We received several letters from readers concerning our interview with billionaire Mark Cuban (Summer 2003, p.2). Some readers questioned his warnings about the dangers of investing in the stock market. We printed one such letter below along with Cuban’s response and our own opinion regarding the topic.
Dear YOUNG MONEY:
I was flabbergasted by Mark Cuban’s comments about investing in the stock market in your Summer 2003 issue (“The stock market is probably the worst investment out there”.) Does he really believe that, or was he just suggesting we should beware of stockbrokers (as opposed to the market itself)? If I follow Mr. Cuban’s advice to put my money in the bank, wouldn’t inflation eat away at my savings? Didn’t Mr. Cuban make his riches in the stock market? Didn’t Warren Buffett do the same (albeit with a different approach)?
I thought the stock market was the best long-term investing vehicle available and that young people have an advantage as investors if they start early because they have more time for their investments to grow than someone who starts later in life. What gives? I, for one, would like some clarification from Mr. Cuban and would also be interested in YOUNG MONEY’s position on these questions.
Best regards and keep up the good work.
Warren Buffett never buys 100 shares of a stock and just holds it. He,
like myself, buys shares of stock to get some level of control of the
company. That’s far different than buying a stock and PRAYING that the stock goes up.
If you have the resources to take control of a company, and you think it’s a great investment, do it. If you want to try to guess on some companies, buy their stock, and hope it goes up, you might as well go to Vegas, because you have no advantage at all.
Remember this little tidbit. Whenever you make a business deal, and that includes buying stock, always look for the fool… If you can’t find the fool… It’s you.
Interest rates are low right now, and that’s frustrating, but cash doesn’t lose 40 percent of its value in a year, stocks can.
YOUNG MONEY’S RESPONSE:
YOUNG MONEY simply feels that the stock market as a whole offers today’s young investors a solid place to begin saving and investing for the future. The stock market, on average, has provided long-term investors with an average annual return of 8-9 percent even during many “bear” or down market years.
As with any investment, investors should take their time in deciding how they want to participate in the stock market. Do I start with a mutual fund? A single stock? Several stocks? What is my risk tolerance? How long is my investment horizon? Am I saving and investing for a house, new business start-up, a car or for my retirement?
In many ways, the stock market’s downturn in the beginning of 2000 through 2002 was a tremendous lesson for today’s young investors. Many people invested in companies with no real earnings or sales and simply jumped on hot stock bandwagons. That was not smart investing. That was gambling.