I usually like Mark Cuban’s articles. He’s a bright guy, a real maverick, an innovator and a good writer. But this week, he wrote an article about the Asset Allocation Lie which was probably his worst work I’ve ever read. Not only do I disagree with his opinion, but I’m concerned that his advice is actually dangerous and gullible readers will lose money as a result.
His main premise is that as Wall Street spews out more and more new investment options (true, many of them useless and high-fee), ETFs (true, many are redundant or don’t do what novice investors expect them to like leveraged ETF decay), REITs (I’m not sure why he picked REITs, there hasn’t exactly been a massive burst of new REIT filings, but it just sounds scary to throw another 4-letter acronym at people?), the advice that investors should diversify into multiple holdings is wrong – because they can’t possibly understand multiple investments. While various asset classes and high-fee investments may have valid critiques, it doesn’t mean investors should throw their arms up and not diversify.
I think this is downright dumb on multiple levels. First of all, what DO we all know? We all know our own company. So, is his premise that we should primarily invest in our own company stock because that’s what we know best? He doesn’t say it, but his premise is such. I would argue you shouldn’t invest in your own company at all! It’s double jeopardy. You’re already getting a paycheck there, you may have a pension tied up with the future survival of your firm, you may have options, a bonus that’s dependent on performance and other facets of your life. Why would you stack another layer of risk on top of it by investing in shares of your own company? Let’s face it, many people are cheerleaders for their own company because they have an emotional attachment to it. But the Efficient Market posits that you’re no better informed on your company’s prospects than the next guy. And if you actually are? Well, that’s insider trading…
Next, he claims someone can’t possibly understand various mutual funds or ETFs and shouldn’t invest in commodities. OK, so understanding a mutual fund or basic ETF is as simple as looking at its top holdings. See what you’re owning. How’s the past performance? What are the fees? Are there any abnormal tax implications? Funds are by their very nature less volatile than an individual stock may be in the future. Think Enron. Think Lucent. Think the biggest company in the world at one time – GE! Top companies can lose over 50% of their value in the blink of an eye. People that don’t understand investments amaze me. They’ll memorize how many touchdowns or RBIs their favorite player has but they won’t learn about investing. What’s more important? Many people DO spend the time to learn about various asset classes, investment vehicles and asset allocation – diversification.
Why not own some commodities? If I’m a senior living on a fixed income, what’s wrong with investing in some energy commodities to hedge a spike in energy prices or owning some gold to help ward off inflation? Not a large portion of the portfolio, but something?
Sorry Mark, I just can’t get behind this populist rant. Using the same anti-Wall Street, pitchfork waving sentiment as Huffington Post and MSNBC isn’t good investing advice. In an era of increasing inflation, the decline of our fiat currency and uncertainty everywhere, you think earning 0.25% interest on a savings account is the way to go?