Cathie Wood is probably one of the most popular fund managers today, more famous than Warren Buffett.
If you don’t follow her story, it’s ok as I’ll share my thoughts about her famous ARK Investment Funds.
Before I get into Cathie Wood’s story, I like to share with you a story decades back.
How one man lost 90% of investors’ money buying “glamour stocks”
During the 1960s “go-go” market mania, there’s a billionaire investor called Gerald Tsai.
Famous, but controversial.
You see, in 1952, shortly after Gerald Tsai graduated from college in Shanghai, he worked for Fidelity Management, the very same company Peter Lynch worked for before.
The only difference was Gerald Tsai ran an “ultra-aggressive” growth fund, called the Fidelity Capital Fund.
Gerald Tsai was ambitious, practical, energetic and aggressive.
Almost how you’d picture an investment bank trader from Wall Street.
Now, Gerald Tsai became famous because he took huge positions in “glamour stocks” like Polaroid, Xerox, and Litton Industries.
These are the speculative stocks the market thought was the next big hit.
At the helm, Gerald Tsai was making astronomical returns. The fund returned over 280% over its first seven years.
Even the press, including the New York Times magazine portrayed him like an investing genius. Gerald Tsai was on an incredible hot streak. And investors were dazzled by his performance.
But this type of public adulation can be dangerous.
You see, thinking he could beat the market on his own, Gerald Tsai left Fidelity in 1965, to start his own fund — The Manhattan Fund.
His strategy? Momentum investing concentrating only on the best glamour stocks. He made 39% in his first year.
Now here’s the unlucky thing.
Shortly after a year, the whole stock market collapsed. And eight years after the Manhattan Fund began, it was down 90%, the worst mutual fund performance at that time.
Gerald Tsai, the Manhattan Fund and the 1960s “go-go” bull market ended.
Cathie Wood is the Gerald Tsai of today
And Cathie Wood’s firm, ARK Investment Management, is the new Manhattan Fund.
Like the “go-go” era of the 1960s, Cathie Wood is starring in the next asset bubble mania.
She’s already on many big financial media outlets. And like Gerald Tsai, she produced astronomical returns from the “glamour stocks” she invests in — Tesla, Roku, Crispr Therapeutics, Teladoc etc.
You see, Cathie Wood founded ARK in 2014 to invest in “disruptive innovation” stocks. After a lousy first four years, her funds went ballistics.
Last year, ARK had US$3.1 billion assets under management. Today, Cathie Wood’s firm manages US$50 billion.
I’ll tell you, this is why “FOMO” investors are throwing money at it as fast as they can (see image below).
Source: Yahoo! Finance
Now, the point I want to make here is this — At one point you have to conclude Cathie Wood is either the single, greatest genius investor in the world, or she is the next “go-go” melt up… Like Gerald Tsai’s Manhattan Fund.
A “melt up” simply means a huge surge in the stock market, due to investor herd. This often comes before a market crash.
One hot Tesla, a star Cathie Wood and a US$50 billion dollar fund
Sounds perfect? Well, it’s often said history doesn’t repeat, it rhymes.
And sometimes, history repeats itself so perfectly, you simply keep the same script and change the characters’ names.
Just like any James Bond movies — You have the explosions, the fast cars, the cool tech, the hot babes.
The only difference? The actors change — from Roger Moore, to Pierce Brosnan, then to Daniel Craig.
It’s like Cathie Wood and her team went back in time to the 1960s, stole the script Gerald Tsai used, and is now doing it all over again.
I respect Cathie Wood a lot for the business she’s built and, don’t get me wrong, I’m all in for “disruptive innovation”.
But honestly, I don’t believe she’s a genius, more of someone good at marketing and timing.
And I’m sure at some point, in a not-very-far future, this will reverse course.
Source: Yahoo! Finance
And I’m sure at some point, in a not-very-far future, this will reverse course.
Like someone said before… “and this too shall pass.”
I know I might sound bearish today, but I still want to put my honest thoughts across.
I won’t be surprised if the market rallied for another year or so before crashing terribly. And it might make me look stupid. But I couldn’t care less.
Because the signs are clear.
You know, when you’re serious about building wealth for the long-term, it’s never about chasing the next hot stock, or the big trend. It’s safely growing your money by buying good businesses at the right price.
ARK cannot run at this pace forever. At some point , it’s going to fall out of favor and when that happens, it’s too late.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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