Cuban: China fell prey to top mistake an investor can make

A 'three stooges' market: Mark Cuban
A 'three stooges' market: Mark Cuban
Happy camper with Netflix and Facebook: Mark Cuban
Happy camper with Netflix and Facebook: Mark Cuban
Mark Cuban: GDP data no longer the bible
Mark Cuban: GDP data no longer the bible

Veteran entrepreneur Mark Cuban has some advice for Monday's selloff: "If you don't know what you're doing, or you think you do but you can't afford to lose your stake holdings, do nothing." (Tweet This)

Cuban, famed for founding several successful dot-com era ventures, knows his way around a correction market. He took to an ephemeral messaging app to share some advice with his followers in a "short and dirty guide."

After the Dow Jones industrial average plunged over 1,000 points Monday morning, Cuban said his strategy is to stay long, not sell off.

"There are so many smart people with so much money chasing so few opportunities, that there are no hidden opportunities any more," he wrote on Cyber Dust, an app similar to Snapchat that Cuban funds and advises.

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Cuban said he's hanging on to his dividend-paying stocks and Netflix and that he bought call options of Facebook on Friday.

"I will be looking to buy high-yielding stocks that have overcorrected," he wrote. "I will be looking for bloodbaths caused not by the company, but by de-levered sellers."

As the U.S. stock market snaps back and forth around session lows on concerns about China's equity markets, "Shark Tank"'s Cuban said the biggest mistake an investor can make is thinking they are smarter than they are.

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"[China] thought they were really smart, like everyone in a bull market does," he wrote. "They think they have some measure of control. Neither is true. And we are seeing the consequences of both issues come to roost right now."

As analysts debate causes of the market's volatility, Cuban said those decrying the U.S. Federal Reserve are wrong. Instead, he weighed in on the lack of experience in Beijing.

"When things go good[,] it's really good and everyone looks smart," Cuban wrote. "When they go bad, those people have to pay those debts because prices fall and things get really bad. Now imagine if the 2nd largest economy in the world was in the same position. Then realize that economy is run by a [C]ommunist party that is new to all this."

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Later, in an interview on CNBC's "Fast Money," Cuban said the historic moves in the market on Monday were not caused by normal trading.

"No one else that trades can move the market [by] hundreds of points in hundreds of seconds in either way," Cuban said.

"What we saw today was like a three stooges market… that doesn't happen from normal traders, that doesn't happen from large funds taking positions or selling positions, that happens because algorithms watch everything that's happening and everything that's correlated to what's happening in equities and they take action.

To be sure, not everyone agrees with Cuban's assessment to let the Fed off the hook. Stephen Roach, former chairman of Morgan Stanley Asia, said China is "not as bad as appears to be the case," on CNBC's "Squawk on the Street" Monday.

"We had the weakest recoveries post-any recession all over the world, whether it's the U.S., Europe, of course, Japan," Roach said. "The developing world is heavily dependent on our weak recoveries. These markets have been inflated by central banks, liquidity injections, interest rates. Now they're taking the medicine away, the markets are imploding."

It's a debate that's still unfolding, with the Dow Jones industrial average still down, though shaving losses.

As Cuban said in his note: "The stock market is hard."

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