Mark Cuban Says Buy-and-Hold Is 'A Sucker's Game' - Here's What He Does With His Money Instead

Millions of investors use a "buy and hold" strategy with their stock investments. They hope that doing so will help them get ahead financially over the long run, since it's a favored strategy for many because of its ability to generate long-term wealth by compounding returns.

However, billionaire entrepreneur Mark Cuban is skeptical that this approach is as sound as proponents claim. Find out why Cuban is a doubter, and what strategies he recommends instead.

What Cuban has said about 'buy and hold'

Way back in 2006, Cuban took issue with the concept of "buy and hold." He deemed it one of the most misleading slogans ever.

In a blog post, Cuban lamented that a large part of the country had "fallen for" the concept of buying investments and holding them for the long run. In fact, he said such an approach is for "suckers." He argued that few people can keep their money locked up for long periods in hopes that their stash of cash will grow.

However, he noted that a job loss, medical emergency, or other event can require folks to quickly raid their savings and investments. Cuban wrote, "You can have as long a term horizon as you want, but like most other long-term plans we have, most people's lives don't match up to their 'horizons.' It's amazing how life intervenes."

What does Cuban advocate instead?

It is clear that Cuban is skeptical of the "buy and hold" approach. So, what does he recommend instead? Here are a few ideas that the billionaire has suggested over the years.

Pay off high interest debt

Cuban is a huge advocate of avoiding debt at all costs. As he once told personal finance guru Dave Ramsey, "The best place to invest is to pay off all your credit cards and burn them."

If you have a credit card with a 20% interest rate and you pay it off, you have essentially earned 20% on your investment, Cuban notes.

Keep a cash cushion

Cuban keeps a large portion of his own portfolio in cash. Doing so gives him the opportunity to make big investments when the right opportunity arises.

But even if you don't have billions, keeping a large pile of cash can be wise. As Cuban has said, "You aren't saving for retirement. You are saving for the moment you need cash." For that reason, keeping enough in savings or CDs to cover at least six months of your expenses can be wise.

Invest only in what you understand

Cuban has argued that too many investors jump on trends without understanding the underlying fundamentals of the businesses they are buying.

Instead, he advocates closely investigating companies and how they make money before plunking down your hard-earned cash on them.

Don't worry if it takes time to find good companies, you understand. As Cuban has said, "If you don't fully understand the risks of an investment you are contemplating, it's OK to do nothing."

Concentrate your bets

Many personal finance experts urge the average investor to diversify.

Advocates of this approach argue that by holding many different types of investments, you reduce the risk that you will be wiped out if you are locked into one investment that fails.

But Cuban disagrees. He has said that "diversification is for idiots."

This view is controversial, but many investors use the strategy. Proponents of concentrating bets in one or two investments often point out that this is one of the best and fastest ways to get rich.

Of course, if you make the wrong bet, it's also one of the surest ways to lose most or all of your money.

Take small chances on speculative investments

Some people cannot resist the lure of plunking down money on speculative investments in the hope of getting lucky and fabulously wealthy.

Cuban does not necessarily condemn this practice, but he believes you should pursue it carefully.

As the billionaire once told Vanity Fair, "If you're a true adventurer and you really want to throw the Hail Mary, you might take 10% and put it in bitcoin or Ethereum; but, if you do that, you've got to pretend you've already lost your money."

Is Cuban right?

Some of the things Cuban advocates are not controversial. Few would argue with the wisdom of eliminating debt and maintaining a solid emergency fund. However, many experts would take issue with Cuban's criticism of "buy and hold" investing.

One famous academic study by Brad M. Barber and Terrance Odean found that the "buy and hold" approach is a much better way to build wealth over the long term than using an active investing strategy.

In addition, famed investor Warren Buffett is a big advocate of "buy and hold." He once said that his favorite holding period when he buys a stock is "forever." It's also worth noting that while both men are billionaires, Buffett's net worth is far greater than Cuban's.

So, is Cuban right or wrong? There is no way to say for sure. However, many retirees and those nearing their golden years would likely be better served by tuning out the noise of Cuban's edgy comments and instead seeking the guidance of a real-world financial advisor.

Bottom line

Cuban believes those who rely on a "buy and hold" strategy are suckers. But that doesn't mean he's necessarily right.

The key to building wealth over the long haul is to develop a sensible investment strategy that is most likely to help you grow your wealth and reach your individual financial goals. Consulting with a financial advisor can be one of the best ways to craft the right approach for you.