAQ IPO which was then a sensation which was talked about for year, these days that's considered a cold round 2 funding run for the next sexting app. Even with "inflation" and all that other nonsense the fact that since 2006-2007 you could probably count at least 40 US techstartups which got valued for over 1bln should hint a that something stinks. Heck evernote which their current business model seems to be more focused around selling 70$ socks and 200$ messenger bags instead of you know their own actual techonlogy is valued these days at what 4-5bln, really? A company with 18M in yearly revenues after almost 8 years with no real assets to speak off, with a user base smaller than even marginally popular online games with almost no profit that hasn't even returned it's initial investment runs is valued at 300 times their pre-tax income?
- sixQuarks 12y ago
  Pension funds and similar investment vehicles put a tiny percentage of their money into VC funds. Those losses shouldn't affect the individuals much.
  - dogma1138 12y ago
    http://www.bloomberg.com/bw/articles/2014-09-23/are-public-pensions-inflating-a-venture-capital-bubble http://www.bloomberg.com/bw/articles/2014-09-23/are-public-p... Insurance companies and pension funds make up 50% and upwards of an average VC. The rest of the money also comes from sources which directly affect you such as local government, banks, and other "public" institutions. "Rich individuals" on the other hand do make up only a fraction of the VC source funding with less than 2% on average. And while it's true that it doesn't represent the portion of the money a pension fund has invested in a specific VC. If you look at the breakout of your pension fund you'll find just how ridiculously high that percentage actually is. And BTW an insurance company or a pension fund that gets hit with even 5-10% loss means that tons of people lose coverage, premiums sky rocket and you end up losing more money that you could invest yourself otherwise.

adventured 12y ago

Yep, Cuban glosses over that obvious detail when it comes to median net worth individuals ($50k - $100k). Like when ordinary people invest into the stock market, and buy a company like Adept Technologies (ADEP) that goes from $21 to $6 in ten months (ADEP has been publicly traded for 20 years). Or buy into a company like Dendreon (DNDN) which goes from $40 / share and a ~$10 billion market cap, to literally worthless in 36 months. A person with $1,000 can easily lose all of it in the public markets. There's nothing stopping them from drowning in their own ignorance.

bluedevil2k 12y ago
Someone in the public market could lose a lot, but they also have the option to sell at any time, preventing losses. Private markets with no liquidity will simply cause total loss, as selling is not even an option.
- adventured 12y ago
  Being able to sell at any time is of course understood, and that in no way prevents the kind of ignorance that leads to total losses in the public market. Investors often ride investments down, telling themselves in a delusional fashion that their investment will turn around if they just hold out. This occurred rampantly during the collapse of the Nasdaq in 2000/01. Or companies like Bear Stearns or Lehman, that vaporized in a matter of weeks (Bear went from like $60 to $2 in two trading days), essentially completely wiping out public shareholders. Worldcom and Enron are other similar examples. It's also quite easy for investors to play with options in the public market and rapidly lose everything. All it takes is filling out one form.

shockzzz 12y ago

What he seems to be implying is that there are investment funds that exist solely for private equity investments, i.e. investments in startups as "VC" money. If that's true, and it's true that stuff like pension funds are sinking money into these "Equity Crowd Funds," then we're in real big trouble.

adventured 12y ago
Pensions have been getting destroyed on private equity investments for as long as pension funds have existed. Most venture capital funds return between almost nothing and nothing. Most venture capital companies are horrendous stewards of institutional money. You can look up the available data, it's ugly for everything outside the best of the best. I fail to see how it's worse to take a 97% loss on the bottom 3/4+ of VC firms, as opposed to taking the same total loss on a spread of crowd equity funding investments.
dogma1138 12y ago
It's not only pensions, it's insurers and worse underwriters, universities, local governments, non-profit organizations and more. The amount of actual "private equity" in most VC's is minimal to non-existent, people with those amounts of money have much better investments options and more importantly they know better.
- avn2109 12y ago
  Genuine question, what are those "much better investment options?" I have long suspected that super rich people are doing different things with their money than I am, but I have never figured out exactly what.
  - rlucas 12y ago
    There are two true answers here. 1. Very large investors actually don't do anything different. The best game in town is the efficient frontier (modern portfolio theory; essentially, spread the bets around so some zig while others zag). Once you have more than $10 M or so, it becomes worthwhile to start optimizing at the margins; there are things that can be done with tax efficiency that have tiny but real gains, and there are things like exploiting the short rebate and negotiating for special concessions. But as a passive, financially-oriented investor, you're basically playing the diversification game. 2. That said, very large investors almost all get to be that way not by the diversification game, but by the concentration game. Think about the wealth generation period of any industrial fortune: it comes from highly concentrated equity holdings in a corporation undergoing a massive change in valuation (archetypally, profitable growth, although many an investor has done well by changing the valuation through other means, see ESL and K-Mart). So. The way a person gets super rich is by doing something very different than what you are (should be) doing. And so while they are in that period, their portfolio looks very different. But once they are super rich, if they go to the world's best advisors, they are likely going to get something that looks like a well-diversified asset allocation according to modern portfolio theory.

TheMagicHorsey 12y ago

Exactly. Dude has some sort of axe to grind. The situation could get bad ... yes ... but not for the reasons he explains. These Angels aren't going to bring down the economy when they lose their bets. When the market crashed after the dotcom boom regular people lost significant parts of their savings, and that contracted demand across the economy. The only part of the economy that contracts in the Cuban scenario is the market for Yachts and Teslas (exaggerating, but you get the point). The only way it spreads is if there are other macro factors that we haven't been told about by Cuban (because he doesn't know or understand them).

DINKDINK 12y ago

>what do they lose? Simply their bets. They will definitely lose their bets but it would be excessively simplistic to assume that if a bunch of VC's bust, their bust will not affect the market (stock market, etc) in any way.

dogma1138 12y ago

VC's are not risking their money they are risking yours. VC's get money from your insurer, pension provider, 401K and similar saving options. While you might invest and gamble with your own money, VC's are literally gambling with everyone's future. And these days the regulations limiting insurance companies and private pension providers in investing their money in a VC or other types of risky capital are looser than ever. While I won't to pretend to understand the details behind the article, but just looking at the many "startups" without a clear business plan, revenue stream not to mention profits which are valued in billions of dollars all of a sudden should make everyone's eyebrows rise if just a little. 10-15 years ago if you made an exit in 100's of millions it would be a worldwide sensation, these days it seems you sneeze and get 100M in funding and the WSJ posts an article about your company being valued higher than the GDP of some developing nations. I remember when in the mid 90's Checkpoint got like 70M $ in it's NASDAQ IPO which was then a sensation which was talked about for year, these days that's considered a cold round 2 funding run for the next sexting app. Even with "inflation" and all that other nonsense the fact that since 2006-2007 you could probably count at least 40 US techstartups which got valued for over 1bln should hint a that something stinks. Heck evernote which their current business model seems to be more focused around selling 70$ socks and 200$ messenger bags instead of you know their own actual techonlogy is valued these days at what 4-5bln, really? A company with 18M in yearly revenues after almost 8 years with no real assets to speak off, with a user base smaller than even marginally popular online games with almost no profit that hasn't even returned it's initial investment runs is valued at 300 times their pre-tax income?

sixQuarks 12y ago
Pension funds and similar investment vehicles put a tiny percentage of their money into VC funds. Those losses shouldn't affect the individuals much.
- dogma1138 12y ago
  http://www.bloomberg.com/bw/articles/2014-09-23/are-public-pensions-inflating-a-venture-capital-bubble http://www.bloomberg.com/bw/articles/2014-09-23/are-public-p... Insurance companies and pension funds make up 50% and upwards of an average VC. The rest of the money also comes from sources which directly affect you such as local government, banks, and other "public" institutions. "Rich individuals" on the other hand do make up only a fraction of the VC source funding with less than 2% on average. And while it's true that it doesn't represent the portion of the money a pension fund has invested in a specific VC. If you look at the breakout of your pension fund you'll find just how ridiculously high that percentage actually is. And BTW an insurance company or a pension fund that gets hit with even 5-10% loss means that tons of people lose coverage, premiums sky rocket and you end up losing more money that you could invest yourself otherwise.