ARK investment

[Always passive]

I have been following Wood’s ARK funds with admiration, and often I have been tempted to invest a small amount of money in ARKK. I almost did until I saw an article on Wood at the WSJ, and that changed my mind.
For those that have a membership, you can google it. The article heading is...

“Warren Buffett’s Latest Challenger Will Fizzle Like the Rest”

“Cathie Wood has ridden stocks like Tesla to stardom, but funds like ARK Innovation ETF are best avoided after they get hot”

I would like to hear from those that feel differently and are continuing to hold the funds.

[totality]

There was a recent thread discussing ARK: viewtopic.php?f=10&t=324463

[nedsaid]

The performance record of these funds are quite impressive. I have not invested myself as I remember the red-hot NASDAQ of the late 1990's and the High Tech/Internet craze. Losses of 70% or more were not unusual among Technology Funds during the 2000-2002 bear market. I am reluctant to join in the performance derby of chasing the latest hot thing. Performance chasing rarely ends well.

Putting a small amount of your portfolio in ARK Funds is probably okay, I wouldn't put more than 5% of a portfolio in such funds.

Another reason for me not to invest is that I already own aggressive investments. I don't need more.

[oilrig]

After hearing so much hype about ARKK lately I decided to invest a small amount with them last week. I want more exposure to tesla but don’t want to pay the $800/share price to do it.

So far up 14%. Not bad. I’ll keep adding small amounts to ARKK here and there but it’s a really really small % of my portfolio.

[sperry8]

The performance record of these funds are quite impressive. I have not invested myself as I remember the red-hot NASDAQ of the late 1990's and the High Tech/Internet craze. Losses of 70% or more were not unusual among Technology Funds during the 2000-2002 bear market. I am reluctant to join in the performance derby of chasing the latest hot thing. Performance chasing rarely ends well.

Putting a small amount of your portfolio in ARK Funds is probably okay, I wouldn't put more than 5% of a portfolio in such funds.

Another reason for me not to invest is that I already own aggressive investments. I don't need more.

Agreed. I always love how there are threads asking about ARK and Bitcoin after incredible gains. Not many threads about down funds with star managers. Personally, I try to buy before the impressive gains (admittedly an impossible task) and that's why I don't play performance chasing games.

[MinnGuyInvesting]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

[am]

Performance chasing and goes against principles here. Plenty of previous hot funds like cgm focus fund that went bad. I’d only bet on it in my play money account,

[Always passive]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

But there is a fact that cannot be denied:
In the history of investing, there have been great “active” managers; unfortunately without exception, they have all at one point failed and failed badly. How will you prevent it?

[MinnGuyInvesting]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

But there is a fact that cannot be denied:
In the history of investing, there have been great “active” managers; unfortunately without exception, they have all at one point failed and failed badly. How will you prevent it?

The oil companies, cruise lines, and airlines I hold in the S&P 500 failed miserably this last year.
Simon Property Group was a big loser as well, and they bought JCPenny. Doesn't seem wise.
I'll probably continue to hold them since I'm passively invested.

Is this a "fail and failed badly" or do we accept that as fine?

[Busdrvr]

I started watching arkw in mid 2019 when I found that nearly all top etf strategies at sectorsurfer held this as their primary “risk on” holding. Still do in fact. I held 100 shares @50.00 for that summer and sold when I got a sell signal for the same $. I began buying it again in March and have built up about 50k in mostly -W, -K, and -G. Basis is 40k. I do have trailing stops set up to provide protection. I own them in both taxable and in my workplace plan.

I also like the TSLA exposure without the excess risk. They send me an email every time they trade so I can see what they buy and sell. Cathie Wood is fantastic and you can view her interviews to get a feel for their strategy if you are curious. My take is if the market is going up, they will beat the indexes. Ymmv

[Nathan Drake]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

But there is a fact that cannot be denied:
In the history of investing, there have been great “active” managers; unfortunately without exception, they have all at one point failed and failed badly. How will you prevent it?

The oil companies, cruise lines, and airlines I hold in the S&P 500 failed miserably this last year.
Simon Property Group was a big loser as well, and they bought JCPenny. Doesn't seem wise.
I'll probably continue to hold them since I'm passively invested.

Is this a "fail and failed badly" or do we accept that as fine?

If you own indexes, then you will hold both winners and losers because you are well diversified. Yesterday's losers can end up being tomorrow's winners. And yesterday's winners could end up being tomorrow's losers.

If Cathie Wood's secret magic of technology selection ends up being wrong, you may never recover your losses due to lack of sufficient diversification.

[diabelli]

I began investing in the ARK funds in about August of last year.
As happens so frequently, it feels as if I jumped on-board after the meteoric rise had already taken place. Even if it continues to do quite well, it feels as though it simply can't rise in any proportion rivalling what it already has. Not expecting life-changing returns from the ~10k I put into it but it does feel like a nice diversification of my portfolio.

On a similar yet different note --- anyone here think IZRL (a passively-managed ARK Israel disruptive innovation index) is worth looking at? At minimum I think one can say that there's been no meteoric rise as yet (the obvious risk being that there will never be one!).

[hagridshut]

I agree with a lot of ARK's conclusions on the future direction and effect of technology on the equity markets.

The biggest risk of holding ARK funds long term is that the talent on analyst team shifts. For people early in their accumulation phase now, do you plan to hold ARK for 30 or 40 years, probably long past Cathie Wood's tenure as head of the company? Who is willing to keep close tabs on the people making decisions about the funds?

For Index Funds, one doesn't have to worry much about manager risk.

[retire2022]

I agree with a lot of ARK's conclusions on the future direction and effect of technology on the equity markets.

The biggest risk of holding ARK funds long term is that the talent on analyst team shifts. For people early in their accumulation phase now, do you plan to hold ARK for 30 or 40 years, probably long past Cathie Wood's tenure as head of the company? Who is willing to keep close tabs on the people making decisions about the funds?

For Index Funds, one doesn't have to worry much about manager risk.

I agree with hagridshut, that is why I have 29% of Vanguard Information Technology VGT, which is a passive technology index fund at a lower expense ratio, ER 0.10% over Ark active managed funds.

[visualguy]

On a similar yet different note --- anyone here think IZRL (a passively-managed ARK Israel disruptive innovation index) is worth looking at? At minimum I think one can say that there's been no meteoric rise as yet (the obvious risk being that there will never be one!).

Israel is problematic from a stock market investment perspective, unfortunately. Many of their most successful/promising tech companies end up getting acquired sooner or later (typically sooner) by US companies.

[MinnGuyInvesting]

I agree with a lot of ARK's conclusions on the future direction and effect of technology on the equity markets.

The biggest risk of holding ARK funds long term is that the talent on analyst team shifts. For people early in their accumulation phase now, do you plan to hold ARK for 30 or 40 years, probably long past Cathie Wood's tenure as head of the company? Who is willing to keep close tabs on the people making decisions about the funds?

For Index Funds, one doesn't have to worry much about manager risk.

I'll probably ride with ARK for 5-8 years. Depending on how fast innovation occurs in various spaces, and depending on what's next.
I may hold 15 or longer. I'll probably revisit it annually and assess at the time.

[Nathan Drake]

I agree with a lot of ARK's conclusions on the future direction and effect of technology on the equity markets.

The biggest risk of holding ARK funds long term is that the talent on analyst team shifts. For people early in their accumulation phase now, do you plan to hold ARK for 30 or 40 years, probably long past Cathie Wood's tenure as head of the company? Who is willing to keep close tabs on the people making decisions about the funds?

For Index Funds, one doesn't have to worry much about manager risk.

I'll probably ride with ARK for 5-8 years. Depending on how fast innovation occurs in various spaces, and depending on what's next.
I may hold 15 or longer. I'll probably revisit it annually and assess at the time.

Even if some of these funds lose 80% of their value?

[MinnGuyInvesting]

I'll probably ride with ARK for 5-8 years. Depending on how fast innovation occurs in various spaces, and depending on what's next.
I may hold 15 or longer. I'll probably revisit it annually and assess at the time.

Even if some of these funds lose 80% of their value?

Depends on what their drop is compared to the market.

[Digital Dave]

About 4 months ago I invested 1% of my liquid assets in ARKK. (Since then I've done the same with two other ETFs). If it goes way down, I can TLH if I really want to. If it goes way up, that is fine. I won't invest more. ARKK is out of my comfort zone. Nothing else to add. Thanks for listening. Dave

[MinnGuyInvesting]

ARK is in my comfort zone because I hope to see well above industry average returns, and I don't want to be overly invested in the bottom 100 of the S&P 500 over the next 10 years.

There are a lot of companies in the S&P 500 who had miserable years this last year and will again this year. There are also S&P 500 companies that will disappear in the coming years.

In the next year, I'd trust the bottom 10% of the ARK stocks more than the bottom 10% of the S&P 500 stocks.
Add on that it's actively managed, and if a company starts to tank, maybe ARK bails out before things get worse. Who knows. A bit of a crapshoot on that.

[Nathan Drake]

ARK is in my comfort zone because I hope to see well above industry average returns, and I don't want to be overly invested in the bottom 100 of the S&P 500 over the next 10 years.

There are a lot of companies in the S&P 500 who had miserable years this last year and will again this year. There are also S&P 500 companies that will disappear in the coming years.

In the next year, I'd trust the bottom 10% of the ARK stocks more than the bottom 10% of the S&P 500 stocks.
Add on that it's actively managed, and if a company starts to tank, maybe ARK bails out before things get worse. Who knows. A bit of a crapshoot on that.

The problem with that line of thinking is that it's performance chasing. ARK has done well over the past few years. Often, outperformance in short periods of time is followed by downright abysmal performance in the following years.

What if your overweight in ARK funds leads to worse performance than the bottom 10% of S&P 500 stocks?

[MinnGuyInvesting]

ARK is in my comfort zone because I hope to see well above industry average returns, and I don't want to be overly invested in the bottom 100 of the S&P 500 over the next 10 years.

There are a lot of companies in the S&P 500 who had miserable years this last year and will again this year. There are also S&P 500 companies that will disappear in the coming years.

In the next year, I'd trust the bottom 10% of the ARK stocks more than the bottom 10% of the S&P 500 stocks.
Add on that it's actively managed, and if a company starts to tank, maybe ARK bails out before things get worse. Who knows. A bit of a crapshoot on that.

The problem with that line of thinking is that it's performance chasing. ARK has done well over the past few years. Often, outperformance in short periods of time is followed by downright abysmal performance in the following years.

What if your overweight in ARK funds leads to worse performance than the bottom 10% of S&P 500 stocks?

Is there any way in which investing in VTI or SPY or QQQ is index chasing?
Ever?

[Nathan Drake]

ARK is in my comfort zone because I hope to see well above industry average returns, and I don't want to be overly invested in the bottom 100 of the S&P 500 over the next 10 years.

There are a lot of companies in the S&P 500 who had miserable years this last year and will again this year. There are also S&P 500 companies that will disappear in the coming years.

In the next year, I'd trust the bottom 10% of the ARK stocks more than the bottom 10% of the S&P 500 stocks.
Add on that it's actively managed, and if a company starts to tank, maybe ARK bails out before things get worse. Who knows. A bit of a crapshoot on that.

The problem with that line of thinking is that it's performance chasing. ARK has done well over the past few years. Often, outperformance in short periods of time is followed by downright abysmal performance in the following years.

What if your overweight in ARK funds leads to worse performance than the bottom 10% of S&P 500 stocks?

Is there any way in which investing in VTI or SPY or QQQ is index chasing?
Ever?

I would say if you have a globally balanced portfolio that owns the entire market, then no because by definition you will have certain funds that perform well and those that don't in a given year.

Your example focuses on funds that are far more selective and not diversified, almost all of their holdings have done incredibly well recently. That sort of return CANNOT be persistent into perpetuity.

I think this would only come into play with concentrated bets,

[MishkaWorries]

I have been following Wood’s ARK funds with admiration, and often I have been tempted to invest a small amount of money in ARKK. I almost did until I saw an article on Wood at the WSJ, and that changed my mind.
For those that have a membership, you can google it. The article heading is...

“Warren Buffett’s Latest Challenger Will Fizzle Like the Rest”

“Cathie Wood has ridden stocks like Tesla to stardom, but funds like ARK Innovation ETF are best avoided after they get hot”

I would like to hear from those that feel differently and are continuing to hold the funds.

No thanks.

[nisiprius]

...The biggest risk of holding ARK funds long term is that the talent on analyst team shifts...

You know when there's a new manager.

The biggest risk of aggressive, star-manager, selectively picked active funds is that the manager doesn't change, but--for whatever reason--begin underperforming, just as impressively as they outperformed.

Consider Ken Heebner and the CGM Focus fund. Stunning performance for ten years. Widely lionized, “How do you explain genius? Ken just sees things others don’t.” Steadily lost all of the outperformance back in the next ten years.

Source



Consider Bill Miller and the Legg Mason Value Trust. (Now known as Clearbridge Value). Beat the S&P 500 in 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005. Absolute proof of skill. Lost back all the outperformance in just three years.

Source



Now, you may say, both of these fund tied the S&P 500 so where's the harm? The harm is that the vast majority of the dollar flow into the fund occurred while it was outperforming. Someone who invested before the big gains would have matched the S&P 500, but most people didn't invest that early.

[JD2775]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

I checked it out briefly because I had no idea what it is....looks cool I guess, yea it looks like it's had a meteoric rise the last cpl years but nah, I'll pass. I'd rather buy S&P500 "on sale" the next 10 years if what Catherine Wood says is correct

[MinnGuyInvesting]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

I checked it out briefly because I had no idea what it is....looks cool I guess, yea it looks like it's had a meteoric rise the last cpl years but nah, I'll pass. I'd rather buy S&P500 "on sale" the next 10 years if what Catherine Wood says is correct

Smart friend!

[JD2775]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

I checked it out briefly because I had no idea what it is....looks cool I guess, yea it looks like it's had a meteoric rise the last cpl years but nah, I'll pass. I'd rather buy S&P500 "on sale" the next 10 years if what Catherine Wood says is correct

Smart friend!

Ha, maybe. Feels like I've already missed that boat though. Also, with my ESPP at work that's probably enough risk I am willing to tolerate for now

[Keenobserver]

About 15% of my.portfolio Ark.. so far not bad..we shall see

[garlandwhizzer]

Great post, nisi.

When it comes to active management, outsized fund success frequently leads to asset bloat and sometimes to sector bubble formation. Investors pile into rapidly appreciating funds and it self-reinforces for a while drawing in more performance chasing dollars. At some point, the assets under management exceed the available opportunities for generation of alpha and the cost structure of active management dooms it to future failure relative to comparable indexes. The important thing about momentum driven investing is that early along as it continues to thrive as greater and greater positive sentiment builds up driving up the prices of the hot assets into the stratosphere. Some in 1999 argued that we were in a new transformative age when valuations no longer mattered at all. Sound familiar?

The opposite happens on the downside. The momentum/sentiment driven market tends to overshoot substantially in both directions, up and down. It is basically impossible to time the inflection point where the multi-year powerful trend in one direction suddenly transforms into a powerful trend in the opposite direction. Bubbles are always recognized after the fact. Most experts to have 20/20 afterwards, 0/20 before. Likewise defining reliably the deepest point of a very severe severe bear market consistently is impossible IMO except by blind luck. What is apparent is when sentiment gets excessively positive and valuations get distanced by light years from current reality, as for example it is now in a narrow segment of the new economy (TSLA , BTC for example IMO), it may be a good time not concentrate too much in the new age darlings which have produced such fabulous recent returns. It is possible but unlikely that these recent fabulous returns of select names will continue forever. One of the biggest and most consistent mistakes investor make over and over is to assume that whatever the market has done in the recent past, the trend that is freshest in their memory, will continue unabated. Wide diversification IMO is the best insurance against a very uncertain future.

Garland Whizzer

[Ed 2]

Performance chasing and goes against principles here. Plenty of previous hot funds like cgm focus fund that went bad. I’d only bet on it in my play money account,

+1 I remember back in late 90s Janus Growth and Income Fund. That fund would eclipse ARC if you compare. Back then they told that the secret of their performance that they located in Colorado where the air is fresh.

[Semantics]

Here's the thing. I like a lot of ARK's analysis, but spot-on analysis is not sufficient to beat the indices. In fact, if your analysis is too good, you might have to suffer through years of poor returns waiting for the market to catch on. ARK Invest has recently hit the sweet spot of being ahead of the market, but being "bad" enough with their picks that they aren't ahead by too much and don't have to wait long to realize a return. I would argue that this is partly because of the pandemic and how the infusion of liquidity and acceleration of technology adoption compressed timelines. (Now that they're so big, part of it might also be investors chasing their returns as Garland pointed out.) Once we return to a more normal environment I imagine the timing factor will once again become more important.

More food for thought: from 2015-2019, ARKK did not beat the QQQ index in terms of risk-adjusted returns (Sharpe ratio). By holding fewer companies than QQQ for less diversity, and mostly excluding blue chips, they take on more risk. Prior to 2020, the excess risk was the sole reason for ARKK's excess returns. Going forward, I'd expect ARKK's (out)performance over the next five years to look more like its first five years than like 2020, which I'm sure everyone would agree was an outlier. As such, given that actively managed funds also carry uncompensated management risk, I'm more comfortable sticking with QQQ, perhaps leveraged a bit to approach ARKK's volatility, at least in my taxable accounts.

That said, digressing a bit, I do wonder if ARKK is a safer alternative to leverage, for the investor who wants to take on more risk to get more reward. While its historical performance somewhat resembles 2x QQQ, it suffered a much smaller drawdown in March 2020 (though more than QQQ). My intuition is that many stocks are volatile in normal trading due to high uncertainty on the margin of their future earnings, but have more stable core earnings component that acts as a buffer during a whole-market crash. In other words, measured volatility may overestimate of the true risk of a stock/fund. I imagine that to be the main way in which an active manager can add value, given I don't expect active funds to consistently produce better risk-adjusted returns. No idea if this makes sense though, would love to be disabused of the idea if there's contrary evidence, I'm sure alternative ways to quantify risk than price variance been studied but not sure where to look.

[Stanczyk]

I started watching arkw in mid 2019 when I found that nearly all top etf strategies at sectorsurfer held this as their primary “risk on” holding. Still do in fact. I held 100 shares @50.00 for that summer and sold when I got a sell signal for the same $. I began buying it again in March and have built up about 50k in mostly -W, -K, and -G. Basis is 40k. I do have trailing stops set up to provide protection. I own them in both taxable and in my workplace plan.

I also like the TSLA exposure without the excess risk. They send me an email every time they trade so I can see what they buy and sell. Cathie Wood is fantastic and you can view her interviews to get a feel for their strategy if you are curious. My take is if the market is going up, they will beat the indexes. Ymmv

What are your trailing stops?

[Nathan Drake]

I started watching arkw in mid 2019 when I found that nearly all top etf strategies at sectorsurfer held this as their primary “risk on” holding. Still do in fact. I held 100 shares @50.00 for that summer and sold when I got a sell signal for the same $. I began buying it again in March and have built up about 50k in mostly -W, -K, and -G. Basis is 40k. I do have trailing stops set up to provide protection. I own them in both taxable and in my workplace plan.

I also like the TSLA exposure without the excess risk. They send me an email every time they trade so I can see what they buy and sell. Cathie Wood is fantastic and you can view her interviews to get a feel for their strategy if you are curious. My take is if the market is going up, they will beat the indexes. Ymmv

Not sure what you mean by "TSLA exposure without the excess risk".

If Cathie Wood is so fantastic...do you agree with her assessment that Index funds are going to be dead? To me, anyone making a statement that bold is someone I would not trust and more than likely will be just another fad.

[000]

The reasons people are giving to justify their performance chasing are hilarious.

Buying ARK because of all the "ugly" stocks in the S&P 500 - like that isn't priced in.

Buying ARK because the share price of Tesla is too high.

Putting a very small % in ARK - why bother?

[willthrill81]

The performance record of these funds are quite impressive. I have not invested myself as I remember the red-hot NASDAQ of the late 1990's and the High Tech/Internet craze. Losses of 70% or more were not unusual among Technology Funds during the 2000-2002 bear market.

Back when I was a teenager, I had the bulk of my portfolio in Garrett Van Wagoner's funds. In the late 1990s, I remember seeing them shoot up like a rocket. Thankfully, I sold out still well into the black. The funds all folded several years ago, but he's still around in the investment space, surprisingly.

[Dr. Dad]

I'm guessing many of the stocks owned by ARK funds are found within the small cap growth index (VSGAX or VBK)--perhaps a safer, more Bogle-like way to seek higher returns...?

DD

[Always passive]

Here's the thing. I like a lot of ARK's analysis, but spot-on analysis is not sufficient to beat the indices. In fact, if your analysis is too good, you might have to suffer through years of poor returns waiting for the market to catch on. ARK Invest has recently hit the sweet spot of being ahead of the market, but being "bad" enough with their picks that they aren't ahead by too much and don't have to wait long to realize a return. I would argue that this is partly because of the pandemic and how the infusion of liquidity and acceleration of technology adoption compressed timelines. (Now that they're so big, part of it might also be investors chasing their returns as Garland pointed out.) Once we return to a more normal environment I imagine the timing factor will once again become more important.

More food for thought: from 2015-2019, ARKK did not beat the QQQ index in terms of risk-adjusted returns (Sharpe ratio). By holding fewer companies than QQQ for less diversity, and mostly excluding blue chips, they take on more risk. Prior to 2020, the excess risk was the sole reason for ARKK's excess returns. Going forward, I'd expect ARKK's (out)performance over the next five years to look more like its first five years than like 2020, which I'm sure everyone would agree was an outlier. As such, given that actively managed funds also carry uncompensated management risk, I'm more comfortable sticking with QQQ, perhaps leveraged a bit to approach ARKK's volatility, at least in my taxable accounts.

That said, digressing a bit, I do wonder if ARKK is a safer alternative to leverage, for the investor who wants to take on more risk to get more reward. While its historical performance somewhat resembles 2x QQQ, it suffered a much smaller drawdown in March 2020 (though more than QQQ). My intuition is that many stocks are volatile in normal trading due to high uncertainty on the margin of their future earnings, but have more stable core earnings component that acts as a buffer during a whole-market crash. In other words, measured volatility may overestimate of the true risk of a stock/fund. I imagine that to be the main way in which an active manager can add value, given I don't expect active funds to consistently produce better risk-adjusted returns. No idea if this makes sense though, would love to be disabused of the idea if there's contrary evidence, I'm sure alternative ways to quantify risk than price variance been studied but not sure where to look.

Talking about QQQ, what about QQQM?

[Always passive]

Here's the thing. I like a lot of ARK's analysis, but spot-on analysis is not sufficient to beat the indices. In fact, if your analysis is too good, you might have to suffer through years of poor returns waiting for the market to catch on. ARK Invest has recently hit the sweet spot of being ahead of the market, but being "bad" enough with their picks that they aren't ahead by too much and don't have to wait long to realize a return. I would argue that this is partly because of the pandemic and how the infusion of liquidity and acceleration of technology adoption compressed timelines. (Now that they're so big, part of it might also be investors chasing their returns as Garland pointed out.) Once we return to a more normal environment I imagine the timing factor will once again become more important.

More food for thought: from 2015-2019, ARKK did not beat the QQQ index in terms of risk-adjusted returns (Sharpe ratio). By holding fewer companies than QQQ for less diversity, and mostly excluding blue chips, they take on more risk. Prior to 2020, the excess risk was the sole reason for ARKK's excess returns. Going forward, I'd expect ARKK's (out)performance over the next five years to look more like its first five years than like 2020, which I'm sure everyone would agree was an outlier. As such, given that actively managed funds also carry uncompensated management risk, I'm more comfortable sticking with QQQ, perhaps leveraged a bit to approach ARKK's volatility, at least in my taxable accounts.

That said, digressing a bit, I do wonder if ARKK is a safer alternative to leverage, for the investor who wants to take on more risk to get more reward. While its historical performance somewhat resembles 2x QQQ, it suffered a much smaller drawdown in March 2020 (though more than QQQ). My intuition is that many stocks are volatile in normal trading due to high uncertainty on the margin of their future earnings, but have more stable core earnings component that acts as a buffer during a whole-market crash. In other words, measured volatility may overestimate of the true risk of a stock/fund. I imagine that to be the main way in which an active manager can add value, given I don't expect active funds to consistently produce better risk-adjusted returns. No idea if this makes sense though, would love to be disabused of the idea if there's contrary evidence, I'm sure alternative ways to quantify risk than price variance been studied but not sure where to look.

Talking about QQQ, what about QQQM?

Sorry, I meant TQQQ

[nedsaid]

The performance record of these funds are quite impressive. I have not invested myself as I remember the red-hot NASDAQ of the late 1990's and the High Tech/Internet craze. Losses of 70% or more were not unusual among Technology Funds during the 2000-2002 bear market.

Back when I was a teenager, I had the bulk of my portfolio in Garrett Van Wagoner's funds. In the late 1990s, I remember seeing them shoot up like a rocket. Thankfully, I sold out still well into the black. The funds all folded several years ago, but he's still around in the investment space, surprisingly.

Yes, I do remember this. The Internet Funds were quite the rage but they badly flopped in the bear market that followed.

[sperry8]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

But there is a fact that cannot be denied:
In the history of investing, there have been great “active” managers; unfortunately without exception, they have all at one point failed and failed badly. How will you prevent it?

The oil companies, cruise lines, and airlines I hold in the S&P 500 failed miserably this last year.
Simon Property Group was a big loser as well, and they bought JCPenny. Doesn't seem wise.
I'll probably continue to hold them since I'm passively invested.

Is this a "fail and failed badly" or do we accept that as fine?

The reality is that most of stock equity outperformance comes from a very small % of stocks. And here you are asking/trusting an Active Mgr to be able to identify those stocks in advance of their outperformance. It is a very difficult thing to do. So difficult in fact, that in history, very few have been able to do it over the long haul. The S&P is always littered with failures (which makes sense since we just learned that only a small % of stocks provide all its performance). The key difference is the S&P doesn't try to find those small sliver of stocks but rather just buys the whole haystack to be sure it invests in them.

As for ARK, here are some quotes; "don't confuse brains with a bull market". "Don't confuse luck with skill". Let's see how ARK does during the next bear and over the long term.

[Escapevelocity]

The performance record of these funds are quite impressive. I have not invested myself as I remember the red-hot NASDAQ of the late 1990's and the High Tech/Internet craze. Losses of 70% or more were not unusual among Technology Funds during the 2000-2002 bear market.

Back when I was a teenager, I had the bulk of my portfolio in Garrett Van Wagoner's funds. In the late 1990s, I remember seeing them shoot up like a rocket. Thankfully, I sold out still well into the black. The funds all folded several years ago, but he's still around in the investment space, surprisingly.

I was waiting for someone to bring up Van Wagoner. I was in my mid 30's at the time and hadn't become fully educated about portfolio management, risk analysis and so on. I believe Ark is basically a mirror image of Van Wagoner 20+ years later and the people falling in love with this are the same 30 somethings that I was back then. Buyer beware.

[barnaclebob]

I'm heavily invested in ARK.

I like the fact it's a pretty broad index of 40-50 companies in each fund.
I like the fact it's actively managed.
I like the fact it's centered around companies in growing technologies (not sectors or industries).

I think if I'm patient over the long term, I'll make some money by sticking with the ARK funds over the next 5-10 years.

But there is a fact that cannot be denied:
In the history of investing, there have been great “active” managers; unfortunately without exception, they have all at one point failed and failed badly. How will you prevent it?

The oil companies, cruise lines, and airlines I hold in the S&P 500 failed miserably this last year.
Simon Property Group was a big loser as well, and they bought JCPenny. Doesn't seem wise.
I'll probably continue to hold them since I'm passively invested.

Is this a "fail and failed badly" or do we accept that as fine?

This is textbook rationalization and butwhataboutism.

In theory any tweaks you make to an ideally diversified passive portfolio will on average result in under performance. It then just becomes a question of what the ideal diversification is. Most people consider it a mix of the broad stock market and bond markets.

[barnaclebob]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

I checked it out briefly because I had no idea what it is....looks cool I guess, yea it looks like it's had a meteoric rise the last cpl years but nah, I'll pass. I'd rather buy S&P500 "on sale" the next 10 years if what Catherine Wood says is correct

Smart friend!

Or hes the shoe shiner giving stock tips...

[Anon9001]

I actually tested ARKK etf against Fama French factors (Rm-Rf,HML,SMB,CMA) and it does not have statistically significant alpha. Very useful tool to see if there is real alpha for active management. It's a shame there is no local equivalent of this as alpha is measured here relative to cap-weighted index.

EDIT: Here is the test against just two factors Market and Value and still the fund has insignificant alpha.

[nisiprius]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

When the best argument for a new investment is that it is not "old school," that suggests there is nothing you need to check out.

When the information you are hearing is that the investment manager knocks the competition, that is not information at all. For heaven's sake, what do you expect Catherine Wood to say? What active investment manager praises S&P 500 index funds?

Nobody. Nobody at all. Nobody.

But Warren Buffett.

[Escapevelocity]

This thread actually is nostalgic in that it reminds me of the blissful ignorance of my youth.

[JD2775]

My friend who I never talk investing with, texted me this morning:

"FYI...You should check out Ark. Catherine Wood says S&P 500 is going nowhere the next 10 years. Index funds are old school"

When the best argument for a new investment is that it is not "old school," that suggests there is nothing you need to check out.

When the information you are hearing is that the investment manager knocks the competition, that is not information at all. For heaven's sake, what do you expect Catherine Wood to say? What active investment manager praises S&P 500 index funds?

Nobody. Nobody at all. Nobody.

But Warren Buffett.

Well said

[ccf]

“Cathie Wood has ridden stocks like Tesla to stardom, but funds like ARK Innovation ETF are best avoided after they get hot”

They are certainly hot.

I was in a couple for a tiny part of my portfolio ($30K) moved it all to Total Market yesterday.

[Busdrvr]

I started watching arkw in mid 2019 when I found that nearly all top etf strategies at sectorsurfer held this as their primary “risk on” holding. Still do in fact. I held 100 shares @50.00 for that summer and sold when I got a sell signal for the same $. I began buying it again in March and have built up about 50k in mostly -W, -K, and -G. Basis is 40k. I do have trailing stops set up to provide protection. I own them in both taxable and in my workplace plan.

I also like the TSLA exposure without the excess risk. They send me an email every time they trade so I can see what they buy and sell. Cathie Wood is fantastic and you can view her interviews to get a feel for their strategy if you are curious. My take is if the market is going up, they will beat the indexes. Ymmv

What are your trailing stops?

20% in the accounts where ARKW is up 103% and 135%.