The Most Certain Way to Wealth in Our Uncertain World?

As part of this month's series exploring the state of long-term buy and hold, we reached out to business mogul and NBA team owner Mark Cuban, who sold his Broadcast.com to Yahoo! (Nasdaq: YHOO  ) in the late 1990s for nearly $6 billion. Living up to his reputation as a maverick, he had some outspoken, provocative opinions. We then asked John Bogle, founder of Vanguard and creator of the Vanguard 500 (FUND: VFINX  ) fund, for his thoughts on Mr. Cuban's remarks.

We enjoyed the banter and hope you do as well. Let us know what you think by commenting below -- especially if you're Mark Cuban with a rebuttal for Mr. Bogle!

Mark Cuban: Buy and hold is long dead. It has always been a sucker's bet.

Proponents point to charts of index performance over the long term; unfortunately, things like house repairs, kids, and college tuition don't follow the same chart.

Buy and hold is a great marketing slogan for funds that want to take your money. Nothing more or less.

John Bogle: Cuban embargo ... is what we need after those silly statements.

Of course buy and hold is a sucker's bet where individual stocks are concerned (just ask the guys that bought and held Mark's own company!)

And while buy and hold for all of American business (a stock index fund) may produce long years of plenty interrupted by years of famine, putting equity capital to work in that way will be great so long as America is great.

And as a group, all investors, by definition, are buy and hold investors! Not complicated! And mathematically, those who themselves are buy and holders (without costs) will -- not might -- outperform those who trade back and forth with one another, who capture the same market return but let all those croupier costs destroy their returns.

Finally, if buy and hold refers not to stocks or the stock portfolio but to one's aggregate investment portfolio, reducing the stock commitment as age takes its toll, it is the most certain way to wealth that exists in our uncertain world.

He's right about the marketing slogan -- except when it is applied to the strategy described in the immediately preceding paragraph.

For more on the buy-and-hold debate:

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Read/Post Comments (17) | Recommend This Article (47)

Comments from our Foolish Readers

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  • Report this Comment On June 19, 2009, at 12:20 PM, Mark6Christopher wrote:

    There are two business people I enjoy reading about and would consider a mentor, John Bogle is not one of them, Mark Cuban is. And for the record, the second is Herb Kelleher. Not necessarily in that order.

  • Report this Comment On June 19, 2009, at 4:48 PM, marhu wrote:

    Right, a mutual fund manager can't be expected to be objective about one of the foundational tenets of mutual funds.

    Consider this: a 401K gives you a choice between a handful of mutual funds. Ask yourself who is guaranteed to make money in this scenario. Answer: the mutual find managers "croupier fees." Ask also who is "accountable" for the success or failure of your investment. Answer: you.

    Contrast with the pension fund manager of yesteryear who had the entire universe of investment vehicles at his disposal. And had to face his fellow employees in the halls and current retirees at querterly meetings.

  • Report this Comment On June 19, 2009, at 5:51 PM, caballote77 wrote:

    Excellent point marhu!

  • Report this Comment On June 19, 2009, at 8:18 PM, themangler wrote:

    I have learnt this second time around, that anyone who puts there hard owned money into the stock market will lose most of it. While you may think you are investing, there are guys out there who have as the the purpose in life to enrich themselves at whatever it takes. You will be going about your life, while the execs of the merrill lynchs of the world will be nonstop schemeing to get themselves yet another 100 million, and this will be at your expense. Do not buy stocks, American capitalism means only that the guys at the merrill lynchs of the world will get rich but the ordinary guy will suffer.

  • Report this Comment On June 19, 2009, at 8:30 PM, bigcat1969 wrote:

    The kicker is always timing. If you put your money in after a big recession / depression and ride to the next peak you will do quite well. If you put your money in on the peak, you will get crushed. My grandma did very well on the market as she passed away right before the crash and was kind enough to leave the money she and my step-grandfather had earned to her children and grandchildren, so I saw the results. They had invested in safe areas that grew across across the years and let the investment grow. While they were not rich, saving regularly and investing using a buy and hold strategy worked very well.

    After we see a bottom, buy and hold may work again either because inflation buoys the market or for more traditional reasons if America can again become profitable. Just because buy and hold hasn't been a good idea recently doesn't mean it never will be a good idea again.

  • Report this Comment On June 19, 2009, at 8:46 PM, dfrndez wrote:

    Mark Cuban is the furthest thing from an authority on this subject. Buy and Hold is dead? Does that mean the American economy is dead and destined to implode? I just love Cuban's rationale 'things like house repairs, kids, and college tuition don't follow the same chart'

    What does that even mean? If inflation increased by nearly 10 percent annually over the course of 3/4 of a century then that would be a problem...I'm glad they don't follow the same chart..

    Frankly - his opinion is senseless.

  • Report this Comment On June 19, 2009, at 9:02 PM, TimothyVR wrote:

    I learned a lot from the Bogle interview but nothing at all from Cuban. A sucker's bet? Meaning what? What about holding solid stocks that pay dividends? Also a sucker's bet? Then there are a lot of suckers out there who have made a great deal of money that way.

    Disappointing.

  • Report this Comment On June 20, 2009, at 12:53 AM, wolfman225 wrote:

    Do not buy stocks, American capitalism means only that the guys at the merrill lynchs of the world will get rich but the ordinary guy will suffer.

    -----------------------------

    Really, mangler? If that's how you feel about individual investors' chances, why are you even hanging out on the message boards at a site DEDICATED TO THE SUCCESS OF THE INDIVIDUAL (LITTLE GUY) INVESTORS? I believe buy/hold is still the way to go, as long as you keep on top of your investments, value them accurately, and sell when they either stop performing or have reached your target for profit-taking.

    I will guarantee one thing, though. As long as you hold that attitude, you will have a self-fulfilling prophecy. You will be broke and dependent on government, but you can always console yourself that you were right. The rest of us were just lucky.

  • Report this Comment On June 20, 2009, at 2:19 AM, SunTzuAdvisor wrote:

    John Bogle was right on one thing. In the Wall Street Journal he talked about the transition from Moral Absolutism "I would never do that" to Moral Relatavism- "Well if everybody else is doing it why don't we." After a decades long career as a financial advisor I severed my contract with my broker/dealer and walked away from my equity because of willful misconduct. This particular brokerage house had become arrogant. They believed they were above the law. They were untouchable. However I will not lower my moral obligations to my clients. I will not deliver a "Mary Had a Little Lamb" 2 page template and call it financial planning. The financial services business has lost its way because it has a broken compass. I will not follow it down the primrose path to destruction and the ruination of millions of lives.

  • Report this Comment On June 20, 2009, at 2:36 AM, neilsamtani wrote:

    Is this a joke? How can we even be taking Cubans comments seriously? The man - entertaining as he is - is in no way a competent financial analyst. He was fortunate to be in the right place at the right time, and has milked it for all its worth.

    Furthermore, Bogle will of course have a slightly biased opinion, but let's not forget that the Vanguard organization provides full ownership with minimal costs! As the reader I would ignore this. Buy and hold is no more dead than equities back in the 70s were dead. Just persevere - assuming the reader has done the due diligence before buying a company and not simply speculating on prices we'll be looking back and laughing at this discussion one day (I hope!).

  • Report this Comment On June 20, 2009, at 8:01 AM, none0such wrote:

    @Mark6Christopher aka Mark Cuban,

    So you consider yourself your own mentor? Congratulations, that's about the most accurate statement about your character I've ever seen printed: a protégé of your recursive, egomaniacal self-interests.

  • Report this Comment On June 20, 2009, at 4:25 PM, dragonmonkey wrote:

    Just buy gold - have a look at this comparison between the Nasdaq of the 90s and gold in the 2000s.

    --------------------------------

    So...you're saying gold is near the peak of a large bubble like Nasdaq was? And we should buy now? There may be some limited short-term upside remaining, but your arguement is specious. The chart reads more like a warning sign to sell now before the bubble bursts. Based on your analogy to Nasdaq, gold prices would be below 700 in 2 years.

  • Report this Comment On June 20, 2009, at 5:10 PM, Akboogie wrote:

    Please! Mark Cuban name shouldn't even be mentioned in the same sentence as Jack Bogle!

    How about those Mavs?

    Jason Kidd for Devin Harris that's is all I need to say! Check the stats

  • Report this Comment On June 20, 2009, at 11:54 PM, carlkiefer wrote:

    I never thought I would find myself agreeing with Mark Cuban, but today seems to be that day. A concept first, however. Mr. Cuban owned and "controlled" a business in the same way that Warren E. Buffett controls the cash flows of businesses whenever he can, otherwise, he is often a "trader" based upon IV. Nothing is more important than that for being in charge of one's own destiny versus exposing oneself to the vagaries of "Mr. Market," truly, a criminal in his core being, i.e., "Stock Shock." Mr. Bogle astutely points to the investors who held onto to Mr. Cuban's six billion dollar exit strategy. A strategy in hindsight which was ingenious considering discounted NPV along with the shambles those investors including Mr. Cuban's net worth would be finding themselves in today, if they were silly enough to not have sold during previous bubble conditions. As far as indexing between stocks and bonds relative to age percentages, it's another form of Deworsification, but probably the best course of action for non sophisticated investors over time. Good luck to Mr. Cuban on his insider trading case, a problem that a man of his wealth, privilege and power has no business experiencing considering the small amount of losses which may have been incurred on his behalf assuming he "held." Thanks for posting my opinion!

  • Report this Comment On June 22, 2009, at 6:03 AM, Chromantix wrote:

    "Buy and hold is a great marketing slogan for funds that want to take your money. Nothing more or less."

    I thought the beauty of "buy and hold" is that you don't need funds or fund managers... you "buy" the shares "and hold" them until you feel like selling.

    Obviously I'm doing something wrong...

  • Report this Comment On June 22, 2009, at 8:33 AM, money4eds wrote:

    Buy and Hold. Simple way to make money. The transaction cost are lower and that is a way to make more money. The little ups and downs also give you the chance to dollar cost average in at a lower price.

    Buy and Hold, not buy and forget. Investments require research. When the stock no longer meets your investment objectives it is time to sell.

  • Report this Comment On June 23, 2009, at 11:50 AM, TMFBrich wrote:

    Mr. Cuban kept the debate going by posting a reply on his blog, BlogMaverick:

    http://blogmaverick.com/2009/06/19/2-quick-hits-on-sports-me...

    Cheers,

    Brian

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