Why Mark Cuban Thinks Diversification is a Horrible Idea – The TRUTH About Diversification

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So before you start bashing Mark Cuban for stating that diversification is a bad idea, you need to hear him out because there are some solid reasons for his claims. And he’s actually been backed up from no other than Warren Buffett who’s been quoted saying “Diversification is a protection against ignorance.” But why is that?

You can’t diversify enough to know what you’re doing. So as an individual investor you can’t really follow a diversified portfolio closely enough to know if each one specifically is a good investment, which is why most people leave it to a financial planner to do the job for them, and I’ll tell you why that’s a horrible idea in a minute.

Mark Cuban’s approach is different to the traditional diversification and unless he knows something specific where the margins are in his favor he’ll simply keep it in cash. And holding a substantial part of your wealth in cash isn’t necessarily common but it’s a very valid investment strategy as it enables you to take advantage of unexpected market crashes and other business opportunities, which is something he’s done many times. In 2009 he did his homework and bought mortgage backed securities when their value was crushed as well as investing in Australian bonds as a way of playing China. This at a time when most people had huge investments in regular diversified portfolios without any cash. A portfolio like that is great and all when the market is booming, but once the market crashes it’s over.

Even though you might put your eggs in different baskets and have several different investments in different markets, they’re all paper-assets. In the same paper-asset basket. It doesn’t matter how well this diversified portfolio is doing because as I stated before if or when the market crashes, your whole diversified paper-asset basket will do so too.

Robert Kiyosaki explains this well through his rich dad poor dad brand where he talks about the four asset classes that you should invest in if you want to truly diversify your investments. They are owning a business, having real estate that create cash flow, commodities and lastly also paper assets.

As a diversified investor you should invest in all of these asset classes and be specialized in one or two of them. Most people only invest in the paper assets without much knowledge about what they invest in and leave it to the financial planner.

The financial planners that works for the bank can be ruthless and most of them care only to sell you their products, charge you fees, take your money to benefits themselves.

And just to put things into perspective, today it takes 30 days to become a financial planner and about 1,5 years to become a massage therapist. The money you’re trusting a financial planner to invest and diversify for the rest of your life could be in the hands of someone who has no experience what so ever. But you need almost two years of practice before you can squeeze someone’s calfs as a massage therapist.

In most countries you can legitimately advise someone to buy a multimillion dollar property and make tens and even hundreds of thousands of dollars in commission in this one transaction. You’re not required to have any educational qualifications, not even complete year 12 in school to earn the title financial planner. So you think these people will advise you in your best interest or in their own best interest?

Interview:
https://www.youtube.com/watch?v=u5Pp1HEKSPM&t=954s

Music:
Life of Riley by Kevin MacLeod is licensed under a Creative Commons Attribution license (https://creativecommons.org/licenses/by/4.0/)
Source: http://incompetech.com/music/royalty-free/index.html?isrc=USUAN1400054
Artist: http://incompetech.com/

Comments

Money Growth Academy says:

Great video! So much info to be pulled from these interviews. We just released a video on our channel analyzing their comments. From our own experience of building a fortune from stock investing we would have to agree with their comments. Diversification is a terrible leading strategy for your investments 💰👍🏽

Zac Russell says:

Dip shit, how many financial planners don't graduate high school. You DO NEED A BACHELORS to be a financial planner/analysis. On top of that, you have to pass several exams. You shouldn't just listen to a financial planner because you don't know what you're doing, but your one sided view is completely wrong

Bam Boo says:

Just found your channel and am glad. They done fucked up…

K D says:

Starting a business or even owning a house without putting money down first is a lie.

Randy Searle says:

Cool, so first half of the video, Diversified = stupid. Second half of video = 90% of my money should go into S&P Index Fund. Because what is an S&P Index Fund if obviously not diversified between 500 companies…..#goodwork

Fail Funny Fart says:

You have a balls boy I like it, subscribe

Edward Snowden says:

80% of active managed portfolio are underperforming index funds. Buffett bet $1m that index funds will beat hedge funds over 10 years. he won. It is human to think that you can beat the average, but we can't. That's why Buffett is unique and we don't have 7 billions of Buffetts. You don't have to get financial advisors. All you need to do is invest (save) regularly large % of your earning (instead of spending them on latest items) in ETF index funds.

Brandon Villatuya says:

Ironically he's pretty diversified

Jonathan Lawes says:

Did this guy really just spend the whole time saying don’t diversify, and then advise you to spend 90% on the S&P500?… is nobody catching this?

NOT kd says:

what country are you from dude. your accent is dope hahaha

Danny Jones says:

Almost stopped watching at the unnecessary slomo

jaghad says:

Diversification is for idiots. Lol. Tell that to Peter Lynch – one of the most successful investors.

It's not about this or that strategy. It's about having a strategy, believing in it and continually improving it. Buffett's strategy has evolved over time or he wouldn't have surrvived.

There are pros and cons with all strategies. One isn't necessarily better than the other. It depends on you as a person. Use a strategy that works for you.

rhythmandacoustics says:

This video is saying that you need to time the market and keep your cash while waiting. This advice is stupid and reckless. Index investing that has broad diversification does better long-term rather than stock picking. I think you are confusing active managers vs index investing. Vanguard is the second most biggest broker company and has almost owned half of all companies in the stock market. Diversification also cost less than stocks since you can get ETF for no commission. You are full of sh*t.

Manuele Mambelli says:

Diversification prevents you from one stock underperforming or crashing. Investing 100 dollars in the same company or industry means losing money if that company makes losses or even goes bankrupt.
But if you invest 10 dollars in 10 different stocks, then in case one of them underperforms the other ones will cover for that. The only thing diversification does not protect from is market risk, which is when all stocks crash simultaneously.
However, for market risk we can diversify our portfolio with safe fixed income assets.

How can diversification be a bad idea then? Only because diversifying risk, we also diversify the returns on our investments. If we concentrate our money in the few highest performing assets, then we get higher returns than investing in a diversified portfolio with both high and low performing assets. But to know which will be the best performing ones you need to spend time studying markets and companies.

At the end of the day, unless you are a full time investor, diversification is still the best strategy.

Xiao Jack says:

Just started to watch your videos again, I gotta say I love the way you say fuck haha. It’s so vulgar yet so straight up. :)

MMABeijing says:

and pop goes the tail-bone

J F says:

leave a dislike if your a massage therapist😂😂😂😂 that was funny

J F says:

Thanks man!

Morgan Sinclair says:

Mark Cuban is an absolute moron, and anyone who takes him serious is a moron too.

Paul Visconti says:

This guy is a liar. You need a lot more than that to be a financial planner and especially one who is trusted. And its been proven over and over again as fact that asset allocation drives the bulk of investment returns. Mark Cuban is an obnoxious spoiled brat.

THE PEOPLE says:

This is so true and it was proven during the housing crisis. When the housing market crashed, the Stock Market crashed. Another thing that dropped in value, which most people or "the average person" didn't realize was The Federal Reserve Note AKA The US Dollar. But many people probably didn't notice what DID go up in Value, which was Precious Metals, especially SILVER. Before the crash happened Silver was trading for $8 or $9 an ounce. While the recession was kicking off Silver jumped to over $50 an ounce. So what Robert Kiyosaki was saying about Diversifying among asset classes is definitely the way to go. 100% Agree!… Also Great Video. Thanks a bunch. 🙂

Expat Strategies says:

There are some obvious flaws here.  The biggest one is the academic evidence which is plentiful.  The evidence shows two things.  Firstly, it is almost impossible to time the markets.  So getting in at the `right time` is almost impossible. Second, markets tend to rise over time, as your graph shows.  If Trump would have invested his inheritance in the S&P and just tracked it, he would be wealthier today.  So crashes don't matter in the long term. All the evidence out there from the data shows it is better to invest for 40-50 years whenever you have money, reinvest dividends and don't try to time and be too smart.  Remember, even if somebody times the market, because the money was previously sitting in cash for 10-20 years waiting for the crash, the money would still be worth less than somebody who was fully invested.  Let's give 2009 as an example. Let's say somebody had $100,000 in 1997 and thought the market was overvalued at around $7,000.  By 2009 and the huge crash, they would barely have more than $100,000 as the money was in cash.  In the last ten years, they would have made about 350% profit (35% per year including reinvesting dividends) and there account would now be worth around $350,000.  The person who stayed invested and reinvested 2% dividend every year for 20 years, comparison, their account would be worth well over 400K.

abcde fg says:

why are most of your outros swedish clips? Btw, great video!

var1328 says:

I need protection against ignorance – 😀

Leigh Peel says:

The part about financial planners is incorrect. I spend 1200 hours studying over a full year getting my diploma and then you still can't give advise for the first few years without having a dealer group verifying your statement of advice until you can prove you can make complex financial decisions. Even when that happens you are still audited twice a year to verify your decision is within the ASIC guidelines. Still a great video, love your work and I will continue you watch. Thank you.

Julian Juclev says:

Good video try to make your voice a little louder

TOM OUTLAW says:

Good advice delivered with even better humor. Primed is Prime Listening Time!

Jack O'Sullivan says:

Great video

Platinumini says:

fk yea i love the way u present these useful vidoes

SickanK says:

Jag bara älskart the outro!

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