Jin S. Lee
- Billionaire entrepreneur and investor Mark Cuban is patiently sitting in cash and waiting for the fallout from the coronavirus to subside before putting springing on new investments.
- In the short-term, Cuban sees “a leg down” for markets, echoing the views of billionaire bond king, Jeffrey Gundlach.
- Cuban also thinks commodities and real estate will make sound investments during this time period for those more daring.
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“I’ve gone to cash.”
“I still think we have a leg down,” he added.
Cuban’s prognostication of echos that of billionaire “bond king” Jeffrey Gundlach. In late March, Gundlach warned market participants of a sharp decline in April that would eclipse the 30%-plus trough stocks had previously dug out. Those comments were echoed by Paul Singer-led Elliott Management, which sees 39% downside from current levels.
So far, those forecasts haven’t come to fruition as markets rallied sharply in the first half of April.
But even though Cuban is forecasting a decline in the short term doesn’t mean he’s overtly pessimistic about the longer-term growth prospects in the US.
“Three years, five years from now, the market will be up from where we are today,” he said. “When we look back in 10 years, there’s going to be some amazing companies created — and having access to cash, or having cash, is going to give me an opportunity to invest in them.”
For that reason, Cuban’s approach to markets in this time period is predicated on a wait-and-see, cash-heavy strategy. He’s building his cash hoard now, so that he can deploy it on the entrepreneurs and companies that emerge from this crisis.
“I think there are companies that are going to need capital in this America 2.0,” he added.
For context, “America 2.0” that Cuban refers to is analogous to a post-coronavirus landscape within the US.
What’s more, with global supply chains in disarray, and manufacturing processes likely slated to come back to the US, Cuban thinks an uptick in consumer pricing pressure is to be expected. For that reason, he sees commodities as a main beneficiary of today’s market environment.
“I think commodities will go up because I think we’ll get some modicum of inflation,” he said. “And as companies try to protect their own manufacturing and try to really bring core necessities domestically — I think that could push up the value of commodities.”
Cuban’s inflationary forecast is similar to those laid out by strategists at heavyweight firms such as BlackRock, JPMorgan, and Morgan Stanley. All of them have said the risk of higher inflation is underappreciated by investors at large.
Although Cuban doesn’t give recommendations for specific commodities to invest in, he says “generically, on a macro basis” investors should expect an increase.
An opportunity in real estate
Cuban also sees opportunities in real estate for those willing to stomach the risk. He breaks down potential investments into two buckets: Those that are budding, and those that are ready for purchase.
“I’m trying to be opportunistic and agile,” he said. “I just think there will be a lot of reformulating because there’s so many companies that were leveraged. So companies went to buy land or buildings or shopping centers — whatever it may be — and they put down very little capital, and they went out and borrowed more.”
He added: “I think you’re going to see some deleveraging there, which creates some opportunities to buy land.”
Although Cuban is optimistic on the commercial real estate space, he says that the discounts haven’t yet been baked into pricing, so it’s best to be patient. Investors looking for broad exposure to the space can buy the Vanguard Real Estate ETF (VNQ).
On a more immediate basis, he thinks unit prices in densely populated cities that have been decimated by the coronavirus are starting to look enticing.
“In big dense cities, like New York, you’re starting to see condos — the prices there have just dropped like rocks,” he said. “If you think you want to live in New York in the future, now’s the time to buy. If you think you want a house in an area that’s been hit-hard — Detroit or wherever it may be — now’s the time to buy.”
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