Investment strategy plays a critical role in the overall success of every business. Over the past years, both Warren Buffett and Mark Cuban have used different strategies to invest in their firm. Ideally, Buffett believes in the power of using long-term value investing (Otuteye and Mohammad 473). Subsequently, Cuban considers the buy and hold strategy that has propelled him to achieve skyrocketing results. Surprisingly, despite applying the varied approaches, both Buffett and Cuban have shown tremendous growth in their companies. The paper aims at exploring the different strategies used by Buffett and Cuban and determining the most appropriate techniques.
Warren Buffett Approaches
Buffett proposes value investing as the right scheme to help in achieving success in every business. The renowned entrepreneur defines value investing as the organization’s capacity to use innovative strategies that will promote success. Buffett asserts that an entrepreneur should make an in-depth analysis of the investment, determine the advantages and the disadvantages, and finally evaluate the best options in every business (Otuteye and Mohammad 474). During that period, the investor is expected to ensure that the proposed investment rewards are higher than the risks. Buffett believes that an informed decision should be made based on the results of the value investing concept. Buffett accepts that the approach promotes maximum profit achievement in an institution.
Buffett calls for the need to focus on the history of the organization before investing. He believes that such an analysis allows the stakeholder to determine the foundation and make the right steps for investment. In his opinion, history helps the manager to evaluate the organization’s track records (Otuteye and Mohammad 474). In his capacity, Buffett acknowledges the power of records in promoting positive investment in the firm. He believes that value investing, coupled with a strong analysis of the past business operations, provides the investor with the best opportunity to operate effectively and achieve success.
In financial terms, Buffett accepts that investors should concentrate on low-levered firms with high-profit margins. Above all, he stresses the importance of taking care of economic value (EVA) calculation, which is a powerful tool for estimating institutional profits. In other words, the EVA is the net profit gained after all the capital and expenditures are deducted. Even though Buffett believes that such calculations may be complex, he advises investors to administer the program to achieve the expected results. Further, he believes that such investments should be made based on an individual company performance.
Buffett accepts transparency in the institution to help in achieving the results. He asserts that value investors are not propelled with the notion of “getting rich quick.” Instead, these people are patient, disciplined, and risk evaders (Otuteye and Mohammad 475). Buffett acknowledges that transparency is the only powerful tool that can help investors to achieve the above characteristics. He accepts that such positive characteristics make most managers possess the right expertise required to help the firm take advantage of the market.
Mark Cuban Investment Strategies
Cuban provides a completely different dimension on investment as compared to Buffett. Cuban believes that people should resort to a buy-and-hold strategy to accomplish the required returns. The renowned investor accepts the power of achieving maximum yields based on holding investments that provide over 100% profits. He narrates how he bought Amazon shares when they were $500-$700 and later sold them when they rose to $2,000 (Otuteye and Mohammad 475). He believes that such forms of investments allow entrepreneurs to gain a high number of profits without active business.
Cuban accepts the need to become a passive investor who only employs other members to gain profits. He narrates how he struggled back in the 1990s and early 2000s and gained very little (Otuteye and Mohammad 475). He noted that his struggles led to minimal results as compared to the present state. Therefore, he insists on the need to project the possible future market changes in the investment. Cuban is an optimistic entrepreneur who believes in using the power of speculating about the future to achieve the maximum results.
The Best Option for the Investors
Based on the presented facts, I can confirm that Warren Buffett value investing is the best strategy for aspiring entrepreneurs. This option offers potential shareholders the opportunity to make the right strategies before venturing into business. Buffett provides the right outline on what the investors need to make before they venture into the business. Unlike the Cuban option which is passive in nature, Buffett provides an active alternative that allows society members to dynamically participate in the organization. Consequently, Buffett does not rely on speculative choices but direct involvement in the business operations to help the entrepreneur achieve the required results. Further, it is important to note that value investing is the best alternative to help the managers achieve the best during these tough times of COVID-19. The Cuban buy-and-hold strategy is dangerous and not ideal for the entrepreneurs to realize the expected outcomes.
Otuteye, Eben, and Mohammad Siddiquee. “Buffett’s Alpha: Further Explanations from a Behavioral Value Investing Perspective.” Financial Markets and Portfolio Management, vol. 33, no. 4, 2019, 471-490. Web.