
Mark Cuban: How Stocks are like Baseball Cards (2004) - rms
http://blogmaverick.com/2008/09/08/talking-stocks-and-money/
======
lionhearted
I remember this Mark Cuban quote from another entry, it really made me think
(emphasis mine):

> The stock market is probably the worst investment vehicle out there. If you
> won’t put your money in the bank, NEVER put your money in something where
> you don’t have an information advantage. Why invest your money in something
> because a broker told you to? _If the broker had a clue, he/she wouldn’t be
> a broker, they would be on a beach somewhere._

<http://blogmaverick.com/2009/05/13/success-motivation/>

------
JacobAldridge
Basically - The big Funds drive volume, and therefore stock price.

They're looking for a return on investment, through either Dividends (small)
or Equity Growth (potentially massive). When they buy a Share, they want to
know it's going to be worth more to them in the future.

Since no company is going to pay dividends at 30% of the share price, but the
market can move that much fast (up 50% in Australia since the March 09
bottom), Funds care about Equity Growth.

And they know that growth is driven by volume. When they buy today, they don't
care what the fundamentals, profitability etc tells them - they just want to
know will there be more Volume in the future?

Did we mention these are the same companies that drive the actual Volume?

Cuban calls it a Ponzi scheme. It can certainly turn into a circle-jerk, where
every Fund drives Volume by buying because they expect every other Fund to
drive Prices up by driving Volume by buying.

But they forget that the Fundamentals can destroy a company. And a company
that doesn't exist, doesn't trade anymore.

~~~
joshu
volume alone does not drive price.

~~~
JacobAldridge
No, that was my fairly basic reading of the OP.

Of course, excess Volume in either Supply or Demand will affect prices (down
or up respectively).

------
ad
Cuban makes a lot of good points in this series, but fundamentals do exist.
Compare his philosophy to Warren Buffet. Sure, Buffett does often get better
deals not available to retail investors, such as the recent Goldman deal, but
Buffett also buys plenty of common stock as well. (There is plenty of overlap
in the philosophies as well...looking over his 2008 letter, seems like he
favors dividend paying stocks, but don't hold me to that).

~~~
kdw
Personally, I take the approach advocated by Benjamin Graham. I have separate
accounts for investing, and speculation/trading.

I just view them as fundamentally different activities, with different risk
profiles, and different sorts of analysis required prior to taking or selling
any given position.

~~~
davidw
I read the 'snowball' book about Buffet, and it seemed to me like the
advantage Graham had was that they went over information in a way that would
only take a few minutes with a computer, but that wasn't done so
systematically at the time, by most people. So, 'fundamentals', yes, but
fundamentals driven by data. In this day and age, when everyone can comb out
the same stocks in a matter of minutes, does that approach work?

------
tocomment
So where are we supposed to put our money then? Especially with inflation
becoming a big concern in a few years.

~~~
lftl
If you're worried about inflation, then you might want to take a look at TIPS
[http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...](http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm)

~~~
tocomment
that's kind of cool. Ok, don't shoot me, but that is probably based on the CPI
and folks on reddit say government published inflation data understates
inflation. Maybe I should just stop reading reddit ...

~~~
bokonist
No, the Redditers are right. Well, more or less right. The CPI is entirely
subjective. There is no objective way to measure quantitatively how much
quality of a product has improved.

More importantly, from an investment perspective what you care about is
_monetary dilution_ , not consumer prices. If the currency dilutes at 10% a
year, and productivity grows at 7% a year, then CPI inflation would be a nice
and easy 3%. But that dilution rate is really high. If you own a asset that
dilutes at 2% (gold, stocks, oil, real estate), you'll earn a return of 8% a
year.

I really recommend this article for understanding the problems with CPI:
[http://unqualified-reservations.blogspot.com/2008/08/de-
gust...](http://unqualified-reservations.blogspot.com/2008/08/de-gustibus-non-
computandum-or.html)

~~~
kdw
Okay, you win. I'll leave HN as well.

I'm just a guy with a deep and abiding fascination with economics and public
policy. One so deep I recently picked up a graduate degree on the subject. One
so deep that my current startup is based entirely on my desire to help
individuals better understand the financial possibilities that lie before
them.

But you've read a blog and some things on reddit, so clearly you understand it
better than me.

I'm sick of arguing with people like you... people who base their economic
beliefs not on solid econometric analysis, but rather on mostly inaccurate
blog posts... and yet you still mistake yourself for an expert.

You win. I'm out of here too. I'm deleting my posts that are available for
deletion, because the combined arrogance and ignorance of your response here
makes clear that I was foolish for thinking that this could be a venue for
informed discussion. I won't waste another second of my life "debating" well
established knowledge with an idiot like you.

~~~
bokonist
Wow.

You complain about me being "arrogant" and "ignorant" and then you make
entirely false statements about my own background (a subject of which you know
absolutely nothing). You then complain about the quality of this forum, and
then are the first person in two years of commenting on Hacker News that has
ever attacked me ad hominem. I suspect that you are reasonable person that is
just especially frustrated by the generally low quality of internet commentary
about economics ( I too no longer visit reddit, but that doesn't mean the
people there are wrong about everything). But if that kind of language is
common with you, I do hope that you leave Hacker News.

I have had also had a long and deep fascination with economics and public
policy. I've read dozens of books on finance and economics, from the original
classics to more modern research. I've read hundreds of articles, I used to
browse through social science libraries and download NBER papers for fun. I've
had long and productive discussions with academic economists, people who work
in finance and people who have worked in central banking. I don't claim to be
omniscient about economics. But I have formed judgments, I state them plainly,
and I welcome debate and hearing new arguments. I do not disagree with
Keynesians or other mainstream folks because I am ignorant of their arguments.
I disagree because I have evaluated them very carefully, read everything I
could on the subject, and found their theories unconvincing.

I would be happy to debate or back up either of the two claims I made ( "The
CPI is not a good measure of inflation" and "The mainstream economists led the
economy off a cliff"). If you want to read comments where I elaborate more,
you can read a few I made elsewhere: <http://www.newmogul.com/item?id=15334>
or <http://www.newmogul.com/item?id=12274> I would actually really like to
debate them with a worthy opponent. I too find good economic debate very hard
to find on the web.

~~~
bokonist
_There is no such thing as a Keynesian._

Some economists suggest that "we re-embrace Keynes"
(<http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html> ). We call
these people "Keynesians" for shorthand.

 _I greatly doubt "dozens of books", but I wouldn't be surprised if you've
read a couple books and some articles that generally all agree with your
preconceived ideas and your austrian leanings._

That is false. I read books from all sides, and the results of my reading
greatly changed my views.

 _After all, you're clearly a person who think that he can point to the sky
and understand economics, which is typical for armchair austrians... whereas
actual economists and intelligent people generally prefer econometric data._

I have no problem with data. Because I respect data and math, I care a lot
about when it is used properly and when it is not. In particular, regressions
are almost always abused in econometrics, because there are far too many
variables to control for, all the variables are imprecisely defined, and there
is no easy to way to check the author's assumptions for a sensitivity
analysis.

 _The federal reserve failed to be an effective arbiter of systemic risk.
(something which was not even remotely in its mission statement.)_

Dear God, if you call me ignorant you should at least read their mission
statement before making a claim like that:
<http://www.federalreserve.gov/aboutthefed/mission.htm> Mission:

\- "supervising and regulating banking institutions to ensure the safety and
soundness of the nation's banking and financial system and to protect the
credit rights of consumers"

\- "maintaining the stability of the financial system and containing systemic
risk that may arise in financial markets"

 _That's just nonsense. Most economists have nothing to do with the economy._

A great number of prominent economists work in official positions ( CEA, FED,
the various agencies and bureaus). These economists play very major roles in
regulating the economy.

 _Non-hedonically adjusted metrics have been studied at length and are
generally be be more flawed than the hedonically adjusted metrics._

I never said straight up hedonically adjusted numbers are better. You have to
use the right number for the job. For the purposes of monetary policy or
investing, I would look mainly at national income statistics, asset prices,
credit growth, and broad money supply growth. Maybe the Fed wasn't watching
these, or maybe were and just ignored them. But all four measures were showing
huge warnings as early as 2004, and had they been paid attention to, a lot of
bad things could have been avoided.

 _That said, it's ludicrously arrogant and nonsensical to simply claim it's
pure fabrications,_

Calling it a "pure fabrication" is inaccurate, and a word I did not use. The
CPI is the result of lots of honest hard working people, who long hours trying
to boil down the economy into one number using the most accurate methodology
they can. But the economists calculating the CPI do exist in a political
world, and there is a selection effect for a methodology that has more
generous assumptions.

But when you pile a ton of subjective assumptions together and then apply a
bunch of math, the result is subjective. There are multiple semi-plausible
ways to do hedonics and there is no right answer. How can you objectively
measure how much percent better a 2004 Toyota is than a 1998 Toyota? The CPI
does indeed have a consistent, thought out methodology. Unfortunately, it's
actually in part measuring the Toyota new model roll out strategy. The Toyota
model roll out strategy has nothing to do with monetary economics or
investment strategy.

 _To you, economics is a religion, and as such there is no point in arguing
with you... you point at the sky, not at the ground._

Well, I have changed my mind on many issues. I am very responsive to good
arguments. In fact, I used to have exactly your position on CPI, with exactly
the arguments you made. But I studied the issue further and was convinced
otherwise.

 _I truly and honestly hope that at some point in time you'll pull your head
out of your ass for long enough to realize the difference in the level of
effort required to become a true expert in a field, and the level of effort
required to simply become dangerous._

So what would you advocate I do if I wanted to become an expert? What defines
an expert?

