In addition to buying and selling the Dallas Mavericks and his long-standing appearance on “Shark Tank,” Mark Cuban has amassed a fortune through savvy investments. So how can you follow suit and invest like Cuban?
First and foremost, you want to avoid any potentially bad investments. Per one of the most famous venture capitalists in the world, here are six to be very wary of.
1. Businesses That Are Easy To Copy
Cuban looks for businesses with unique competitive advantages that can’t easily be replicated, as The Motley Fool reported. That could mean companies with patented or proprietary technology, unique expertise, geographical location or anything else that keeps competitors from swooping in and stealing market share.
2. Businesses With Huge Capital Needs
Cuban tries to avoid businesses with huge startup capital requirements.
Businesses typically fail because they run out of money. If a business needs enormous capital investments to start selling products or services, it comes with equally high risk of running out of money before reaching profitability.
That prudence occasionally means Cuban misses out on a big winner. In 2013, he declined an opportunity to invest in Doorbot — which later rebranded as Ring and sold to Amazon for over $1 billion. In a LinkedIn comment referenced by The Motley Fool, Cuban said he would make the same decision again.
Having a grounded process for decision making doesn’t mean that you can predict the future. It means you make better decisions with the information you have at the time.
3. Businesses With Large Debts
Despite taking risks in some areas of his investments, Cuban remains wary of debt.
“In my businesses, once we got started, we had no debt,” Cuban said in an interview with Money magazine. “I learned very quickly that debt was not my friend.”
Remember, businesses go under because they run out of money. Heavy debt payments make it harder to reach positive cash flow and can drag down businesses trying to get off the ground.
4. Expensive Investments
Cuban cautions investors to avoid high-fee mutual funds, hedge funds and other investment vehicles that take a huge bite out of your returns with their management fees.
In the interview with Money, he said, “Saving money and putting some into a low-cost mutual fund — like an SPX fund — and living as inexpensively as you possibly can, will pay off dividends … If you can find a way to invest inexpensively in the market, you can start to build your net worth.”
By SPX, Cuban means an index fund that simply mirrors the S&P 500.
