Dec 1, 2024
Mark Cuban became a billionaire by starting and selling multiple businesses. However, he gained fame by appearing on the hit TV show "Shark Tank" on ABC. Hosts on the popular reality series are often portrayed as ruthless negotiators and savvy investors.
However, in a 2022 interview, Cuban revealed that his broad suite of investments on the show had made a net loss.
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“I’ve gotten beat,” the billionaire said on the “Full Send Podcast.” The billionaire has deployed roughly $20 million into 85 companies across 111 episodes of the show since 2009.
This rare sneak peek behind the scenes of the reality TV show offers ordinary savers and investors three key lessons.
1. Startups are risky
The type of investment popularized by shows like Shark Tank can best be described as angel investing or startup investing. This is because the ideas presented on the show are usually from early-stage companies with a short track record and often showcase eye-catching ideas rather than established businesses.
In this asset class, Cuban’s track record isn’t unusual. According to data from San Francisco-based research organization Startup Genome, 90% of startups eventually fail.
Venture Capitalists know this and often rely on the “power law” to make a return, according to Common Fund Private Equity. In other words, most startup investors expect only one or two firms in their portfolio to offer such massive returns that it offsets losses across the rest of the portfolio.
This investment style isn’t suitable for everyone. Mark Cuban’s net worth is $5.7 billion, according to Forbes, so losing $20 million doesn’t necessarily move the needle for him. However, the average saver or investor may need a different, less risky approach.
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2. Established businesses are safer alternatives
Instead of focusing on early-stage companies with lofty expectations of future returns, investors could turn their attention to established firms with robust track records.
For instance, Cuban acquired a majority stake in the NBA’s Dallas Mavericks for $285 million from real estate developer Ross Perot Jr. — 20 years after the brand had been established. This would go on to be one of his most successful investments.
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Similarly, you can pick beaten down or overlooked companies with a long track record. Nike (NYSE:NKE), for instance, has lost a lot of its value since 2021. This stock might still be in a better position than many unprofitable and overvalued startups with flimsy business models.
However, another key lesson from Cuban’s investing history is that he spreads his money across different bets.
3. Diversification is important
Cuban’s portfolio stretches far beyond the 85 companies he selected on Shark Tank. His company has stakes in various firms ranging from affordable generic drug companies to tech and entertainment companies. This well-diversified approach could be one of the reasons why the entrepreneur has continued to build wealth despite several missteps and failed ventures along the way.
The lesson for ordinary investors is clear: diversify.
The ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL) offers a convenient way to gain exposure to several well-established firms. The fund allocates capital to large-cap S&P 500 stocks that have increased their dividends for at least 25 consecutive years and limits the exposure of each sector to less than 30% of the total portfolio.
For those looking to create long-term, durable wealth, funds like NOBL are worth a closer look.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
