Cathie Wood had a great idea.
Instead of having a robot buy the market and sell an exchange-traded fund based on it, why not hand pick technology’s winners, and go all-in? The result is ARK Invest https://ark-invest.com/, a family of ETFs focused on disruptive technology.
I have been doing something like that in my personal portfolio for most of the last decade. If I can get my money out, I’m looking at a $1 million retirement.
ARK has been a triumph. Wood’s funds now have over $57 billion under management. Most of the funds are up 40-70% over the last three months. The biggest fund, called ARK Innovation, is filled with the last year’s winners – Tesla, Roku, Square, Crispr, Spotify and Shopify.
But there’s an obvious problem. When everyone is in on anything, it stops working. If no one’s a seller the price can stop like a stone. This is how every bubble has ended since before the 17th century’s tulip mania.
If you can wait for 10 years, I think most ARK funds will come to present value. But you’re not going to get huge returns from right here. Not every child is above average.
What you’re really betting on is the Wood team’s ability to get into disruptive companies early and get out before the crowd. But there is now a huge crowd doing the same thing. Again, it eventually crashes.
In the end, Wood is acting like a venture capitalist. She’s expecting some failures. Those who are trading on her do not.
That’s what happened with Gamestop. Those Reddit “insiders” who got in early, and got out early, made bank. Those who got in late, or got greedy, got spanked. When this happens to a hedge fund, we don’t bail it out. (We’re not supposed to, anyway.) That’s all the Redditors were, a bunch of people acting as a single hedge fund, only with millions of fingers on the trading button. It’s when all the hedge funds get toasted that we worry (although we really shouldn’t).
Like Stanley Weiser wrote for the movie “Wall Street,” “A fool and his money are lucky to get together in the first place.”
There are a lot of fools following Wood right now, and it’s a sign of a frothy market. She will do fine, but a lot of small investors are going to get skunked in the next year. Use her success as a sign for you to go to higher ground and buy her back after the fall.
