Economic Warning: Cuban Update

Today I managed to annoy two billionaires. It wasn’t my intention, it just happened. The first, we’ll save for a future discussion. The second was Mark Cuban.

In this morning’s discussion of sentiment (Celebs’ & Billionaires’ Economic Warnings ?) after dissecting the surprise economic warning from Tony Robbins, I also mentioned Mark Cuban’s “Put your money in a bank” comments.

Mark responded in a comment. He raises valid points I wanted to address, then clarify what I wrote, and respond to his challenge.

First, in the link provided, Cuban published his intro to the book The Number (The Stock Market, Apr 13th 2004).  I am not exaggerating when I say his introduction is marvelous, a devilishly accurate synopsis of the seamy underside of Wall Street. It portrays investing turned into short-term sport, having nothing to do with the fundamentals whatsoever. It is all the more powerful, given his personal experience as a founder of a company that went public, was taken over, etc. There is almost nothing in to I disagree with, other than noting “Ponzi scheme” is the wrong phrase — the “Greater Fool” theorem is more apt. Note that this 2004 discussion is not investment advice, but instead is a warning as to how corrupt the street is.

I can say the same thing about “My Investment advice for 2006” (Jan 2nd 2006). It is not investment advice at all, by rather, is a diatribe against a morally bankrupt Wall Street. We could even call it “anti-investment” advice. Again, I find my self disagreeing with none of it. He raises issues of corruption, under-performance, of self-dealing and of over-compensation. (I cover these in Bailout Nation).  The same can be said for “The Stock Market is for suckers” (Jan 3rd 2006). It is an extended argument against the ways of Wall Street; if you read it, you will find yourself hard pressed to disagree with any of it.

But it is not investment advice.

What I wrote this morning was about sentiment. When high profile people make broad economic or market proclamations, it is note worthy. When they “fall into the category of recession-porn,” that is worth considering too.

What I should have written this morning was the role of Bloomberg in picking up Cuban’s post. In fact, I should have emphasized it. THAT was what made this part of the zeitgeist. Missing that means I was painting with far too overbroad a brush.

I would suggest that Cuban has been remarkably consistent: He has (correctly, in my view) identified structural flaws in the stock market. He has noted repeatedly how the odds are stacked against individual investors, that it’s a sucker’s game. He has repeated that view over time.

This makes his “Put your cash in the bank” not news at all. He has repeated it over time. Hence, any media focus on yet more recession porn, more than what Mark had to say, is what makes this significant.

Beyond the media angle, there is one last issue: It is not my respect for Cuban the entrepreneur, or his execution as a CEO in selling Broadcast.com stock to Yahoo (suckers!), or his acumen as an investor collaring the YHOO shares near their highs. I love what he does running the Mavericks, and running HD Net.

My issue for Mark is:  “What is your edge today looking at markets or the economy?”

Consider Mark’s comments from January 2006:

“If you are going to trade stocks, you just have to follow one rule and remember one thing. That rule is always have a definite knowledge advantage about the company you are trading, and always remember that every stock transaction has a sucker, and you have to know whether its you or the person on the other side of the trade. No one buys a stock from your, or sells one to you knowing they are leaving money on the table.

The bottom line is that unless you plan on making it a full time job to do your research and put yourself in a position to have an advantage, you are going to get your ass kicked at some point by someone who does.”

Hence, this is precisely my point about sentiment: Does Cuban (or Robbins for that matter) have any special insight right now? Was their proclamation the result of this edge? Or was it merely repeating the dominant economic/sentiment meme of the moment?

Which brings me back to my original point: How much of what we hear today is late cycle momentum calls  and/or The Recency Effect? And how much is genuine informed insight?

What’s your edge?