🔻 Surviving Market Crashes | Researching ARK Invest and Watching ARK ETFs Taught Me This

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Ticker Symbol: You is just over four months old now. For the last 30 or so videos, this channel has focused almost exclusively on ARK Invest. Each week, I take one of their big ideas or white papers or analyst research articles, and I try to do it justice in video form. My goal is always the same. To show you and myself how these disruptive innovations may have a profound effect on our lives, financially or otherwise. But what I could have never imagined was the profound effect that starting this channel would have on me, not just as an investor, but as a guy trying to find his own place in a world that's moving faster and faster.

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So this time I'd like to add value in a more personal way. I'd like to share with you some of the things I've learned, the investment framework that I've formed and the next steps for the channel that invests in you. There's this saying I always hear in reference to the markets, the best time to plant a tree was 20 years ago. The second best time is now. The stock market version of this quote goes something like Time in the market beats timing the market. These types of quotes are called platitudes.

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They're used so often that they're taken for granted. We just assume they're always true. So when we find a new stock that excites us, we pile in as soon as we can. That way, the seeds we plant have as much time to grow as possible. Right? But as recent red days have shown us, some times are better than others for planting these financial seeds. And in reality, we know that's true about actual seeds as well. You do know that, right? So here's the question I always ask myself, how can I, as an investor, put myself in the best position to constantly plant the best seeds and in the future, reap what I sow?

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So here's my full investment framework. It's actually not just my investment framework. In the last four months, it's become a big piece of my overall worldview. It combines this proactive topdown research-focused approach with a reactive bottom-up market analysis approach. I know it's hard to imagine, but I'm actually quite a nerd. So my investment framework mostly revolves around electronics, video games, computers, spaceships, and robots. That's my real core circle of competence. Yep, that circle of competence. The concept of the investors' circle of competence was made famous in Warren Buffett's 1996 Berkshire Hathaway shareholder letter.

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Here's the quote: “What an investor needs is the ability to correctly evaluate selected businesses. Note the word selected. You don't have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important. Knowing its boundaries, however, is vital.” The reason I said I pick something I like instead of something that I know is because of that last bit. What we actually know is much smaller than what we think we know.

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I know that definitely applies to me. I think, wait, if you pick something you really like and have already spent a lot of time around, chances are you're picking something that you actually know. Maybe your thing is real estate or cars or medicine or sustainable food or a cryptocurrency. Not you, Doge coin. In my opinion, there's real money to be made in every market, so you might as well pick one that you already like to think about. Okay, now start thinking about the future of that thing.

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That's the first piece of the framework. Yep. That's it. Develop a vision about something you already enjoy. Be as explicit as you can about your vision and when in the future you think it will happen, don't be afraid to be way off in the beginning. It's just a starting point. Here is a simple but important question I always ask myself, not easy but simple. How much money would I invest in this vision? And what that boils down to is “how much do I actually believe in this vision becoming a reality?”

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Chances are my conviction could be stronger if I did some research. So I'm going to sit down and research my thing. My research into my thing influences my vision. Here's a very quick example of iterating on a vision. Vision: flying drones will deliver 100% of our food and mail in 2021. That's a great vision. It's quantifiable and clear. Now, how true is it? Research? As it turns out, almost zero drone deliveries are happening right now because of battery limitations, challenges navigating in urban environments, airspace regulations, and safety concerns.

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When it comes to challenges with drones, the Sky's the limit. That means it's time to update the vision. Maybe I still believe flying drones will one day deliver food and mail, but maybe not all of it and maybe not as soon as I originally thought. If that sounds exhausting instead of fun to you, remember what I said earlier? You should pick something that you genuinely enjoy. This should feel like a hobby, not your homework. I have exactly two goals when it comes to research. One, clarify my existing circle of competence.

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Or two, broaden my circle of competence. Here's how you know you're competent in your thing, whether it's real estate or a cryptocurrency or spaceships. You can take that thing in your mind, pull it apart, reduce it to its basic building blocks, and understand how those pieces fit back together. What are the three to five things that make this technology or idea or a company really tick? What are the critical pieces that drive the performance of the whole machine? That's where you should focus your research. For ARK

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Invest, those critical pieces are their clusters of major innovation platforms. What I've learned since starting this channel is that there seemed to be a small number of critical building blocks that will be responsible for a lot of new technologies, products and services that will change our lives in a meaningful way. Each of these building blocks is a huge, vast, impossibly deep, multidisciplinary area of research. Our task as investors is not to master them. It's to understand the high level basics with a reasonable amount of confidence.

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In our drone example, the critical technical pieces are energy storage: drones have some serious range and weight limitations due to batteries. Today, better or lighter batteries help drones fly longer or further. Artificial intelligence: drones are just starting to really get good at the basics of using cameras and sensors to avoid obstacles and plant their roots in real time by themselves. 3d printing, which is unlocking lighter and stronger designs for the body of the drone, which means less weight, which means more time in the air. And we can keep going down and down the list mobile connected devices, autonomous mobility, and maybe a few others, depending on the specific application.

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But everything I just said is literally enough information to fully understand the drone part of AeroVironment's investor presentation. AeroVironment's ticker symbol is AVAV and ARK Invest holds about $70 million dollars of it in ARKQ, their fund themed around the autonomous revolution. And I'm guessing that stock will also be in ARKX, ARK Invest's upcoming fund themed around space exploration. The point is, according to ARK Invest, we only need to research a few key building blocks to have a bird's eye view on a wide variety of new innovations that will drastically change the future over time.

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This approach, starting from a high level vision of the future, breaking that vision down into its essential building blocks, understanding how the technologies inside those building blocks are changing over time, and then proactively updating your vision accordingly, is a top down approach. The bottom up approach does the exact opposite. You start at the actual stock market and you try to find undervalued stocks to buy at a discount. To know if a stock is undervalued, you need to be competent in the company's business model so that you can understand their balance sheet, gauge the presence and future demand for their products and services, and then decide if the market is mispricing that company's future based on the valuation metrics you've chosen to measure that company by

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today. You watch the companies in your circle of competence because those are the ones you can probably fairly value the best. When something changes with your company, you react by reevaluating your price. When new information in the markets misprices the stock, you react by buying in at your perceived discount. Even though I quoted Warren Buffett when talking about the top down approach, he and Charlie Munger are the kings of this bottom up approach of value investing: hunting for businesses that they know way more about than the average market participant and waiting for their stocks to be mispriced.

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In my opinion, each of these approaches by themselves is wrong. You cannot fairly value a technology company if you don't understand the vision. That's why Warren Buffett famously avoided tech stocks for decades. The companies just aren't in his circle of competence, and he didn't appreciate Apple's greater vision for most of his investing career. Today, Apple is something like 40% of Berkshire Hathaway's equity portfolio. Let me be super clear about what I'm saying here. Warren Buffett is one of the best investors in the universe, period. Now imagine an alternate universe where instead of avoiding technology stocks for most of his career and only starting them by Apple.

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In 2016, Warren Buffett decided to build a team of analysts focused exclusively on technology. He beefed up on tech a bit himself and included it in Berkshire Hathaway's circle of competence and balance sheet two decades sooner. That's all I'm saying. One of Warren Buffett's key points about technology is that it's very challenging to value the digital world. The whole landscape is unpredictable and unstable. That's why Tesla's stock price looks like a literal roller coaster, because even though we can appreciate the vision, no one is capable of correctly valuing the underlying technology, which is rapidly changing with any meaningful precision.

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Tesla's stock price just doesn't make sense in terms of price to earnings ratios or whatever your preferred valuation metrics are, because its future is constantly looking very different from its past. I start with a vision of the future. I try to stick to two to five years from now. I think about all the things that have drastically changed my life in the last two to five years. I'm not talking about looking at past price performance here. I mean, the things I genuinely enjoy using or watching or thinking about: electronics, video games, computers, spaceships and robots.

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I YouTube and Google those things. I talk to my friends and the investment community about those things. I live stream for hours and hours, going over every little detail about those things.

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Always think about the mission first. The mission and division.

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I listen to what visionaries like Tony Seba and Elon Musk and Chamath and the team at ARK Invest are saying about those things. All of those people who are much smarter than me help me understand the key building blocks of my favorite things and my vision for their future. I treat ARK Invest as if they were my investment team. Even if they don't know who I am, there's no reason you can't do the same. With them, and with me. Advancements in energy storage, artificial intelligence, robotics, and a few other key technology platforms are enabling pizza delivery drones and self-driving taxis and all the other big ideas

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this channel is slowly covering. But those things are all in the future. When we invest, we are, by definition, making a forward looking statement. When it comes to planting our financial seeds in the present, some days really are better than others. That's why we need to keep track of our favorite stocks, as well as the actual companies behind them and how they're performing. Those changes, which come out as news, investor presentations, new products and services, and so on, cause stock prices to change literally every second.

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When a stock that fits my vision of the future hits the right price, I react by buying it in the present. When it comes to assessing and valuing competitors in a given market that I care about, that's where I try to learn as much as I can from Warren Buffett, Charlie Munger, and Michael Burry. These guys are the best on the planet when it comes to making apples to apples comparisons. So that's what I follow them for, not for their opinions on Tesla. Now let me answer the question that I get asked over and over again.

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With all of these amazing investors and resources, why does Ticker Symbol: You focus almost exclusively on ARK Invest? The vision, the research, the market updates, the actual stock picks and the analyses that update their vision. ARK Invest does it all and publishes it all for free without middlemen. I simply don't have access to another source with that kind of dedication to transparency. If you do, definitely tell me in the comments below, I'm down to cover it. Now that you've seen the framework behind this content, you can make it your own.

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If you think that cameras, early wars, or radars that are being put on phones, on drones and in cars are serious building box for innovation, add those bubbles to your framework. If you think robotic farming or online gaming or cannabis based medical treatments are a big idea, add them to your list. When you make this framework or any framework your own and stick to it, you build confidence in your vision of the future and the stocks you've evaluated as a part of it. And when you're confident in your vision and your evaluation, volatility stops being a problem for you and starts being an opportunity.

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Here's something else that's drastically increased my confidence. In my previous video, I shared my Cathie indicator. Cathie Wood recently mentioned that ARKK, her flagship fund, had only 33 stocks in it during the market lows of March 2020 because that was when she spent all of her cashlike positions to buy her highest conviction stocks at a discount. The more unique stocks in ARKK, the more cash like positions the fund is probably holding. At the time of this recording, Ark holds 55 stocks in it. Realizing that changes in ARKK usually happen after changes in ARKG and ARKW, I can know about these increases in cash like positions sooner by tracking all of her other funds as well.

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So this indicator is helping me build what I think is a good investment habit, really thinking about my cash position and how I build it over time. The point here is to show you that this framework forms a powerful feedback loop where the data helps me build my confidence in my short term vision while helping me clarify my longterm one. A lot of people have reached out and let me know that having access to analytics like this before market open every day would be really helpful, so that's what I'm going to do.

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Ticker Symbol: You will stay focused on ARK Invest's White papers, analyst research articles and other publications. The proactive, vision driven, top half of this feedback loop. The next episode will be another Big Ideas video. Ticker Symbol Live will be all about looking at the changes in ARK Invest's Holdings, talking about individual stocks, and engaging with the community in real time in ways that you find most helpful in your day to day investing. The reactive datadriven bottom half of this feedback loop. Here's a quick rundown of the format I'm envisioning and the dashboards I've designed for Ticker Symbol Live just so you can see if it's a good fit for you.

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Hey, there the format I'm imagining for Ticker Symbol Live is a daily live stream right before each market open. The purpose of the live stream will be to quickly go over the changes in ARK Invest's actively managed DTFs from the most recent trading days. Let's quickly go over the dashboard that I built to help share ARK Invest's biggest moves from the previous trading days. The dashboard looks like this and the live stream will look like this. In the top center of the dashboard, you'll see a table of every stock ARK Invest is currently holding in at least one of their funds.

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Right now, this table is ordered by the change in ARK rank, which is the metric I use as Cathie Wood's conviction in a stock. The closer a stock's ARK rank is to one, the closer it is to being ARK Invest's overall biggest position. The number one stock that ARK holds is always Tesla. So if I click on Tesla, I can quickly see that it's at the top of this combined bar chart. I can also go and quickly find the Tesla row in this table. I can see that it has not changed rank and that its current rank is one.

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Tesla sits in three of ARK Invest's funds. It sits in ARKK, ARKW and ARKQ. When I mouse over the bar chart, I'm able to see the number of dollars that ARK Invest holds in Tesla overall, about 3.6 billion, and in each one of the funds separately. About 2.5 billion in ARKK, about 770 million in ARKW and about 375 million in ARKQ. So this dashboard is designed to quickly jump between questions about stocks and questions about funds. For example, we can also highlight a fund. Here's what happens when I click on ARKK: I see every stock in the bar chart that has a red bar, which is part of ARKK.

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I can see that ARKK makes up about 47% of all the dollars ARK has invested across their ETFs, and I can see that no stocks are highlighted in the heat map because there is no stocks only in ARKK. That's important. What I can also see when I highlight ARKK is the actual Cathie Indicator. Here is the amount of stocks in ARKK over the last five trading days. We can see that the number of names in ARKK was 56 and has dropped to 55. If I click on ARKG instead, I can see all the stocks that are unique to ARKG show up in the heat map and on the table, and I can see all the stocks in ARKG highlighted in the combined bar chart.

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ARKG makes up about 21% of all ARK Invest's actively manage dollars, and we can go down and down the list. The last thing we can do is have a deeper discussion fund by fund. I can uncheck every box and empty the dashboard. Instead, we can take a look at, for example, only ARKW. This shows us a zoomed in version of the heat map, all of the changes in only stocks that are included in ARKW as well as the bar chart for just ARKW. That way, if we have fund specific questions, we're equipped to answer them in the same live stream.

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And of course we can see the Cathie Indicator for just ARKW. Here we see that ARKW had 57 stocks in it in the last five trading days, and that number has dropped to 54. To me, this means that Cathie Wood started spending some of her cash positions specifically in ARKW, even though the Cathie Indicator hasn't moved much in the other four funds. I want this live stream to be interactive. I want to be able to answer all the questions you may have and that I may have each day about ARK Invest's holdings.

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Whenever you ask a question, I'll be able to pop it up on the screen so that I can answer it for everyone who's listening and everyone who watches the recording afterwards. My hope is that this is a smooth, interactive and fun experience each morning right before market open. And again, the only point is to explore ARK Invest's most recent moves to help keep us informed for moves that we may want to make ourselves. I'm looking forward to it, and I hope you join me on Ticker Symbol Live.

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I'm going to keep them as separate channels so that you can choose which parts of this framework are right for you and not get distracted by the rest. Comment below or tweet me your questions about ARK Invest's daily trades and positions and how they fit into your larger investment framework. I'm excited to share what I find with you. This is Ticker Symbol: You. My name is Alex, reminding you that the best investment you can make is in you.