This post was originally shared in my DT Email Newsletter here.
You’ll remember Cathie Wood. It’s not too long ago she was everywhere. I first wrote about her in my email newsletter back in March 2021.
Back then, readers and members were asking me about ARK Innovation ETF (ARKK), the flagship ETF managed by Cathie Wood. My answer is the same as it is now.
Over the years, ARK Innovation ETF has shed ~US$21 billion in AUM since its peak, dropping to a low of ~US$8 billion. According to Morningstar, ARKK has lost over US$13 billion of investors’ capital.
I’m not here to make fun of anyone. That’s not me. But I do want to say this: sometimes the “sexiest stuff” in the room at that moment is also the most expensive stock market lesson that will ever humble you and me.
What didn’t sit right with me back in 2021
Even at ARKK’s peak, something felt off.
The type of stocks she bought – Zoom, Roku, Teladoc and so on – were businesses with enormous hype, with many of them struggling to make predictable profits.
More importantly, it was a sky-high price tag that shocked me. Many of these stocks are now down 70-80% from their peaks.
Today, Cathie Wood’s flagship ARK Innovation ETF is still down over 30% from its peak, while the S&P 500 is up 80% over the same time period. That’s a massive performance gap of over 110%.
Here’s the part that really stings – and what most people don’t talk about. Cathie Wood is probably still happily running her fund and still collecting hundred of million dollars in management fees.
She has personally made money. Meanwhile, her investors have collectively lost money.
That’s just how it works in this crazy finance jungle. In my years as a private investor and former analyst, this is not the exception. It’s how it is.
My investing strategy isn’t very hard
Most investors in the stock market chase the next big story. I was doing the opposite. Instead, I prefer to quietly compound my portfolio for dividends…
And I try to do this by spotting undervalued gems early by investing in high-quality, profitable businesses trading at a discount to their intrinsic value.
To a large extent, these also include companies that are favoured by Warren Buffett – durable companies with a strong economic moat.
Now much of ARKK’s performance was built on hype – stocks with massive potential, but whose businesses have never made a single dollar of profits.
When I first wrote about avoiding ARKK, the fund had US$50 billion in AUM. Even then, I said what I believed:
“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.”
Over my last 16 years investing, I’ve learnt it’s never about chasing the hottest stocks. And after quitting the banking industry in 2018, I’d say:
No one looks after your money better than yourself.
The point is, you don’t need to chase the most popular stuff in town. More than anything, it’s trusting your guts, staying patient, and not letting the noise drown out what you actually believe. It’s your money. It’s your retirement.
What’s important is learning how to build your own passive income. That’s what I try to do. And I encourage you to do the same.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
Great reflection on the whole ARKK phenomenon. It’s incredibly easy to get swept up in the narrative of ‘disruptive innovation’ during a bull market, but as the ARKK story proved, valuation always matters eventually. The massive boom and bust of hyper-growth tech is a perfect reminder of why focusing on businesses with actual free cash flow, solid balance sheets, and a history of returning capital to shareholders lets you sleep so much better at night. Boring but reliable is truly beautiful when it comes to compounding long-term wealth. Thanks for the insightful read!