Boom and Bust Funds and is Ark Next?

I’m guilty….

What did I do? Well I bought a single share of NIO.

Why? It’s really to force me to pay attention to the company. For those who have been following me for a long time you know I was invested in Tesla pre split around $200 per share. To my regret now, I sold out when Tesla hit $914.

Is Nio the next Tesla? Right now I don’t believe so, but I wanted to keep an eye on them as I think the market has plenty of room for more than one EV maker.

So I’m not saying go buy Nio, but I am saying to keep an eye on it.

While we are talking innovation, let’s take a look at Ark Investments. A previous article I wrote covered some of the Ark funds and their stellar returns.

During the week I came across an interesting video covering the history of wildly successful funds.

Here is my takeaway…

“Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.” - Zig Ziglar

Rome burned…could Ark be next?

Let’s take a look at it’s leader first.

Cathy Wood.

She first became known when she gave Tesla a price target of $4,000 a share in 2018. At the time Tesla was at $60 per share. Then in February of 2020 she predicted Tesla to reach a price of $7,000 by 2024. While she looked crazy then, she looks like a genius now.

Tesla is up about 900% since her first prediction and has earned her flagship fund, ARKK, a return of approximately 615% since inception. Those who shared her values are now checking their brokerage account and counting the commas on their Tesla gains.

While it’s been sunshine and rainbows so far what are the odds Ark Investments can keep it up?

One of my favorite twitter follows Ben Carlson posted an article covering the history of some of the best performing funds in the past. I’ll summarize it but you can give it a read here.

Three examples he gives:

• Jerry Tsai’s fund that “saw the number of shareholders in his fund sextuple for 6k to 36k from 1960 to 1961.” Boom to bust? One could say so as “Tsai got crushed in the bear market of 1968-1970 which saw momentum stock get killed. Assets fell 90% over the next few years and Tsai’s fund would go on to have the worst 8-year track record of any mutual fund in history to that point.”

• Peter Lynch dominated from the late-1970’s to 1991 where his fund returned approximately 30% annually. Ben goes on to say that “the average investor in his fund earned just 7% per year.” This was due to investors rushing in “after performance was good.”

• Ken Heebner’s CGM Focus Fund was the best performing mutual fund from 2000-2009. While it averaged an 18% annual return over the decade once again the normal investor return was said to be -11%. This was due to investors adding “money after a huge year like 2007 when the fund was up 80%” and selling on years the fund was down.

So what can you take away from this?

Basically if you decide to go with ARKK you should hold whether the fund flies up or down. It’s going to be volatile and you have to accept that. Historically, the investor is their own biggest enemy…yeah that’s you and me.

I’m not hating on Cathy Wood, she is now one of the best known names on Wall Street and the performance of her ETF’s speak for themselves.

They have been dominant, and hopefully they keep it up as I now own ARKK in my Roth IRA.

The majority of the information in this post is based off a video I came across this week and wanted to share. It’s called A Warning to ARK Investors (Cathie Wood) by Joseph Carlson.

If you want to watch it for yourself here it is…

We are our own sponsor so shout us out on Twitter so I can hit ya with that retweet.

Time for the fun part…

The owner of this place has to be a fan of memes.

You can’t convince me otherwise.

Thanks for reading, if you have any questions, comments, suggestions, etc. about the email send me a DM on twitter. See you next week!