Author: Matthew Frankel | April 27, 2018
Lessons from a billionaire
Billionaire, Shark Tank star, and Dallas Mavericks owner Mark Cuban is one of the more outspoken American success stories of recent history. He’s also very willing to share his suggestions for success (and failure) in business, investing, and life in general.
With that in mind, here are seven excellent lessons investors and entrepreneurs can learn from Mark Cuban.
1. Take the time to do things right
Mark Cuban once said “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.”
I’ve used this quote to apply to investing. I often say that investing in individual stocks is only appropriate for people who have the time, knowledge, and desire to do it right. If those things don’t apply, you’re probably better off investing in mutual funds or ETFs.
However, this quote is also great advice for virtually any situation. Too many people decide to jump into new ventures without bothering to do their homework. The bottom line: Don’t underestimate the value of good preparation.
2. Don't be afraid to fail
On the Mark Cuban Companies webpage, there’s a quote from Cuban that reads “It doesn’t matter how many times you fail. You only have to be right once and then everyone can tell you that you are an overnight success.”
It’s often reported that Cuban sold his first business, MicroSolutions, for $6 million, and it’s true. Before that, however, Cuban was fired from his job as a salesperson at Your Business Software. If Cuban had let this discourage him, his life could have gone much differently.
3. The best investment you can make
In an interview with MarketWatch, Cuban shared the best investment he believes anyone can make -- paying off high-interest debt, especially credit cards.
“Whatever interest rate you have -- it might be a student loan with a 7% interest rate -- if you pay off that loan, you’re making 7%,” Cuban said. “That’s your immediate return, which is a lot safer than trying to pick a stock or trying to pick real estate, or whatever it may be.”
It’s tough to argue with that logic, especially if you’re talking about credit card debt at interest rates of 15%, 20%, or even more. In fact, abusing his own credit cards in his 20s was the hardest money lesson Cuban has learned in his life.
4. Know when to get out
It’s tough to argue that Cuban’s 1999 sale of Broadcast.com to Yahoo! for $5.9 billion in stock was anything less than perfect timing.
While most people reading this won’t ever be in control of a billion-dollar company, this applies to stock investing as well.
To be clear, it’s generally a bad idea to sell a stock just because its price went up. If your original investment thesis still applies, and the valuation still makes sense, hang on for the long haul. However, if a particular investment, or type of investment, is starting to look like a bubble (much like dot-com companies did in 1999), it could be a smart time to take your profits and run.
5. Diversification is extremely important
It’s important to maintain a diverse investment portfolio, whether you’ve just come into billions of dollars as Mark Cuban did in 1999 or you’re starting with a few hundred dollars.
When Cuban and his partners sold Broadcast.com in 1999, they didn’t get billions in cash -- it was all in the form of Yahoo stock. Instead of holding virtually all of his wealth in one company’s stock, he did a great job of diversifying his investments. Cuban spent $20 million hedging his Yahoo stock with synthetic indexes, and shortly thereafter acquired assets such as the Dallas Mavericks and Landmark Theatres.
It’s a good thing Cuban did all of that. Yahoo’s stock price dropped by more than 96% from January 2000 through September 2011. To put this in perspective, $1 billion in Yahoo stock would have fallen in value to just over $34 million.
6. Don't set price targets
When asked about how entrepreneurs should think about exit strategies, Cuban replied “They shouldn’t. They should focus on building the best possible business.”
In other words, don’t try to build a mobile app that you can sell for $20 million. Just try to make it the best mobile app it can possibly be, and the financial end will take care of itself.
This can also be applied to investing. As a personal example, I recently wrote that some of my biggest investing mistakes were getting out of stocks that had hit a psychological price target, only to continue to increase in price dramatically. For example, I bought Tesla shortly after its IPO for $23 and sold just shy of $60 a few months later -- roughly one-fifth of its current value.
7. Don't follow the crowd
“When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?” Cuban is quoted as saying.
Whether we’re talking about business, investing, or anything else, it’s a bad habit to simply follow the crowd. On ABC’s Shark Tank, Cuban is generally not willing to invest in a company that isn’t truly different. Other big-time investors agree. In a 2008 letter to Berkshire Hathaway shareholders, Warren Buffett said “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” In other words, don’t worry if your investment decision is a popular one -- just worry about whether it’s a smart move for you.