Cuban made his thoughts known in a new blog post on Wednesday. He starts off by reminiscing of the "good old days" when it was typical for stocks to go up anywhere from $25 to more than $100 in a single day.
"Day trading was all the rage. Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour. Stock trading millionaires were being minted by the week, if not sooner," Cuban recounts.
Of course, we all know how that ended. The bubble started leaking air until finally it burst completely. The smart (or lucky) ones managed to cash in before it happened, though many suffered big losses and no doubt are still kicking themselves today.
Cuban sees some similarities in today's tech bubble compared to the one 15 years ago, but with one critical difference. Back then, the general public was investing in public companies, and that meant investors had liquidity to sell their stocks. But today, Cuban says the bubble comes from private investors who are investing in apps and small tech companies.
The problem Cuban sees is the lack of equity in today's investments.
"All those Angel investments in all those apps and startups. All that crowdfunded equity. All in search of their unicorn because the only real salvation right now is an exit or cash pay out from operations," Cuban says. "The SEC made sure that there is no market for any of these companies to go public and create liquidity for their Angels. The market for sub 25mm dollar raises is effectively dead. DOA . Gone. Thanks SEC. And with the new Equity CrowdFunding rules yet to be finalized, there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5k into the dream only to realize they can’t get any cash back when they need money to fix their car."
Ultimately what it boils down to, as far as Cuban is concerned, is that today's market with no valuations and no liquidity is "far worse" than yesterday's market with collapsing valuations. Put another way, Cuban sees it as a dangerous play to invest so much money into apps and startups that don't have the liquidity of stocks. Back in 2000, if you owned $10,000 stock in company X, you could sell $5,000 worth of stock if you needed the money for a car repair or whatever, or cash out if it started to decline. But in today's landscape, investors are pumping money into companies without a way to get that money back out until when/if it goes public.
What are your thoughts on Cuban's assessment?