Well, the data is in, and it's time to see what Cathie Wood has been buying in her ARK
Invest funds over the last month.
But this time, instead of just reading through some numbers, I'd like to use this data to
tell you an interesting story.
Here's how our story begins:
That CNBC clip of Cathie Wood is from just last week; November 24th to be exact.
On that day, ARKK was trading at just over $105 dollars per share.
You know what that means, don't you?
It means that if Cathie Wood is right, ARKK's share price in 5 years could actually be (count
on fingers) $420.69!
[It's all coming together.]
All kidding aside, that $420 dollar price target [nice] obviously requires that a lot
of things go right AND that NOT many things go wrong, which is a tall order.
It means that ARK Invest's holdings will need to keep growing at an average compound annual
growth rate of 32% for the next 20 quarters.
Also, it's not enough for ARK Invest to be holding all the right companies, they also
have to hold them in the right order.
So, over those same 20 quarters, ARK Invest will need to keep up with even more technology
platforms and companies building on top of them to make sure they're still holding the
biggest winners near the top of their funds.
Over this past year, we saw ARK Invest drop stocks like Nvidia and Apple, both of which
have seriously outperformed ARKK, ARK Invest's flagship innovation fund.
Also, all of that performance could be out the window depending on totally normal world
events like the next U.S. presidential and congressional elections, new regulatory crackdowns
and potential de-listings from China, or a raising of interest rates, which is literally
what's causing her funds to tank as I record this right now.
And that's not even getting into the possibility of a recession or even just another wave of
a pandemic no one saw coming just 2 years ago.
So, comment below or tweet me at Ticker Symbol YOU: given all these potential risks over
the next 5 weeks, let alone the next 5 years, do you think one share of ARKK could be worth
420.69 [nice]?
I'm excited to hear your thoughts.
So, what about me?
Do I think ARKK can quadruple over the next 5 years?
I absolutely do.
Don't forget, even as of right now, ARKK has much more than quadrupled over the last 5
years, and almost everything I just mentioned actually happened in that timeframe as well.
At its peak, ARKK actually returned almost 700% from its start in 2016 and that peak
was this year, in 2021, with all of those things priced in.
Okay.
Everyone knows I'm super bullish on ARK Invest and that past performance doesn't really say
anything about future performance, so let's pump the breaks a bit.
One of my guilty pleasures is reading bearish Seeking Alpha articles on my favorite stocks:
Tesla, Palantir, ARK Invest's funds, and so on.
I actually read these articles for more than just getting a good laugh, sometimes there's
a hot take that makes me question my convictions on these stocks.
That's useful, for real.
The problem with all the bearish articles on ARK Invest is they literally do not understand
the basics of technology.
It's important to understand how bad this misunderstanding is on Seeking Alpha, on Twitter,
and right here on YouTube.
This is an article by The Value Portfolio, whose been contributing to Seeking Alpha since
2015, has written over 1100 articles, and has almost 25,000 followers.
The article starts in total agreement with Cathie Wood on innovation: new companies can
be more agile and innovative than legacy ones, we should invest in the companies positively
transforming our daily lives and this strategy is volatile and risky.
Literally the ARK Invest playbook.
Then, in the span of a single page, the author says this: Tesla, the portfolio's largest
holding at over a 10% share, is a classic example that we've discussed before.
The company is entering a new and exciting market -- electric vehicles -- that does have
a tangible growing benefit to consumers and customer support.
What Tesla doesn't have is any unique advantages over competitors such as Lucid Air, Rivian,
Ford, etc.
As they ramp up production, we expect Tesla has peaked (especially with its current valuation).
Here's how this article ends.
While we don't feel it's effective to deep dive into the decisions and irrationality
behind each investment in ARKK's portfolio (which basically is the author admitting he
didn't do any research before writing this article) we'll do a case study with our thesis
and Tesla.
Tesla is now receiving significant additional competition.
Lucid Air and Rivian are wealthy pure-play competitors.
Traditional manufacturers are rapidly ramping up manufacturing and models.
Tesla's competitive edge is eroding, meaning that we expect its stock to underperform even
as EVs grow, a big risk given its weighting in ARKK's portfolio.
That's it.
That's the whole case study.
Here's how the article concludes: Going forward, we recommend selling all holdings in ARK's
various ETFs.
I'm assuming they mean ARK, and not ARKK here.
We believe ARK fundamentally doesn't understand investing in innovation and its portfolio
will underperform even with the success of the industries underlying it.
Look.
Let me be real here for a minute.
I actually end up sifting through a lot of hot garbage like this to find real, sound
arguments against ARK Invest as their funds continue to trend downwards.
It takes a lot of time and is one reason I don't publish videos daily.
And again, this author has thousands of followers.
I honestly don't know how Seeking Alpha can allow and promote money-losing ideas like
"sell everything just because ARK holds it".
But I'm glad they do because inside this trash heap of an article is a gem worth talking
about, which is ARK Invest's perceived concentration risk.
What is that?
That's the idea that ARK Invest puts all their eggs in one basket - high growth, volatile,
tech stocks focused on doing one thing.
The article states: the Ark Innovation ETF has 50% of its portfolio concentrated within
its top 9 investments.
Many of these investments are uniquely focused on a single industry or customer market, like
Zoom, Coinbase, and Unity.
That means there's a non-negligible chance that one or more of these companies fails
to develop long-term traction.
In that case, any of these top 9 investments, which all are greater than 4% of the portfolio,
could go bankrupt, significantly dragging down ARK's results.
Already year-to-date, the valuation downturn in some of these companies, such as Zoom,
has placed strong negative pressure on the company's results.
ARK is minimally diversified which presents a major risk.
In the much more risky innovation business, lack of diversification can easily spell the
end.
Holy moly.
So, these are the two sides to the story: on one side, Cathie Wood expects ARKK to reach
420.69 [nice] per share and on the other, ARKK's clear lack of diversification can easily
spell the end for ARK Invest.
Let me know which argument makes more sense to you in the comments or on Twitter at Ticker
Symbol YOU.
Seriously, if you're concerned with ARK Invest's lack of diversification, sound off in the
comments.
That's a totally valid concern.
As always, let's turn to the data to see if it's true.
Here's a table of ARK Invest's top holdings when you combine Cathie Wood's 6 actively
managed ETFs.
Each row is one stock, the rows are ordered by the size of ARK Invest's position in that
stock, and each position is colored by how much it grew or shrank relative to ARK Invest's
combined funds since the start of the month.
Positions can grow or shrink for a few reasons: Cathie Wood buys or sells her shares in the
company, which is the first column, the shares change in price, which is the third column,
or any combination of the two.
For example, you can see that ARK Invest's positions in Tesla and Teladoc are both around
20% smaller than they were at the start of November.
But Tesla's position is smaller because Cathie Wood sold 20% of her shares near the top,
while Teladoc's position is smaller because its price went down and she didn't buy the
dip enough to make up for that.
Great.
Now let's talk about Zoom since the Seeking Alpha article specifically calls it out.
Zoom's share price fell over 20% since the start of the month and Cathie Wood added over
30% to her share count.
She bought the dip.
But if the author would have looked at her top 11 positions instead of the top 9, he
would've seen that she also bought a ton of Twilio.
Twilio is a cloud communications company that allows software developers to build all sorts
of web-based communication tools like automatically sending and receiving texts, phone calls,
Facebook and Instagram messages, emails, and so on.
It also covers a lot of the communications part of the business tech stack.
All this author had to do was look 2 companies further down the list to see that Cathie Wood
actually increased her position in Twilio by MORE than she increased her position in
Zoom.
Talk about lazy financial journalism.
As with all good stories, this one comes with a twist.
This article actually says something I agree with: In any new industry, companies often
come in waves with the previous wave removed by the success of the upcoming wave.
That means that even if those sectors become significant long-term sectors, the companies
to gain the largest valuation and make the most profit might not even exist yet.
So, why is Cathie Wood so confident that Zoom is the winner when it comes to communications
platforms and not some younger, more agile company?
Well, she literally tells us.
Here you go.
So, going
back to that Seeking Alpha article, the big mistake is thinking that ARK Invest's picks
are uniquely focused on a single industry or customer market.
These are technology platforms that ALL industries and market segments can leverage.
Remember this clip that I used to play in like every episode I made?
Well, in the
case of Zoom, we're talking about a unified communications platform.
Shout out to Dave Lee on Investing for pointing out this awesome article from Zoom's blog.
Zoom has been busy developing innovations for a core unified communications solution
to provide customers with everything they need to support digital and hybrid work environments,
including secure phone and video voicemail, an enhanced whiteboard solution that works
with the Oculus VR headsets, live translation, and transcription features, more realistic
virtual meeting experiences, interactive maps, enhanced chat features, and more.
This isn't a company catering to a single customer market, it's a communication and
collaboration platform designed for the entire market, businesses and individuals alike.
They're not the legacy platform; that's Cisco Systems.
And again, even if you don't agree with that idea, ARK Invest increased their position
in Twilio by more than they did in Zoom, further diversifying their top holdings in the communications
space.
The fact that Zoom's stock is 20% down for the month and 50% down for the year isn't
a reflection on Zoom, it's a reflection of the market.
Just look at the data.
Zoom has been growing year over year and quarter over quarter.
Almost all of ARK Invest's top holdings are down by ten percent, twenty percent, or more,
regardless of industry.
Genomics, fintech, entertainment, communications, doesn't matter.
Do you really think all of these companies are 20% worse this month than they were 30
days ago?
Or do you think this is a market-wide adjustment based on news surrounding inflation, tapering,
and the raising of interest rates?
Are you selling wonderful companies at bargain-basement prices or do you know what you're holding?
The 5-year road for ARKK to hit a price of $420.69 [nice] is going to be filled with
big bumps, especially with everything going on with inflation right now.
Jerome Powell says he expects policymakers to discuss accelerating tapering to finish
a few months sooner than expected and opening the door to raising interest rates.
That's exactly what ARK Invest's portfolios are actually sensitive to.
So, if you want to learn more about what you should watch out for and how you can protect
your downside while sticking to your self-consistent high-growth strategy, I literally just made
a video telling you how to prepare now.
I'll leave that video in the end card for you and in the description below as well.
Hopefully, this episode helped you understand what ARK Invest has been buying this month,
their fund performance expectations over the next 5 years, and what a bad bear thesis against
them looks like.
Put together with my previous episode, you should have everything you need to be as safe
or as risky as you feel comfortable while still investing in the future.
Your future and mine.
Thanks for watching and until next time, this is Ticker Symbol YOU, my name is Alex, reminding
you that the best investment you can make... is in you.