Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below. Celebrities and athletes can make millions during their careers, but billionaire investor Mark Cuban has warned that what they do with that money can determine whether their wealth lasts. During an appearance on Shannon Sharpe's Club Shay Shay podcast, Cuban offered some blunt advice for those who suddenly come into wealth: "Don't invest in the restaurant, don't invest in the clothing label, don't invest in the liquor company ... or music," he said.
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What to do before the window closes Here's why Cuban, a seasoned entrepreneur, avoids these flashy ventures with "no barriers to entry." Cuban's advice to people with lots of money to invest is to hire somebody to manage it. "It cannot be your friend," he added. "It's got to be somebody who's done it for big time people." He warns against investing in industries like clothing, restaurants, or liquor, calling them "too easy to enter…those businesses are hard because there's no barriers to entry." Barriers to entry, as defined by the Corporate Finance Institute, are factors like regulations, licensing, technology, or patents that restrict competition and enhance profitability (2).
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You can view the advisors' profiles, read past client reviews, and schedule an initial consultation for free with no obligation to hire. In contrast to high-barrier opportunities, Cuban's point is that launching a clothing line or restaurant requires minimal investment or expertise, making it easy for anyone to enter. This flood of competition reduces pricing power and profitability.
Indeed reports the average profit margin for a full-service restaurant is just 3% to 5% (3). Investors and entrepreneurs should keep an eye on the barriers to entry and whether they are backing a product that is truly exceptional. Read More: Millionaires under 43 hold only 25% of their wealth in stocks.
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