Team Mark Cuban

Interesting battle between two major bloggers and superstars. Barry Ritholtz compliments Mark Cuban but also points out that Mr. Cuban seems to be contradicting himself unless he has an edge. The original thread is here. I wanted to share my thoughts, and while I am usually on Mr. Ritholtz's side, in this case, he's missed the big picture.

Mr. Cuban has always maintained two overall themes: 1) the stock market has morphed into a casino, far from its original purpose, which was to help entrepreneurs expand their businesses; and 2) financial advisors and Wall Street have so many conflicts of interest, they are inherently dishonest and no longer consider retail investors’ interests. (Quite frankly, both of these themes are 100% correct.)

Mr. Ritholtz's comments seem to hold Mr. Cuban to a strange standard, i.e., If Cuban says the market is rigged and you should be in cash, bonds, or CDs, what exactly is his "edge" in giving this investment advice? The problem is that you don’t need an “edge” to be in cash. For most non-traders, the point of having a cash-centric portfolio is to avoid volatile investments. Mr. Cuban was just pointing out that the average retail investor is usually at a disadvantage in the stock market, meaning s/he should be in cash or another investment that is not subject to the whims of Wall Street bankers.

Thus, criticizing Mr. Cuban for his lack of an investment “edge” seems nonsensical, because he’s not giving investment advice–as Mr. Ritholtz himself admits. Mr. Cuban is just trying to guide people to a savings vehicle that does not require an edge. Now, if someone wanted to criticize Mr. Cuban in non-straw-man fashion, s/he could mention two things:

1) in the absence of 8% money market accounts, bonds and CDs, most of us rely on stock market gains to fund our retirements, because most of us don’t have billions of dollars in the bank; in other words, after a certain financial point, one does not need to subject himself to the whims of Wall Street (I still remember Ted Turner saying that he keeps all his money in Treasuries). However, since most people are not in Mr. Cuban’s financial position, his advice seems questionable in the absence of persistent deflation; and

2) being in cash has been a terrible move over the long run (30+ years) due to inflation, and therefore Mr. Cuban’s advice is not helpful to retail investors who lack billions of dollars for retirement. In short, Mr. Cuban’s 10 year time horizon is too short and conveniently selective, because under Bogle’s, Graham’s and Buffett’s theories, investors should be prepared to hold stocks for 30+ years to smooth out returns.

Perhaps Mr. Ritholtz is trying to start something with Mr. Cuban to get more readers. As an avid fan of both men, I have no problems with his strategy. I also continue to wonder if the average long-term investor is best served by Mr. Cuban's all-cash advice.

Update: Kedrosky interview (6/29/10) with Mark Cuban here:

So that’s when I kind of gave up my widows and orphans approach and started trading stocks and that was the early 90s and it worked out very, very, very well for me. I think I took that $3 million, which is about $2 million after tax, and turned it into about 10x, just having boom years. Which a lot of people did in technology in the 90s and that was just, you know, from probably 1990 to 1995.

Ah, the 90's. Good times.

Mark Cuban and Unpaid Internships

I'm a huge fan of Mark Cuban. If reincarnation exists, I'd like to be reincarnated as him. Mr. Cuban recently blogged about unpaid internships and the maze of regulations involved in creating a legal unpaid intern position. See here. My response is below:

Mark’s HR representative is mostly correct. I handle labor and employment cases in California, and I tell my clients never to hire an [unpaid] intern unless they go through an authorized college program. Overall, as a business owner as well as a plaintiffs' employment lawyer, I see both the pro-business and pro-employee sides of employment issues.

Mr. Cuban and the minimum wage supporters are both correct. Mr. Cuban is correct in stating that potential employees have lost an opportunity because of the law’s expansive liability. The min-wage group is also correct when it contends that unpaid internships favor affluent and middle-class children who can afford to work without pay for some time. One can hold both positions without any contradiction.

Mr. Cuban, however, weakens his argument by refusing to acknowledge that internships favor more affluent kids. It is true that a poor kid from the ghetto could work two or three jobs–something Mr. Cuban did–and use public transportation to get valuable experience, but the overwhelming majority of the participants would not fall into the aforementioned category.

Mr. Cuban contends that it is not impossible for poor kids to participate and benefit from unpaid internships. Again, true, but when the overwhelming majority of unpaid interns are not poor kids or are supported by parents, it should be clear that unpaid internships tend to discriminate against poorer students, adults, and teenagers.

What is the solution? We need to revamp our entire educational system. Most education in America is no better than government-subsidized babysitting. When you compare American high school graduates with high school graduates from India, Pakistan, Iran, Israel, Norway, etc., the differences are stunning. Many international students specialize in a particular area and are familiar with a particular field when they graduate high school or college. American schools, in contrast, refuse to track students, equating “tracking” with stigmatizing. Other countries have no such qualms, which results in a less egalitarian, but more workforce-ready society.

America’s biggest problem (and positive) is its idealism and the idea that all students must be educated through college. Other countries actively weed out under-performers from colleges and even high schools. A more selective educational system will not go over very well in egalitarian-minded America until we realize we are failing our children in an increasingly globalized economy. The Bill and Melinda Gates Foundation is doing some wonderful things with charter schools, but it’s not enough. Teachers’ unions–which represent teachers, i.e., government workers, not children–are very powerful and will resist any educational overhaul.

Ultimately, if you want to blame someone for our unfair economic system, which favors rich kids and penalizes poorer kids, blame the American educational system and the teachers’ unions. An American high school diploma and college degree mean nothing these days. Think about why our degrees and diplomas have become worthless in proving workforce readiness. (Hint: it isn’t because of Mark Cuban.) Think about why employers want to see people work on the job before hiring them as employees. Think about whether an unpaid internship is useful in determining whether an employee and employer may find each other mutually beneficial. Ask yourself, “Does a person’s willingness to work for free indicate dedication and long-term interest?” Also, remember that no one is saying that the intern’s unpaid status should be permanent or long-term–I think Mr. Cuban is saying that an unpaid internship is a short-term “trial” period to determine whether a particular project or worker is capable of generating revenue for both the employee and the employer. In any case, don’t blame Mr. Cuban for trying to find hard workers. He’s just a realist, not a blood-sucking capitalist.

[This post has been slightly modified since its original publication.]

Mark Cuban on the Stock Market

Mark Cuban on the stock market and misaligned incentives:

http://blogmaverick.com/2009/05/06/the-problem-with-the-stock-market

We give far more money to people who play games with financial instruments than we give to people who come up with ideas for the next big thing. That needs to change if we want to remain a leader in this world.

Makes sense, doesn't it?

Mark Cuban is Right about Madoff's Investors

As usual, Mark Cuban makes a fantastic point--this time, about Bernie Madoff and his investors:

http://blogmaverick.com/2009/02/21/was-madoff-a-better-investment-than-your-mutual-fund/

Basically, compared to the average investor, the Madoff investor might end up doing better. In addition, Madoff's investors will be getting tax deductions because of their portfolio "losses." Any way you dice it, Madoff's investors got about the same as the average investor over the last ten years. Yet, no one is trying to bail out the average stock market investor.

I said essentially the same thing here, but Cuban has more stats to support his view.

Barry Diller on Online Advertising

Barry Diller had an interesting interview today in the WSJ.

You really want to get a headache? Try to understand Internet advertising. Social networking advertising is being discounted because there is so much inventory [of available ad spots], and because methods have not yet been found to make it very effective. Will that get figured out? I absolutely believe it will. What form will it take? Absolutely unknown.

Mark Cuban seems to have found a potential solution/form in www.hulu.com

Mark Cuban on How to Get Rich

More evidence Mark Cuban is a straight-talking genius:

http://blogmaverick.com/2008/10/04/how-to-get-rich/

I identify with the ketchup and mustard sandwiches (for me, it was Jack in the Box's 99 cent chicken sandwiches). I have a long way to go before even getting a tiny fraction of Cuban's net worth, but I am happy I currently have no debt after going to law school.

Mark Cuban as Small Business Savior

Sometimes, I imagine I am Mark Cuban's twin, and we were separated at birth. I attract controversy, I'm iconoclastic in my views, and always believe I'm right--and like Mr. Cuban, I usually am. I just need a few billion dollars and an NBA team, and I'd be *right there*. Here is Mr. Cuban's blog post on small businesses, which mirrors my views:

"No taxes of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. Nada. The business owners will pay income taxes on their personal income they pay themselves, but not corporate earnings."

http://www.blogmaverick.com/2008/07/28/how-to-jumpstart-the-economy-tax-free-small-businesses/

I blogged on a related tangent myself in April:

http://willworkforjustice.blogspot.com/2008/04/does-overpopulation-cause-declining.html

I advocated for the "elimination of all civil laws except for wage and contract laws relating to businesses with fewer than six non-family employees and/or gross revenue of less than 575,000 dollars per year (thereby encouraging entrepreneurs and small businesses)." Mr. Cuban doesn't include the cost of complying with unpredictable laws and judges, which is a form of taxation for a small business. Other than farmers, I have not heard of a single state legislator talk about protecting small businesses in California for years. It's disgraceful.

Mr. Cuban, you and I had to be twins in another life. Just let me know when I can shoot hoops with Dirk, and I'll be there. I predict I'll score at least 4 points in a game up to 15, by ones.

Icahn's Board has Mark Cuban!

Carl Icahn's proposed Directors slate includes none other than Mr. Cuban. I am excited! I previously wrote about how Mr. Cuban had his eye on the ball:

http://willworkforjustice.blogspot.com/2008/05/mark-cuban-on-ceo-pay.html

What will happen if Mr. Cuban gets elected? Will he subject Jerry Yang to public criticism on a daily basis? Will he make Susan Decker work in a Dairy Queen for a day? With no commissioner to rein him in, this could be the beginning of a fun period at Yahoo...

I just realized Cuban might be at this year's shareholder meeting. I might wear my old Mav's Michael Finley jersey. "Fin" seems like one of the league's classiest players. He also majored in business management at University of Wisconsin.

Mark Cuban on CEO Pay

Here is one more reason Mark Cuban should get more credit--besides the day spent working at Dairy Queen, besides his rabblerousing to make the NBA a better league, and besides transforming the Mavericks franchise into a contender--he has a delightful blog:

http://www.blogmaverick.com/2008/04/15/my-2-cents-on-ceo-pay/

The above entry is his take on CEO pay, and Mr. Cuban's idea is absolutely ingenious. It wasn't too long ago that companies were refusing to include the true cost of any stock option grants in their accounting reports. Mr. Cuban's idea makes the ability to fudge the numbers even more difficult, because it's hard to miss money coming out of the cash flow till. His idea would probably also accomplish what many shareholder compensation resolutions are trying to do--lower the ratio between the CEO's pay and the average worker. Here is Mr. Cuban's idea, in his words:

Make companies generate 100pct of their compensation in cash that is 100pct expensable in the quarter paid. Thats not to say they cant own stock. Hell yes they can own stock. But make them buy it either on the open market, or as part of the programs that make stock available to every company employee, on the same terms. They are getting paid enough in cash and if they believe in their ability to run the company, they can put their money where their mouth is. Eliminate all the free lottery tickets. Make them buy stock, options, warrants, whatever, on the same terms as everyone else can.

Shareholders tend to ignore how much stock is given to management, they don't ignore cash. Companies will always be a lot more stringent with their cash, whether its paid to the CEO or anyone else. CEO cash compensation will go way up, but total compensation will come way down. More importantly , CEOs getting paid huge sums in cash will stand out like a sore thumb when things arent going so well. They will be treated like everyone else in the cash zone and held far more accountable for their work.

I naively believed that this kind of out-of-control compensation would not happen after 2002, when E-Trade's CEO, Christos Cotsakos, received 77 million dollars at a time when his company lost 242 million dollars. The resulting outrage caused him to pay back some of the money, but obviously, no lasting changes occurred. Here is a link about that incident:

http://www.businessweek.com/bwdaily/dnflash/may2002/nf20020517_7164.htm