😲 Cathie Wood Says ARKK Will 4X as Inflation Concerns Grow

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