Financial Knowledge All Adults Should Know?

[NTL2009]

... I think this is a very cool way of thinking. He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash. Non-perishables like toilet paper, which every human needs, can be bought in massive bulk and last "forever," for example.

Thoughts on this specific philosophy?

And thoughts maybe on his broader philosophy of investing? I think he makes compelling points about cyclical bubbles bursting and being able to find amazing deals you're able to snap up if you have cash vs. having all your money tied into investment accounts.

[edit/add - I see I cross posted with Russ - looks like we covered much of the same ground...]
IMO, more mostly meaningless "guru-speak". First, there is nothing mutually exclusive about searching out bargains and investing your money. And most of what he talks about, you couldn't really do unless you can time the market, and studies show that can't be done reliably. It's silly to think you'd keep enough cash to buy a house without of the market, just to wait for a crash in something big? So if you owned a house, you don't need two, so you sell that one in a down market? Sure, if you are up-sizing it might make some sense, but not enough to miss out on 10 years of investment gains.

So it's a bunch of nothing.

Sure, it is good to keep enough liquidity to take advantage of bargains. So do that. But the bargains we are normally able to take advantage of are not large very large $ items. So it doesn't mean we can't also invest. At the end of 2017, some of us were able to pre-pay our 2018 property tax bills, and deduct them on our 2017 taxes (helps as the standard deduction goes up next year, so a smaller deduction may not exceed the larger standard amount, so push as much as you can into this year). I know some people who had an extra $5K to pre-pay that, and they will save ~ 25% on their taxes a few months later, ~ $1,250. Significant. And I know other people who could not come up with that cash (but it's because they spend it, not because it was invested).

People also make too much of the idea that their invested money is tied up and not liquid. I can sell at any time, and have cash in my bank in 3 days. People fear selling when the market is down, but guess what - on average the market is up! So the odds of getting caught in a downtrend are not worth the opportunity cost of staying out of the market.

I keep only enough cash to handle my month-to-month expenses, out of convenience. The rest is kept working for me. I'm doing well.

I'm not sure a really rich person is a good "guru" for the masses. He got wealthy through a business, not something everyone can do. But everyone can save and do simple buy & hold index investing, and do well.

 

[Vanadium 50]

More terrible, terrible advice from kyphysics. I guess he won't be satisfied until everyone on PF is dead broke.

My message #65 is still valid:

Kyphysics, I see we're back to the parade of gurus. I tried to be polite, and it's not working, so let me be direct. You are providing terrible, terrible advice.

The whole point of a guru is to avoid having to think for oneself. This is diametrically opposed to personal responsibility, in this case personal financial responsibility. Furthermore, having a guru who is primarily an entertainer...well, does that sound like a good idea to you? Is it not better to understand the fundamentals of finance yourself, rather than peddling a one-size-fits-all solution from a self-proclaimed guru who gets paid based on criteria other than the financial success of his clients?

Different guru, same problem.

 

[russ_watters]

IMO, more mostly meaningless "guru-speak". First, there is nothing mutually exclusive about searching out bargains and investing your money.

Heh; I used the term mutually exclusive too, but said it is. To clarify, we're in agreement but we said it opposite ways. It's kind of a double-negative the way it was presented.

 

[kyphysics]

4. If you have $25k worth of canned cream corn, that's fine, but most people don't eat enough canned cream corn to make use of a $25k reserve, much less spending a hundred grand a year on it. I think most people would struggle to store more than $5k worth of inflation-hedge perishible goods. Good investment, unreasonable commitment level. And I'd be shocked if Cuban himself really keeps that much in a stash somewhere, even though he may have room for it. Remember: filling your basement with creamed corn is a one time investment and after that you only can/have to buy it at the rate you are eating it.

I think when he says keep $25-$100k in cash, he isn't thinking about so he can buy creamed corn, he's thinking about someone popping in with a company he can invest in like on Shark Tank, where he regularly invests on that level. Again: great for him, but that has nothing to do with us.

I'll check the second link later, Russ. It worked for me earlier. Also, this is just a quickie reply. No time to go into all the points you listed atm.

I do worry that some of you guys may be reading too much into his comments and spending unnecessary time on a lot of straw man counter-arguments based on lack of comprehension of Mark's intended thoughts. Maybe his wording of things leaves open some possible misunderstanding. I don't know. I'd have to listen to the interview again myself! I'd definitely check it out, though, if you get the chance. It's pretty good stuff.

Mark never says to ONLY spend that cash on bulk necessities/replenishable bargains. He says in the quoted text I made in the earlier post to spend it on bargains AND THEN keep the rest laying around for "bigger" deals (e.g., maybe some car on auction via a broker, which my cousin did recently actually and paid it in $8,000 cash in full, instead of paying more from a local dealer or perhaps a house during a precipitous drop in value from a bubble burst, foreclosure crisis, or what have you). It's definitely worded that way in the quote. I agree that you probably won't be spending $5k on toilet paper unless you've gotten some serious issues! But, you can definitely spend a good chunk on technology (I bought an IPAD for Black Friday at a $100 discount, e.g. and had other items I could have gotten had I had more disposable cash) and home furnishings (including appliances). Over the course of a year, if you've got a family of four (I think Mark was specifically answering based on a family in that video clip IIRC, b/c the interview asked about what a couple should do if they've saved up a bunch of money), you can probably easily break $5k in spending on necessities and other bargains.

The actual amount you use for bulk bargain spending isn't important (it'll vary depending on size of household, needs, etc.), but just the idea of using the transactional value of cash was pretty interesting to me (over sticking it into an investment account).

Having quick access to that cash, as opposed to having to pull it out of investments, which may cost fees to sell off or when the investment itself may be down in the market in any given year, can be very convenient and of immediate use.

He goes on to say that if you've got over $100,000 (again, assuming a family and not a single person), then the rest you should invest in various ways. He doesn't ever say to not invest if that's what people are arguing about.

re: credit cards - Like Dave Ramsey and Warren Buffet (and many other wealthy and investing pundits), Mark tells people to stay away from them mostly.

 

[TeethWhitener]

Having quick access to that cash, as opposed to having to pull it out of investments, which may cost fees to sell off or when the investment itself may be down in the market in any given year, can be very convenient and of immediate use.

http://www.businessinsider.com/cost-of-missing-10-best-days-in-sp-500-2014-3
Very important article. If you sat out of the stock market on the 10 best days of the 20 years between 1993-2013, you cut your returns in half. If you miss the best 30 days (a month, give or take), you cut your returns by 90%. Any more than that and your returns are negative. Having dry tinder lying around is fine, but there's an opportunity cost to leaving cash on the table.

He's said elsewhere (IIRC) that you can beat losses from inflation from having cash sitting around (uninvested) by using it to find bargains and savings. If you wait around for big sales like during Black Friday and use coupons, rebate & cash back programs (like TopCashBack.com), and buy things in bulk (particularly, necessities and things you use a lot of), then the money you save during any given year is more than what you'd earn (or lose) in the stock market with that same cash.

Inflation affects everything. That includes discounted items. If you want to buy $100 worth of stuff at a 50% discount now, it'll be 100*(0.5) = $50. If you factor in 2% inflation, you're paying 100*(1.02)*(0.5) = $51. So you still get hit by inflation regardless.

 

[russ_watters]

I'll get to more later, but:

I do worry that some of you guys may be reading too much into his comments and spending unnecessary time on a lot of straw man counter-arguments based on lack of comprehension of Mark's intended thoughts. Maybe his wording of things leaves open some possible misunderstanding.

What choice do we have? Investment advice only has value if you can actually use it. So we need to know how to actually apply this advice in order to judge it - which means buidling a real scenario that applies his advice. And if he's being too vague to know for sure what he means, that's a strike against the advice too.

Otherwise, you're just holding $25k in a savings account without really understanding why and aren't actually doing anything with it!

As others have said, you aren't putting anywhere near as much thought/effort into this as you should be. May I ask; are you an investment-age adult? Is this real to you or just hypothetical?

 

[russ_watters]

Inflation affects everything. That includes discounted items. If you want to buy $100 worth of stuff at a 50% discount now, it'll be 100*(0.5) = $50. If you factor in 2% inflation, you're paying 100*(1.02)*(0.5) = $51. So you still get hit by inflation regardless.

You did that backwards. Assume no discount to focus only on the inflation:
If you store $100 worth of goods for a year, you have made $2 because buying it today would cost $102.

 

[russ_watters]

By way of example, @kyphisics this is not "advice", necessarily, but here's my entire investment for retirement strategy, in clear, concise, appliable form:

(Note1: it is structured in levels according to how the money flows through my posession. Note2: I have no credit card debt, but two short term home improvement debts at 0% interest, and a mortgage.)

1. I max-out my 401K contributions at the legal limit of $18,500 a year. I never see this money, so I don't miss it: I built-up to this level over several years by absorbing raises with it. There is a management company for this, but it is mostly in a pre-selected mix of moderately aggressive mutual funds.

2. My bank automatically deducts from my checking account monthly for my IRA up to the legal limit of $5,500 per year. This all goes into an S&P500 Index Fund.

3. After any remaining funds pile-up to about $10,000, depending on my near-term spending plan (if I'm going to buy a car soon or do some home improvement), I buy individual stocks or shares of an S&P500 Index Fund. This money is about half in each.

Spending/lifestyle control is largely a separate issue for me.

So, this is a real, actionable savings plan. It isn't flashy or complex, but it provides a good return and relatively low risk. We can call that "advice" if I say you should do the same thing. But the point is, when you get "advice" from anyone, in order to be worth anything, it needs to be written in a form that is clear enough you can actually act on it, otherwise it has no value.

Conversely, the purpose of things said by a "guru" is to promote the guru. That's why gurus rarely give meaningful/actionable advice. Mark Cuban didn't sit for that interview because he wants to help you save for retirement, he sat for that interview in hopes you might watch Shark Tank or buy Shark Tank products. So there's just no need for his "advice" to be meaningful.

 

[TeethWhitener]

You did that backwards. Assume no discount to focus only on the inflation:
If you store $100 worth of goods for a year, you have made $2 because buying it today would cost $102.

I was responding to kyphysics’s claim that you can beat inflation by buying discounted items. Inflation affects discounted items too.

 

[russ_watters]

I was responding to kyphysics’s claim that you can beat inflation by buying discounted items. Inflation affects discounted items too.

Yes it does. But you don't just buy these items discounted, you buy them EARLY. Buying discounted saves due to the discount. Buying EARLY turns a profit by beating inflation.

The two go together because in order to buy significant bulk discounted products you have to be willing to buy EARLY.

Unless I misunderstood, you are saying that there is a loss somewhere due to inflation. But there isn't. There is only a profit, or rather an avoided loss.

 

[TeethWhitener]

Yes it does. But you don't just buy these items discounted, you buy them EARLY. Buying discounted saves due to the discount. Buying EARLY turns a profit by beating inflation.

The two go together because in order to buy significant bulk discounted products you have to be willing to buy EARLY.

Unless I misunderstood, you are saying that there is a loss somewhere due to inflation. But there isn't. There is only a profit, or rather an avoided loss.

This is just saying that if you can avoid inflation, then you don’t have to worry about inflation. I agree.

I didn’t see anything in kyphysics’s post about buying early. (In fact, waiting around for big sales was specifically mentioned). The problem with buying early—as highlighted by kyphysics— is that you don’t have control over when sellers mark things down on discount, so you don’t necessarily have a choice in the matter (buying in bulk is generally available whenever). But yes, in general the earlier you buy, the less of a factor inflation plays.

 

[russ_watters]

This is just saying that if you can avoid inflation, then you don’t have to worry about inflation. I agree.

Right. This is important to understand because he is simultaneously telling you to lose money to inflation with his keep cash on hand idea.

I didn’t see anything in kyphysics’s post about buying early. (In fact, waiting around for big sales was specifically mentioned). The problem with buying early—as highlighted by kyphysics— is that you don’t have control over when sellers mark things down on discount, so you don’t necessarily have a choice in the matter (buying in bulk is generally available whenever).

It's here:

Saving 30% to 50% buying in bulk--replenishable items from toothpaste to soup, or whatever I use a lot of--is the best guaranteed return on investment you can get anywhere.

It's somewhat counter-intuitive, which has you twisted-around on it: Buying in bulk - even when waiting for sales to do it - *is* buying early because you have to maintain a stock of the thing you are buying (like toothpaste or soup) in order to avoid running out of it while waiting for the next sale.

And the reason it it is "the best guaranteed return on investment" is because it is an inflation hedge, and inflation is basically guaranteed.

Note: buying on sale is a one-time savings/profit whereas buying in bulk is an investment. And while it may seem like saving 50% on the sale is the better part of the deal than saving 2% a year on inflation, it's not. If you spend most of your adult life - say, 40 years - with a closet full of canned soup, you don't just save the 50% by waiting for a sale and buying in bulk, you profit 120% on the investment of storing it.

By the way, the book I've cited a couple of times here devotes a couple of pages to this topic:
https://www.amazon.com/dp/0547447256/?tag=pfamazon01-20

Charles Revson, the late cosmetics tycoon, bought his mouthwash by the case...
He made [money] two ways: the discount he got for buying the super-economy size, in bulk; and the discount he got, in effect, by beating inflation.

The ROI on this is actually spectacular when you include both. He did the math on buying a in bulk a $10 product that you would ordinarily buy weekly (a bottle of wine). You tie-up an extra $98 in storage of wine at most and earn 177%, not including either inflation or the opportunity opened-up by the savings (the money you save you invest in the stock market).

 

[russ_watters]

This irks me so much I have to attack it more:

And now I've watched the video too, and it's even worse. The idea of holding onto cash to wait for an opportunity only works for people who are already rich. And the explanation by the narrator is worse (holding cash and losing 2% is better than investing and losing 10%). Where does that 10% loss come from? It isn't the stock market: the stock market is a highly reliable 8% gainer. See, what makes this advice so bad is that he's advocating taking a loss in order to set up a future opportunity, but he's only telling you how to take the loss! Without knowing what the opportunity for gain is that you are setting up, there is no way to evaluate whether this is a good idea or not, much less execute it!

And even if you are holding an average of $25k and then occasionally taking some of it to make an investment and then replenishing it, I'm not sure you recognize how much you are actually losing by holding the $25k. It's a lot:

-You lose $4,877 over 10 years due to inflation.
-You lose an additional $29,071 by not having the money in the stock market.

So these other investments that you are waiting for, that he won't tell us what they are, better be capable of netting you at least $34,000 over 10 years, with little risk, otherwise they aren't better than storing the money in the stock market.

Also, the idea that you need cash for liquidity is false. But, Mark would say; what if there is an emergency or opportunity that causes you to need a bunch of cash right now? Well it depends on how much and how fast, but it takes at most a week to get money out of the stock market and I've never bought something that cost more than $25,000 on less than a months' notice. And while I've never had a $25,000 emergency, you can float that for a week (or a month) on credit. That's one of the great things about credit cards: if you aren't carrying a balance, the credit card company IS PAYING YOU for the privilege of financing your emergency! So pay for that emergency with a credit card, and then sell some stock to repay it, and bank the triple-profit you just made.

 

[TeethWhitener]

Right. This is important to understand because he is simultaneously telling you to lose money to inflation with his keep cash on hand idea.

It's here:

It's somewhat counter-intuitive, which has you twisted-around on it: Buying in bulk - even when waiting for sales to do it - *is* buying early because you have to maintain a stock of the thing you are buying (like toothpaste or soup) in order to avoid running out of it while waiting for the next sale.

And the reason it it is "the best guaranteed return on investment" is because it is an inflation hedge, and inflation is basically guaranteed.

Note: buying on sale is a one-time savings/profit whereas buying in bulk is an investment. And while it may seem like saving 50% on the sale is the better part of the deal than saving 2% a year on inflation, it's not. If you spend most of your adult life - say, 40 years - with a closet full of canned soup, you don't just save the 50% by waiting for a sale and buying in bulk, you profit 120% on the investment of storing it.

By the way, the book I've cited a couple of times here devotes a couple of pages to this topic:
https://www.amazon.com/dp/0547447256/?tag=pfamazon01-20

The ROI on this is actually spectacular when you include both. He did the math on buying a in bulk a $10 product that you would ordinarily buy weekly (a bottle of wine). You tie-up an extra $98 in storage of wine at most and earn 177%, not including either inflation or the opportunity opened-up by the savings (the money you save you invest in the stock market).

This is an interesting idea, but I’m skeptical how much money the inflation hedge will ultimately make you in the real world (unless you’re running a business). For instance, you only make 120% on the can of corn you hold for 40 years. You make 4% on the cans you eat at year 2. And most consumables aren’t particularly value-dense. So you need the capital investment and floor space to hold multiple years worth of toilet paper/canned corn/etc. Factor in breakage (which also compounds with time) and it eats further into gains.

This could probably work for value-dense regular purchases. Wine isn’t the best example—most wines sour after a year or two and the ones that don’t are riskier investments than an inflation hedge should be. Maybe perfume? I’ve got a basement full of consumables that I’ve bought in bulk and I’m trying to think of the most value-dense stuff down there. Razors? But I can’t imagine these supplies will last me more than a few years. I dunno. Maybe I’ll run the numbers when I get some time.

 

[russ_watters]

This is an interesting idea, but I’m skeptical how much money the inflation hedge will ultimately make you in the real world (unless you’re running a business). For instance, you only make 120% on the can of corn you hold for 40 years. You make 4% on the cans you eat at year 2.

No, the trick to this is that from an economic standpoint, you aren't eating the cans in the store, even as you are rotating them with the cans you buy. From an economic point of view, the cans left at the end are *all* 40 years old. The cans that you eat from one week to the next are separate from the investment in what you stored.

Now that you mention it though, the fact that they are separate means that the math I did only counts for the cans you store - the one-time savings of buying in bulk only applies to those cans. The cans you eat are multiple buys at additional savings.

And most consumables aren’t particularly value-dense. So you need the capital investment and floor space to hold multiple years worth of toilet paper/canned corn/etc. Factor in breakage (which also compounds with time) and it eats further into gains.

Right. It's a great investment only if you have extra space to fill and if you try to make it better by building new space, you lose a lot of the return. It's a bit silly to me, but the author mentioned he knew someone who's coffee table was a short stack of canned goods with a piece of wood on top. And the author does say (as I pointed out before) that most people can only reasonably store one or two thousand dollars worth.

This could probably work for value-dense regular purchases. Wine isn’t the best example—most wines sour after a year or two and the ones that don’t are riskier investments than an inflation hedge should be.

I didn't think that was true, but if it is then yes, it means you could never have a store of more than a couple of extra cases of wine. But as you say, there are denser and longer-lasting consumables.

 

[BWV]

stocking up on goods as an inflation hedge is a bad idea

- there is no liquidity- you can't go back. If your A/C goes out, you can't return the pile of toilet paper and soda in your garage for cash to replace the unit

- inflation is an average price increase across what government economists decide is a representative basket of goods for the average consumer. Individual goods do not all inflate at the same rate (and some deflate).

- Interest earned on short term fixed income investments can help offset inflation while,preserving liquidity. 5 year TIPS, for example, currently yield about 0.6% which would remove any inflation risk (at least to the extent that CPI reflects the inflation rate on your individual purchases)

Also picking stocks and timing the market is a zero-sum game, so unless you have some advantage over everyone else playing the game, best stick to low cost index funds

 

[StoneTemplePython]

Right. This is important to understand because he is simultaneously telling you to lose money to inflation with his keep cash on hand idea.

It's here:

It's somewhat counter-intuitive, which has you twisted-around on it: Buying in bulk - even when waiting for sales to do it - *is* buying early because you have to maintain a stock of the thing you are buying (like toothpaste or soup) in order to avoid running out of it while waiting for the next sale.

And the reason it it is "the best guaranteed return on investment" is because it is an inflation hedge, and inflation is basically guaranteed.

Note: buying on sale is a one-time savings/profit whereas buying in bulk is an investment. And while it may seem like saving 50% on the sale is the better part of the deal than saving 2% a year on inflation, it's not. If you spend most of your adult life - say, 40 years - with a closet full of canned soup, you don't just save the 50% by waiting for a sale and buying in bulk, you profit 120% on the investment of storing it.

The first half of this is ok. The second half is non-standard at best. The standard viewpoint is quite simple: consider things in real terms. Hence any 'gains' you make by keeping up with inflation are not gains at all. Cash may depreciate over time in real value -- no arguments there.

But the standard approach is: say you tied up $X for 40 years and earned a real CAGR of $\lt 2\%$ -- that is your buy and hold soup example -- i.e. buy for $0.5 real dollars and get back the value of $1.0 real dollars assuming it increased in price in line with inflation when you eat it 40 years later -- WLOG I'm assuming soup costs a buck now to make this simple. For a comparable risk mixture, over 40 years could you get better real returns? Most people would say yes most of the time. Some mixture of real assets (with a rental yield), stocks and perhaps TIPS are generally viewed as having better expected returns over 40 years. Plus 2 of the 3 are more liquid (maybe pun intended).

The fact that you are buying and storing something to get an inflation hedge, but have no yield in the interim is a red flag of sorts. While this doesn't scale to the individual investor: consider buying timber assets. (There is a very long, rich, history here as a timber hedge, and you get a yield each year when you harvest some small, legal portion of the timber, without depleting the total amount of assets. It's complicated but this is intimately tied in with with savvy investors like Buffett and Swenson like things like timber and pipelines and don't like holding gold, over long time horizons.) The issues with yield are complicated -- most retail investors wildly overpay for it so it's a mixed bag.

There are also some technical issues in that food costs are not that big a part of the market basket of goods, and tend to decrease relative to other items in the baskets over time due to tech gains, which makes them a dirty hedge. (Being able to do something like this with medical costs would be interesting...) But those are small technical issues, not really what I think the main focus should be on here.

And the author does say (as I pointed out before) that most people can only reasonably store one or two thousand dollars worth.

This is an important point, which if I may, suggests that there are storage costs involved in any "storage trade". In real life a lot of things are "chunky" not smooth, so you may have some extra space around the house for a small part of this "strategy" that is "free", but if you actually want to scale this, you need to pay up for storage...

 

[kyphysics]

This irks me so much I have to attack it more:

No worries, so long as you don't personalize it and attack ME!

And now I've watched the video too, and it's even worse. The idea of holding onto cash to wait for an opportunity only works for people who are already rich. And the explanation by the narrator is worse (holding cash and losing 2% is better than investing and losing 10%). Where does that 10% loss come from? It isn't the stock market: the stock market is a highly reliable 8% gainer.

Yeah, I didn't necessarily agree with the narrator and forgot to mention to ignore him, as I was only using that clip, because it was short (~ 4 min.). Here's the full interview with Mark's ideas/words ONLY (it's a little over 20 minutes and the relevant parts, I think are closer to the beginning if my memory is correct):



Mark doesn't say you will lose 10%, although he does say that at any given time the market can be done and, thus, your investments' value can be done too. Maybe that's what the narrator meant, but I don't know. I interpreted him as saying this is a possibility only. On a semi-related note, Mark's Cuban's investing style seems more as short-term trader rather than a long-term value investor. For HIM, maybe having easy access to cash to "jump" on a great opportunity (be it in securities investments or physical goods - from necessities to properties) is crucially important.

See, what makes this advice so bad is that he's advocating taking a loss in order to set up a future opportunity, but he's only telling you how to take the loss! Without knowing what the opportunity for gain is that you are setting up, there is no way to evaluate whether this is a good idea or not, much less execute it!

Again, I'll ignore the narrator's thoughts and just focus on Mark Cuban's words. One of Mark's point with having lots of money in the market is that it's tied down. I don't see anything wrong with that in you're invested in pretty much guaranteed winners like low-cost index funds. But, say you've got selective investments in individual companies. You could conceivably have wild swings. I don't know my parents' full portfolio, but I've heard them discuss over dinner some crazy swings. Their greatest loss was something like $80,000 in a year from some company years ago. Although, they did very well last year with stock in the healthcare industry.

But, anyhow, Mark's saying that you can be sure there will be bubbles bursting every 5-10 years and other bargains popping up all the time that you can take advantage of with direct cash. Whereas, if that money's tied up in investments, you may not have easy access to it during a down year. Would constantly selling your stocks (vs. holding them longer) accrue heavy fees too? I don't know how this part works, as I don't own any securities at the moment. I'm just assuming you've got some fees every time you sell. Feel free to teach/correct me!

You're sort of correct in that you may not know what exact deal you get in the future, but I'm guessing an experienced bargain hunter does come to expect them. Don't recessions have some statistical frequency of hitting like every 5-8 years with major economic bubbles bursting every 10 years or so? I don't have the exact figures, so someone's welcome to fact-check and post. It's during these times that many savvy investors and bargain hunters swoop in and make great value purchases (be it in stocks, struggling businesses, housing properties, etc.).

And even if you are holding an average of $25k and then occasionally taking some of it to make an investment and then replenishing it, I'm not sure you recognize how much you are actually losing by holding the $25k. It's a lot:

-You lose $4,877 over 10 years due to inflation.
-You lose an additional $29,071 by not having the money in the stock market.

So these other investments that you are waiting for, that he won't tell us what they are, better be capable of netting you at least $34,000 over 10 years, with little risk, otherwise they aren't better than storing the money in the stock market.

Yeah, you'd have to have specifics to do a mathematical comparison. Mark Cuban does have a public email and invites people to write to him! People do it all the time and he writes back - one reason why Mavs fans appreciate him so much! You should write him and ask what he's made money on from using this transactional value of cash approach. He does mention in the Forbes quote that you could be buying a dream house for half price during a bursting bubble (I'm guessing the 2008 housing market crash).

I don't think one can write off his strategy without seeing it implemented first. Email him, Russ. Then report back to us.

 

[kyphysics]

This is an interesting idea, but I’m skeptical how much money the inflation hedge will ultimately make you in the real world (unless you’re running a business). For instance, you only make 120% on the can of corn you hold for 40 years. You make 4% on the cans you eat at year 2. And most consumables aren’t particularly value-dense. So you need the capital investment and floor space to hold multiple years worth of toilet paper/canned corn/etc. Factor in breakage (which also compounds with time) and it eats further into gains.

This could probably work for value-dense regular purchases. Wine isn’t the best example—most wines sour after a year or two and the ones that don’t are riskier investments than an inflation hedge should be. Maybe perfume? I’ve got a basement full of consumables that I’ve bought in bulk and I’m trying to think of the most value-dense stuff down there. Razors? But I can’t imagine these supplies will last me more than a few years. I dunno. Maybe I’ll run the numbers when I get some time.

I don't think you need buy years of X or X,Y,Z ... Nor do you have to buy one product only (I'm not saying you meant that, TW, but just being more precise in my wording, since it's gotten me in trouble previously). Rather than buying $3,000 (made up number for convenience here) worth of toilet paper, you can stockpile $3,000 of multiple replenishable goods (maybe a combination of toilet paper/paper towels/napkins, diapers, soap, laundry detergent, bottled water, dental floss, etc.) at a highly discounted rate using multiple "stacking" (a couponing technical term) methods.

I should say that people who aren't great at couponing will have a brief learning curve to climb, as you have to figure out which stores have what policies and where to find different sources of coupons for stacking (e.g., Catalina coupons, Sunday newspaper inserts, store-specific prints, and online and mobile manufacturer coupons). I like this method:

1.) Use a rebate or cash back program (TopCashBack.com is one of the most popular).
2.) Buy discounted retail store gift cards for places like WalMart, Target, etc. from discount gift card sites (where people sell them for money, b/c they got them for gifts and don't want them) THROUGH a rebate/cash back site. That way, you get the discounted gift card AT a discount.
3.) Look for various coupons for items you use regularly and are replenishable. You want multiple coupons from different sources (like mentioned above), so you can "stack" them.
4.) Wait for certain sale days of that store and go in with your discounted discount gift card and buy stuff on sale using multiple coupons (that you stack) to get savings on top of savings on top of savings on top of savings and buy things in bulk...

Some people don't have the patience to wait or don't want to bother with finding coupons (you have to be careful of expiration dates too), so it may not be worthwhile for them.

We coupon in my house and have stockpiles of stuff from water to detergent, all the way to foods.

Some extreme couponers may sell their stockpile items too. I've watched the show Extreme Couponing, where one guy had like a giant stockpile of toiletries he got for a few cents per item and sold them to neighbors or what not. It's become harder to get the giant savings you see on that show after it's airing, because retailers caught on to what people were doing and implemented rules to diminish the returns you can get (I'm sure they didn't want lots of shopper all doing the same thing, b/c before that show only a few people were doing it), but some places (it's store-specific) may still have relaxed rules.

In the hey day of the show, people could get $2,000 worth of groceries and toiletries for like $10.00 or even -$X.XX, where the store pays YOU (due to your coupons saving more than the cost of the items and getting the difference back in cash). Here are some examples of people's stockpiles, btw:



You don't need a warehouse - just an empty room or closet space oftentimes. True, you could make money renting that room out (if your wife/family allows it), but if you've got some spare space in your house, then it's not too bad to fill it with a goods stockpile.

 

[russ_watters]

But, anyhow, Mark's saying that you can be sure there will be bubbles bursting every 5-10 years and other bargains popping up all the time that you can take advantage of with direct cash.

If he's referring to the stock market, that advice is just flat-out wrong, as several people including myself have noted.

Whereas, if that money's tied up in investments, you may not have easy access to it during a down year.

What does "easy access" mean? Can you think of a scenario where not having access to your money that is "tied-up" in stocks for 3 days would actually matter? See, again, he's saying there is a problem without actually specifying a scenario where it's s problem. Reality: this is not a problem.

Would constantly selling your stocks (vs. holding them longer) accrue heavy fees too? I don't know how this part works, as I don't own any securities at the moment. I'm just assuming you've got some fees every time you sell. Feel free to teach/correct me!

You do pay brokerage fees every time you buy or sell.

Don't recessions have some statistical frequency of hitting like every 5-8 years with major economic bubbles bursting every 10 years or so?

Yes.

It's during these times that many savvy investors and bargain hunters swoop in and make great value purchases (be it in stocks, struggling businesses, housing properties, etc.).

True, but that doesn't mean they are sitting on the sidelines for the other 9 years because that would be stupid.

I don't think one can write off his strategy without seeing it implemented first.

That isn't how this works: you can't implement his strategy without seeing what it is.

Email him, Russ. Then report back to us.

Lol, no. If you are intrigued by his idea, you email him and get back to us! You're like the inventor who says "I have an idea but you need to figure out how to make it work for me".

 

[russ_watters]

The first half of this is ok. The second half is non-standard at best. The standard viewpoint is quite simple: consider things in real terms. Hence any 'gains' you make by keeping up with inflation are not gains at all. Cash may depreciate over time in real value -- no arguments there.

I actually agree with you: I was, in that instance, addressing Cuban's claim on its own terms (using his scenario as a baseline even though I agree its a negative). Heck, as I said, my preferred baseline in this scenario is actually the S&P500 since that's what you would have to beat to make the advice worth doing.

 

[russ_watters]

I don't know how this part works, as I don't own any securities at the moment. I'm just assuming you've got some fees every time you sell. Feel free to teach/correct me!

Ok, that's what I thought. A lot of the reason you can't tell what is real and what isn't is because you've never done any real investing, so all of this is hypothetical to you. At this stage of the game, the best advice I can give you since you need way more teaching than I have time to give, is get and read a book who's aim is to teach you the basics, such as the one I linked. Trying to learn from 1-liners from gurus is just leading you to more confusion at best.

I will say this though: in your position, the advice not to have a credit card may not be the bad advice it is for most of the rest of us.

 

[kyphysics]

Lol, no. If you are intrigued by his idea, you email him and get back to us! You're like the inventor who says "I have an idea but you need to figure out how to make it work for me".

Ha! I will!

In the meantime, this is an old post from his Twitter page I came across:

https://twitter.com/mcuban/status/250829027999375360
Been saying this for years.Transactional value of cash needs to be added to the interest you earn. Warren Buffet agrees

article: https://www.theglobeandmail.com/rep...-the-cash-option-is-priceless/article4565468/

For Warren Buffet, the cash option is pricess.

If holding cash in your portfolio for little return is driving you crazy, maybe it's time to look at it the way Warren Buffet does. . .

"Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

"He thinks of cash differently than conventional investors," Ms. Schroeder says. "This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price."

It is a pretty fundamental insight. Because once an investor looks at cash as an option - in essence, the price of being able to scoop up a bargain when it becomes available - it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

Suddenly, an investor's asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?"

continued in article

Business Insider had a discussion of Warren's comments too:
http://www.businessinsider.com/cash-as-a-call-option-2012-9

Granted these guys are professional investors.

 

[kyphysics]

This is another article and video clip of Mark discussing the TVOC:
http://www.businessinsider.com/why-...tage-of-black-friday-and-cyber-monday-2014-11

He says:

If you've got $25,000, $50,000, $100,000, you're better off paying off any debt you have, because that's a guaranteed return. And, you're better off using the transactional value of cash. And what I mean by that, everybody says: "Well, if you just put your money in the bank, you're going to fall behind inflation." I think that's ridiculous, because all you got to do is look at Black Friday. If you saved up cash and don't have to go to your credit card and you walk out Black Friday, you can buy everything at a huge discount. Take that a step further. I've gone to friends who have questioned me on that and I said: "Do this. Go to whatever it is you do - whatever it is you enjoy doing or all those things you have to buy - and go to the market and say you know what will you give me an additional discount if I pay you in cash?" No one's ever said no. You can get a discount for cash and that's the transactional value. Just look at how much retail merchants have to pay for credit cards. If you just pay in cash and ask for that back, so the point being there's a transactional value to cash and I think the whole concept of you fall further and further behind, because of inflation ridiculous - particularly, in a world where you can be an efficient consumer as well. Used to be you were limited to your local retailers or whoever, in order to be able to buy. Now you go online, you can pick the best choice. You can look at alternatives. You can buy in volume. How much toothpaste do you use? Well, I can get a 30% discount if I buy a year's worth of toothpaste. Whatever. I think the transactional value of cash is far more a return than putting your cash in the market.

Now, if you're a bigger investor - you have more than $100,000 - I wouldn't put it in public stocks unless you really feel strong about a company and it pays a dividend. There are so many start-ups now that ...it's become so inexpensive to start a company. If you have a phone, if you have a laptop, and you have broadband and access to cloud services, you can start a company for next to nothing. And there's a lot of platforms like AngelList and others that allow you to go out there and invest in those companies or help other people start up companies. And because it's become so inexpensive, I find myself, anyways, going in that direction a whole lot more than looking for companies that are public to invest in.

I'd probably put my "extra" money into low-cost index funds over the AngelList et. al investing method Mark mentions in the second half, but he does elaborate on TVOC in the first paragraph.

edit:

Also, what do u guys think about asking for a discount when paying in cash that Cuban recommends? Does that work for you? Ever been rejected?

 

[russ_watters]

This is another article and video clip of Mark discussing the TVOC:
http://www.businessinsider.com/why-...tage-of-black-friday-and-cyber-monday-2014-11

He says:

...Now, if you're a bigger investor - you have more than $100,000 - I wouldn't put it in public stocks unless you really feel strong about a company and it pays a dividend...

And there's a lot of platforms like AngelList and others that allow you to go out there and invest in those companies or help other people start up companies. And because it's become so inexpensive, I find myself, anyways, going in that direction a whole lot more than looking for companies that are public to invest in.

Ok, so like I guessed, he is talking about himself and his Shark Tank style investments here. This advice is really only applicable if you have $10 million+ available to invest and even then only works well if you are Mark Cuban. Here are the issues:

1. Money spent on little start-ups is indeed tied-up. Your opportunities to re-sell your stake are very limited.

2. A decent fraction of them fail. Indeed some of the best opportunities come with the highest risk. It is unreasonable to expect someone with a net worth of $500,000 to be willing to risk losing 10% of his net worth on a coin flip a couple of times a year. Mark Cuban is risking less than 0.005% of his net worth on such a bet. And Mark Cuban might mitigate his risk by doing it once a week, but an upper middle class investor won't have the money to do it more than once or twice a year.

3. Mark Cuban has experience evaluating these opportunities and doing well requires this learned skill. Most people can't afford to lose $50,000 on a learning experience. Part of the beauty of the S&P500 index fund is you don't have to know anything to make good returns.

4. Doing this is a lot of work. That's fine for Mark Cuban because he essentially retired and then came back doing this sort of thing for a living. The average investor can't do that: they have a real job. Part of the beauty of an S&P500 index fund is it doesn't require any work.

5. A big part of the reason these investments are lucrative for Mark Cuban is that the companies have Mark Cuban as an investor. He's both a successful business manager and a brand name with value. The average investor is neither of those things.

6. *None* of the investors on Shark Tank got rich this way. All of them got rich from one golden business idea which made them a lot of money and then opened-up the opportunity to start investing this way. That should tell you something about how accessible this idea is to average people.

Regarding his scenarios:
1. It's true that to make the types of investments he does you need to keep cash on hand.
2. It isn't true that to buy toothpaste by the case *you* need to keep cash on hand.

So: *You* don't need to keep cash on hand.

So yes, it is theoretically possible for an upper middle class person with $500,000 in personal savings to do this, but it is a very risky idea and generally not recommended.

 

[StoneTemplePython]

Can I just add that as far as "gurus" go, Cuban is probably the most entertaining? I used to watch Shark Tank mostly to see what he'd say.

A second point: if you look into his history, Cuban's number one talent may be talking other people into overpaying for an investment (i.e. he got Yahoo! to pay an awful lot of money for Broadcast.com, and that is how he got rich. What does Broadcast.com do?)

 

[kyphysics]

By way of example, @kyphisics this is not "advice", necessarily, but here's my entire investment for retirement strategy, in clear, concise, appliable form:

3. After any remaining funds pile-up to about $10,000, depending on my near-term spending plan (if I'm going to buy a car soon or do some home improvement), I buy individual stocks or shares of an S&P500 Index Fund. This money is about half in each.

Spending/lifestyle control is largely a separate issue for me.

So, this is a real, actionable savings plan. It isn't flashy or complex, but it provides a good return and relatively low risk. We can call that "advice" if I say you should do the same thing. But the point is, when you get "advice" from anyone, in order to be worth anything, it needs to be written in a form that is clear enough you can actually act on it, otherwise it has no value.

Conversely, the purpose of things said by a "guru" is to promote the guru. That's why gurus rarely give meaningful/actionable advice. Mark Cuban didn't sit for that interview because he wants to help you save for retirement, he sat for that interview in hopes you might watch Shark Tank or buy Shark Tank products. So there's just no need for his "advice" to be meaningful.

I've been meaning to re: with a longer post and appreciated your thoughts above, but wanted to ask just a quickie for now:

What investment style do you use for buying stocks? Also, what books did you read on investment strategy? These are really questions anyone can answer, btw.

This won't be a concern of mine for years probably, as I need to take care of some things first (what are called "baby steps" by Dave Ramsey):

1.) generate income to pay all my basic needs (I should have $25-30K-ish student loan debt upon graduation FWIW)
2.) create an emergency fund
3.) pay off debt
...THEN invest

I'll post Ramsey's guidelines/roadmap for financial wealth building later when I get the chance and see what people think. You guys can critique it and let me know what you think. I actually feel his views are probably very mainstream and standard in this regard. It's mostly his hyper-focus on getting out of and avoiding debt and prioritizing it over seemingly all else that draws the most criticism.

Where he's somewhat silent is in the area of stock picking. He's got a system he uses for buying mutual funds (and says he's gotten 12% returns over many years), but doesn't say much about other forms of securities.

I've been spending some time reading up on value-investing (Peter Lynch, John Templeton, and Warren Buffet) and thought I'd ask about people's investment styles and strategies. Book/article/video recommendations are welcomed. Heck, even specific stock analysis!

 

[kyphysics]

Can I just add that as far as "gurus" go, Cuban is probably the most entertaining? I used to watch Shark Tank mostly to see what he'd say.

A second point: if you look into his history, Cuban's number one talent may be talking other people into overpaying for an investment (i.e. he got Yahoo! to pay an awful lot of money for Broadcast.com, and that is how he got rich. What does Broadcast.com do?)

I've had a love hate relationship with watching Mark on Shark Tank. He can be arrogant and overbearing at times, but is also often the most enthusiastic, articulate, and insightful shark.

FWIW, I don't see him as a financial "guru" (whatever that means). He happens to be a professional investor and business builder/entrepreneur, but isn't a nuts and bolts personal finance and/or investing expert and answer man (despite the media giving him a lot of attention and a platform to voice his opinions on these matters).

When when it comes to experts like a Suze Orman or Dave Ramsey (I hear the snickers already) in personal finance and Warren Buffet or John C. Bogle in investing, I don't view them in any sort of negative light that seems connoted with people's use of the term "guru" in this thread. I may not agree with everything they have to say, but I respect their craft and expertise in areas where they are correct. And I don't mind them having very strong views.

I guess I think of a guru as being an expert (they way Leonard Susskind is an expert at string theory or Stephen Hawkins in black holes) and not as some kind of pejorative term. If I were to pick a complete financial "guru" charlatan, then it would be Robert Kiyosaki. He's someone who is running a scam (collaborated with Donald Trump in the past too), while pretending to be a "guru."

re: Cuban's path to wealth

He sold MicroSolutions for $6M and retired before coming back into the business world to start Broadcast.com. I've tended to hear that was more Yahoo! who made a very dumb $5.9B offer rather than Mark cajoling them out of that sum that led to his earning his billions. But even a fair market value at the time was estimated in the XXX,000,000 range. He would have been a hundred millionaire at least with the business he created. I probably classify him as first a business builder more than other kind of expert. He's always won big in that role. When he's gotten into other ventures, they've had mixed success.

Yahoo!'s inability to add value to and Broadcast.com isn't something I would blame Cuban for. It was successful before being bought by Yahoo!

I do know this. I wouldn't want to work for Mark on a day-to-day business (at least, not without 51% of my business). He seems too much of a micro-manager, obsessively competitive, and domineering.

 

[Vanadium 50]

I'll post Ramsey's guidelines/roadmap for financial wealth building later when I get the chance and see what people think. You guys can critique it and let me know what you think.

Why do you think we will like it any better than we did 100 messages ago?

You continue to push the idea that the secret is to find the right guru. Everyone else - most of whom are investment-age adults - has spent 100 messages trying to explain why this is a bad idea. What will even more of this accomplish?

 

[russ_watters]

FWIW, I don't see him as a financial "guru" (whatever that means). He happens to be a professional investor and business builder/entrepreneur, but isn't a nuts and bolts personal finance and/or investing expert and answer man (despite the media giving him a lot of attention and a platform to voice his opinions on these matters).

Agreed. And because he isn't programmed to provide useful advice, he doesn't give it -- so he shouldn't be relied on for it.

What investment style do you use for buying stocks?

I've said it many times: I don't recommend buying individual stocks.

Also, what books did you read on investment strategy?

The main one I've used is linked above. Frankly, one of the things that frustrates us about your contributions to the thread is you seem to be repeating yourself without showing that you've read/understood the responses. Please try to correct that.

2.) create an emergency fund
3.) pay off debt
...THEN invest

I disagree with the order and the idea that 2 and 4 are separate things: both credit cards and certain types of investments can serve as "emergency funds".