We all know who Mark Cuban is, the billionaire investor from Shark Tank known for aggressive deal making. He’s arguably the most popular venture capitalist on earth.
In a recent post, i discussed why venture capital works for Cuban and the other sharks, and the ability they have to shape an investment that we (little investors) do not. That got me thinking, what if…. Mark Cuban was never a venture capitalist. What if, after he cashed out from his dot com windfall of Broadcast.com he just invested into a passive boring portfolio, shut his mouth (something that we know is hard for him to do) and rode his wave into the sunset? How much would he be worth today?
Lets Take A Look At It
Forbes had his net worth in 2002 at 1,300,000,000. That’s a starting point.
Today (10/21/2017) Forbes has his net worth at 3,300,000,000. That’s a notable gain, all attributable to venture capital.
Now let’s look for a passive option. Venture capital is essentially equity in very tiny companies; although not publicly traded they’re the equivalent of micro-cap stocks. A micro-cap index, would be the best comparison, however it isn’t practically possible as the index doesn’t have the capacity to handle his billions of inflow. The next best comparison would be a small cap index, which has actually underperformed the micro-cap index. So we’ll see how Cuban would’ve performed had he just invested in Vanguard’s Small Cap Index fund (Mutual fund symbol: NAESX) way back in 2002.
Of course, a billionaire isn’t going to just stick their money in the bank and go get a job. They need money to live on…. In other words, they need to spend a part of their portfolio. Typical financial advice would guide them to spend spend 2-4% of their portfolio annually. This would let them outpace inflation, maintain or increase their standard of living, and let their kids and grandkids live among the 1%. For this lets just roll down the middle, and assume an annual spending of 3%. Spending 3% of his worth in 2002 would’ve been $39 million, today it would be $99,000,000. Personally, I believe he lives on less money than this (which actually doesn’t help his case as you’ll see here) — maybe he’ll chime in personally and let us know.
The Analysis
Plugging in all the numbers; an initial investment of $1,300,000,000 in a Small Cap Index in 2002, withdrawing 3% annually, would leave him with a current net worth of….
$3,418,293,022
That’s right, slightly higher than his current net worth estimate by Forbes at $3,300,000,000. At that, all he had to was absolutely nothing. Just sit back and coast. He didn’t have to take the reigns of fledgling companies from disappointed founders. Didn’t have work around the clock to keep the company’s growing, or seek out new deals. Didn’t have to rely on his connections to make things thrive.
Let that sink in before you invest in these attractive, crowdfunded venture capital deals. Cuban himself, with his deal making prowess, privliged knowledge, resources, and access to the best deals in Silicon Valley hasn’t even ‘beat the index’.