In addition to owning the Dallas Mavericks and his long-standing appearance on “Shark Tank,” Mark Cuban has amassed a fortune through savvy investments.
For You: I Followed Mark Cuban’s Genius Advice and Am on Track To Become a Millionaire
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So how can you follow suit and invest like Cuban?
First and foremost, you want to avoid the following bad investments, per one of the most famous venture capitalists in the world.
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1. Businesses That Are Easy To Copy
Cuban looks for businesses with unique competitive advantages that can’t easily be replicated, as The Motley Fool reported. That could mean companies with patented or proprietary technology, unique expertise, geographical location or anything else that keeps competitors from swooping in and stealing market share.
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2. Businesses With Huge Capital Needs
Cuban tries to avoid businesses with huge startup capital requirements.
Businesses typically fail because they run out of money. If a business needs enormous capital investments to start selling products or services, it comes with equally high risk of running out of money before reaching profitability.
That prudence occasionally means Cuban misses out on a big winner. In 2013, he declined an opportunity to invest in Doorbot — which later rebranded as Ring and sold to Amazon for over $1 billion. In a LinkedIn comment referenced by The Motley Fool, Cuban said he would make the same decision again.
Having a grounded process for decision making doesn’t mean that you can predict the future. It means you make better decisions with the information you have at the time.
3. Businesses With Large Debts
Despite taking risks in some areas of his investments, Cuban remains wary of debt.
“In my businesses, once we got started, we had no debt,” Cuban said in an interview with Money magazine. “I learned very quickly that debt was not my friend.”
Remember, businesses go under because they run out of money. Heavy debt payments make it harder to reach positive cash flow and can drag down businesses trying to get off the ground.
4. Expensive Investments
Cuban cautions investors to avoid high-fee mutual funds, hedge funds and other investment vehicles that take a huge bite out of your returns with their management fees.
In the interview with Money, he said, “Saving money and putting some into a low-cost mutual fund — like an SPX fund — and living as inexpensively as you possibly can, will pay off dividends … If you can find a way to invest inexpensively in the market, you can start to build your net worth.”
By SPX, Cuban means an index fund that simply mirrors the S&P 500.
5. Investments You Don’t Understand
If you don’t understand an investment, you’re gambling, not investing.
Cuban wrote in a now-famous Blog Maverick post from 2010, when the economy was still recovering from the Great Recession, that “If you don’t fully understand the risks of an investment you are contemplating, it’s ok to do nothing. In times of massive uncertainty like we are facing today, doing nothing is a valid and IMHO preferable investment strategy. Just put money in the bank”
In the same brief post, he also reiterated his disdain for debt and advised consumers to pay off their personal debts. “If you have any credit card or other type of consumer debt on which you pay 5% or more interest, pay it off. Compound interest is your enemy.”
6. High-Risk Investments
Mark Cuban doesn’t shy away from risk. But like many wealthy investors, he takes calculated risks.
“If you’re a true adventurer and you really want to throw the Hail Mary, you might take 10% and put it in bitcoin or ethereum, but if you do that, you’ve got to pretend you’ve already lost your money,” Cuban said in an interview with Vanity Fair. “It’s like collecting art, it’s like collecting baseball cards, it’s like collecting shoes — something’s worth what somebody else would pay for it. It’s a flyer, but I’d limit it to 10%” (of your portfolio).
Learn to manage risk, not avoid it entirely or leap into it without looking.
Final Thoughts
Most highly successful people never stop learning, and Mark Cuban is no exception.
“I used to love to walk through bookstores, when there were bookstores everywhere,” said Cuban in the Vanity Fair interview. “If there’s something that caught my eye and I thought it could give me one idea, to spend $30 to get one idea that could help propel me, make my businesses better, it was a bargain.”
Leaders are readers. They’re endlessly curious about the world around them and their place within it. If you want to achieve financial success, double down on your personal growth and ongoing education.
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This article originally appeared on GOBankingRates.com: Mark Cuban: 6 Terrible Ways To Invest Your Money
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