Post mortem of Mark Cuban’s post mortem on Facebook and the state of financial literacy.

(I talked to Mr. Cuban and he disagrees with what is below. Mainly that he never blames Wall Street. Also I edited parts away as to not take away from what is most important, the financial literacy problem. This isn’t about him or me it is about that and it was a distraction.)

Mark Cuban is fellow Hoosier (we both went to Indiana University), he is a hard worker, is living his dream, appears to be real person, knows how to have fun, driven, challenges himself and best of all he has quite friends. But I disagree with him on many topics of finance.

I believe he generalizes which leads to inaccurate statements or a portion of what is true. I understand the urge, I have buried many posts that would have way fewer readers than his. His blog has become a big op-ed that many people confuse for facts or reality.

His latest take on the facebook IPO is here. His points are in bold.

1. Say goodbye to the individual investor on Wall Street. Mr. Cuban argues that because the media hyped the FB IPO that Wall Street is to blame. OK, I agree the IPO was hyped. But is that Wall Streets fault? Isn’t it the media’s fault? Isn’t it the buyers fault for not doing their due diligence? Didn’t Morgan Stanley spend millions propping up the stock the first day?

No one has long term success by reading any single piece of media, especially without knowing the writers intentions.

Here is a brief explanation on how the market works. If there are more buyers than sellers it goes up or vice versa. Or more important right now, if they have the means to buy.

2. The Valuation Bubble in Silicon Valley is bursting – but not for the reasons you think. The idea of private investment seems great but the execution is far off. The value of any market is liquidity. That has to be one of the important factors when making an investment. You know why futures are gaining popularity and what will eventually lead to their demise? A central market place and the lack thereof. Their spawns will kill the market and liquidity. The less central a market place the more likely the forces within that market are able to take control.

Mark agrees with me on liquidity but my interpretation is that he makes an argument against his point not for it. Didn’t the public market do a much better job at pricing? Didn’t the private market fail more dramatically than the public is this case? (Some one that knows the details better than I, when they went public did private shares get converted 1 to 1? If it did not get converted 1 to 1 let me know and I will gladly change it)

I believe Shark Tank is a great reason why Wall Street will always exist. I do not feel bad for the euntrepreuners and or the Sharks. Each assume the other person will add value. Wall Street assumes the same thing but to more people But as Mr. Cuban already knows, not everyone can win. But would they do better if there were 10 sharks or 100 sharks? Would more companies get funded?

If you allow people to be stupid, they will continue to be stupid. Howard Lindzon wrote a post as well that I disagreed with on the basis of access. They are both a lot more successful than I so I could be wrong. Also both of those guys should know that you are more likely to get screwed privately than publicly. I think this might be changing but it hasn’t yet. Open is not bad, closed is not bad, bad is bad. Liquidity and cash is always king, deeper markets should lead to better pricing.

3. I always laugh at all the pundits /analysts who try to tell you what any non dividend paying stock is worth. What many people who depend on the market to buy food, put a roof over their head, already know is that everything is a signpost. There are no guarantees. Everything is a signpost. Meaning that analysis provides reference points it does not predict the future.

We see this in sports all the time. I am sure Mr. Cuban believes he will win each year but doesn’t. Mav’s fans believe you are doing your best or they will not go to the games. Same is true with analyst.

4. Mobile is going to crush Facebook. I agree a problem. But you can’t blame the media for over hyping something and also revealing a major flaw. So what did the media do? Did they hype it or reveal a problem that should have been considered when investing? Can’t have both sides of it here.

5. And in the interest of disclosure I bought 150k shares of FB. 50k shares at 33, 50k shares at 31.97 and 50k shares around 32.50. Its a trade, not an investment. Kind of like buying a Mickey Mantle, a Hank Aaron and a Barry Bonds Rookie Card knowing there is a card show in town next week.

Did you take that trade thinking you would make money? Did you understand that you could have lost money?

So once again, I respect Mark Cuban as a person, an investor, an innovator, and a positive contribution to society. Someone whom I want to be like one day. But, he will NEVER be a financial advisor. To be an advisor or trader you have to look at each situation differently and appreciate its uniqueness. He throws out too many statements in too broadly of a matter. He probably will never lose you money but he is not ever going to make you money. You miss 100% of the shots you do not take. I understand that philosophy but unlike Mark Cuban, I do not think everyone is dumb. I think they can learn from their mistakes. I think they can take full responsibility for their actions.

I was completely wrong about facebook’s stock. I am surprised by its free fall. But then again I know very little about the company and investing/trading in social media stocks. I understand my limits and I see the market as opportunity not money. Anyone putting money at risk should have a similar understanding.

Mr. Cuban, financial literacy is one of the most important subjects facing education. Please use your powers to improve it. The fact that I did not take a personal finance class till I was in college is an abomination. Your blanket advice and opinions are not contributing to financial literacy. You are assuming they can’t learn. Finance types assume they understand. Both assumptions have potentially devastating consequences to individuals who are ultimately responsible for their results. You can’t privatize the gains and socialize the losses if you ever expect to improve.

This post was not to take down Mr. Cuban but to reveal a major problem with financial literacy. He just happens to be the loudest person who is not contributing to the solution. It could be that I am wrong, that people cannot learn. That no one makes money but the evil banksters. That every person is corrupt and wants to steal from you. That there are no honest people on Wall Street. That the government is complicit in the stealing from its people. That we should protect every person from themselves. That every investment or trade should be a winner. That individuals should not have choices. That you can do no work and still be successful. That the best people do not have an advantage. That skill and experience do not matter. That you are stuck in the same spot as you are born in. That we live in a world where opportunity comes without risk, a little luck, and hard work. That we live in a world that is equal, not fair. That every one is the best. That hope is more important than execution and results.

If all of that is true and I am wrong, than no one will be more disappointed than me.

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  • The small investor is at an advanatage to the large institutional trading firms. I say this because investing a small amount of money in a security with lots of liquidity is much easier. Large institutional trading firms must always be concerned that their trades will greatly cause a security to move quickly. The whale and elephant always have a much harder time keeping their next move a secret unlike the mouse or golfer.

  • mutant_dog

    “Financial Literacy” is very difficult to teach as a subject, realistically.  You know, you learned to trade in the “School of hard knocks”, right ? (albeit, with mentors.)  I think the only way to learn how to deal with losses (or gains) is to experience them, then decide if you can tolerate the pain (or hubris) that results.

    (h/t Tadas @ A/R for pointing me here.)

2 Responses to Post mortem of Mark Cuban’s post mortem on Facebook and the state of financial literacy.

  1. The small investor is at an advanatage to the large institutional trading firms. I say this because investing a small amount of money in a security with lots of liquidity is much easier. Large institutional trading firms must always be concerned that their trades will greatly cause a security to move quickly. The whale and elephant always have a much harder time keeping their next move a secret unlike the mouse or golfer.

  2. mutant_dog says:

    “Financial Literacy” is very difficult to teach as a subject, realistically.  You know, you learned to trade in the “School of hard knocks”, right ? (albeit, with mentors.)  I think the only way to learn how to deal with losses (or gains) is to experience them, then decide if you can tolerate the pain (or hubris) that results.

    (h/t Tadas @ A/R for pointing me here.)

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