Mark Cuban is one of the most high-profile billionaire investors in America, thanks to his being featured on Shark Tank. Before the show, however, he had a very successful career as an entrepreneur, businessman, and, yes, investor. It can be a smart idea for investors to learn from those who have been very successful, so here are five quotes by Cuban that all investors can take lessons from.
To be clear, Cuban wasn't necessarily referring to investing in these quotes. Some were intended as lessons to entrepreneurs who were starting their own businesses. However, there are a lot of parallels between running a business and investing in other people's businesses, so the same wisdom applies in many cases.
1. One thing we can all control is effort. Put in the time to become an expert in whatever you're doing. It will give you an advantage because most people don't do this.
If you're going to invest, take the time to do it right. If you don't take the time to learn how to properly evaluate stocks, diversify your portfolio, and take on an appropriate level of risk, you probably shouldn't be buying individual stocks. Warren Buffett famously said that the average person should just put their money in a passive S&P 500 index fund for precisely this reason -- because most people don't take the time to choose their own stocks wisely.
2. Don't let fear be a roadblock.
By nature, investing is an emotional game. Investors who learn to control their emotional responses and think objectively are destined to outperform those who don't. A study by Dalbar found that the average equity mutual fund investor achieved annualized returns of just 3.7% over the 30-year period ending Dec. 31, 2015, despite the S&P 500 index rising by 10.4% annually, on average, during the same period.
Why is this? Simply put, emotions lead investors to do the exact opposite of what they should. When stocks are going up and up, they see everyone else making money, get greedy, and buy when things are expensive. Conversely, when markets crash, emotional investors let fear take over, then panic and sell at the lows. It's no secret that the point of investing is to buy low and sell high, but fear can make this a difficult task.
3. Creating opportunities means looking where others are not.
Just because a stock isn't popular doesn't mean you should ignore it. Some of the best investments I've ever made were in stocks that most investors have never heard of. Don't be afraid to venture into some well-researched small-cap stocks. After all, Amazon.com and Netflix were both, at one time, small stocks nobody was paying much attention to. If you want to find the Amazons and Netflixes of tomorrow, you're going to have to work to find them.
4. My dad says it over and over, "Today's the youngest you're ever going to be. You've got to live like it. You've got to live young every day." And that's what I try to do.
Time is your best friend as an investor, so be sure you're taking advantage of it. Stocks can be extremely volatile investments at times, but if you're young, you have decades to ride out the ups and downs of the market. It makes my blood boil every time a friend tells me that they save 30% of what they make -- and then stick it in CDs or a savings account.
One of the best moves you can make is to familiarize yourself with the basics of asset allocation and invest your money accordingly. You don't want to take on too much risk, but an age-appropriate level of risk is necessary if you want your portfolio to realize its true long-term growth potential.
5. It's not about money or connections -- it's the willingness to outwork and outlearn everyone... And if it fails, you learn from what happened and do a better job next time.
To be fair, Cuban was talking about nepotism when he said this. However, it contains a powerful message for investors: Always learn from your failures. No investor is right 100% of the time, but the most successful ones learn from their errors.
I consider myself a solid investor, but I've certainly made my share of mistakes. One in particular that I learned a lot from was simultaneously one of my best and worst investments. Shortly after its IPO, I picked up shares of Tesla for around $30. A year or so later, Motor Trend magazine named the just-released Model S as its "Car of the Year" and the stock quickly shot up. When it broke $70 for the first time, I sold my shares, thinking I made a great decision. Tesla trades for about $340 as I write this.
The lesson I learned: If the original reasons for buying a stock still apply, stay in the game for the long haul. Other than the fact that the price had doubled, there was no good reason to sell. Fast-forward to 2017, my Square stock has now doubled since I bought it -- and I have no plans to sell, thanks to my eye-opening Tesla experience.