Mark Cuban Names The Investments Most Likely To Send Rich People To The Poorhouse And Describes How He Would Invest Instead

Throughout his several-decade-long business career, Billionaire entrepreneur Mark Cuban has seen many people squander fortunes by making bad investments. In a recent appearance on Shannon Sharpe's Club ShayShay podcast, Cuban opined on the types of investments he likes and which ones he sees as money pits that can sink even the richest investor. Keep reading to learn more about his approach.

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It should come as no surprise that Mark Cuban has a common sense investing approach. That approach starts with avoiding investments with low chances of success that also burn up a lot of capital. Cuban bemoaned that these investments often have strong emotional or cultural appeal to people who recently came into money or are investing for the wrong reasons.

He told Sharpe directly, "Don't invest in the restaurant, don't invest in the clothing label, don't invest in the liquor company … or music. That is the death!" Cuban noted that these types of investments carry a lot of flash and buzz, but they don't have any real "barriers to entry" aside from someone with deep enough pockets to write a check and start one.

He asked Sharpe (an NFL Hall of Famer), "Do you know one athlete's label that's done any good?" Despite playing for over a decade in the NFL and having a near-endless list of contacts who are both active and retired players, Sharpe could not name one.

Cuban's advice is not due to any personal animus he has for fashion, spirits or entertainment. He realizes that while all those sectors can be incredibly lucrative, the most successful companies are led by people with years of experience and a deep network of industry contacts. Most celebrity investors lack both and, consequently, end up throwing lots of money at problems that only years of experience and contacts can solve. 

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Cuban told Sharpe his best advice to anyone who comes into a lot of money and wants to invest is to find an experienced financial professional and let them grow their wealth. He also stressed that this financial advisor should be someone experienced and outside the investor's circle. “It cannot be your friend. It’s got to be somebody who’s done it for big-time people,” said Cuban.

Cuban realizes that experienced money managers will not be distracted by bright, shiny objects like the "cache" that goes with being a restaurant owner or a record-label executive. An experienced money manager is much more likely to grow their client's wealth by investing in securities that yield passive income, such as shares of dividend-king stocks or real estate investment trusts (REITs). 

It's not that these investments are without risk. However, publicly traded companies and REITs must navigate significant entry barriers before anyone can invest in them. These barriers include mandated public reporting, minimum liquidity standards and market cap requirements. By contrast, all you have to do to start a clothing company is write a check. 

Then you keep writing checks until it makes money or you run out of money. In Mark Cuban's observation, running out of money is often the only part of capital-intensive, high-risk investments like restaurants and record labels. That's why you would likely be well served to consider Cuban's advice before investing, regardless of how much or little capital you have to commit.

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