> Wood’s flagship fund, the ARK Innovation ETF, had lost roughly half of its value over the prior year, as its aggressive bets on hot companies from Coinbase to Robinhood and Tesla had melted down amid a bear market in tech stocks.
It's important to note what this really means. You can have 4 years of 20% returns and if the last year you're down 50%, you gave back nearly everything you've ever made, assuming you had no new money come in those years, otherwise even more. The max drawdown is whats important. You can almost always make money writing out of the money call options, except the one year where you give back everything you've made and then some. As expected:
> Her ARK Innovation fund, often known by its ticker as ARKK, returned some 157 percent during that first year of the pandemic, compared to just 18 percent for the S&P 500 as a whole... Wood’s fund is now exactly where it was in March 2020, meaning pandemic investors who bet on her have now round-tripped all the way up and all the way back down. Adjusting for inflation, they have lost money.
Cathie Wood is one of those investors that just makes directional bets, in her case high growth tech stocks. They happened to do well last 5 years or so, so it appears that Cathie has done well. But same as someone who just plowed a bunch of money into Bitcoin in 2012, it doesn't mean you're a good investor or you have anything interesting to share today.
I read her Twitter occasionally and found her very unimpressive. For instance, she made some uninformed comments about "velocity of money" decreasing and that's the reason we won't have inflation (this was during the "transitory" phase of inflation denial). Then she had some ridiculous examples of things actually going down in price like AI training costs, which should balance things out. It was so comical it could have been on the show Silicon Valley.
A similar thing happened with Bear Stearns. It beat the market consistently every month... until it didn't. IIRC it blew up very very quickly.
This is the same issue with these ridiculously high "guaranteed" returns on DeFi lending.
Any significantly above market returns of any kind are either a scam or have risks that are either not understood or not disclosed.
I'm honestly surprised the hedge fund industry has survived so long and grown so large. In some cases you get to invest in a market you otherwise couldn't access but it seems like long-term returns underperform passive investments in most cases.
Here’s a few other interesting resources to better understand Cathy Wood. The charges against Bill Hwang are illuminating, and one thing he did was buy very illiquid stocks and squeeze the prices higher, which created a self reinforcing effect of raising the price when markets were going up, but ultimately caused the collapse of his fund when they reversed. The full charges are interesting: https://www.justice.gov/usao-sdny/press-release/file/1497216...
ARK is similarly invested in very illiquid positions. Hwang was one of Cathy’s initial investors, and there’s reason to believe they share some similar views. Both are devoured charismatic Christians. An write up on Cathy Wood highlighting her approach to investing: https://www.ft.com/content/a93f4de2-35d2-44e1-a6a1-0000cba0d...
> "Any significantly above market returns of any kind are either a scam or have risks that are either not understood or not disclosed."
By definition, the market return is an average, and there must be returns above and below the average. You could say above market returns require taking above market risk, but often times the level of risk you are taking is not known for certain at the point in time you make the investment.
Also, the hedge fund industry's goal is not necessarily to beat the market, it is to provide the highest level of return per unit of risk.
> Also, the hedge fund industry's goal is not necessarily to beat the market, it is to provide the highest level of return per unit of risk.
This is every investment, not judge hedge funds. Every asset has a risk profile. Generally speaking, the higher the risk, the higher the return.
US government T-bonds have a low return because they're viewed as essentially risk-free. Put another way: the US government has never defaulted on a debt and that debt is backed by the US government. It's not that a default can't happen but if it does, we probably have larger problems. So low-risk, relatively low return.
Individual stocks on the other hand have much higher risk. So the return can be much greater but you can also lose all your money.
Funds reduce risk by splitting investments across a pool of assets. This reduces risk but also reduces likely returns (both positive and negative).
When people compare actively managed funds (including hedge funds) to passive funds (eg S&P 500 weighted fund), actively managed funds overall underperform passive funds for the same asset classes and risk profile.
That means you compare an equity hedge fund to other equity funds. This also means whenever we talk about average returns we actually mean average returns for that risk profile and asset class.
This isn’t true, the US has defaulted or suspended payment multiple times going back to the Revolution when it was the Continental Congress, the War of 1812, the Civil War, and more recently in the 20th century through many artful disguises to avoid technical default.
> By definition, the market return is an average, and there must be returns above and below the average.
Agree, but those returns well above average, could be tomorrow's well below average. (And the ones well below average today were yesterday's well above average.)
So it can still be the case that the ones significantly above market and significantly below market are one and the same.
Better put, since a peak can't be predicted, is that a fund with outsize performance last year will likely underperform this year.
I remember Janus' ads running a victory lap about one fund with a >100% return in 2000, only to have ads talking about how to stay strong and deal with "uncertainty" or something after the crash.
> the hedge fund industry's goal is not necessarily to beat the market, it is to provide the highest level of return per unit of risk.
So basically you are saying a hedge fund is just optimizing for sharpe.
That is not true. Sharpe is just one way to compare performance at the same level of vol. It's a useful metric but very limited. It tell you nothing about exposure, risk and distribution.
I discussed how hedge funds position themselves here:
> Any significantly above market returns of any kind are either a scam or have risks that are either not understood or not disclosed.
Before computers were widespread there used to be niches where outsized returns did exist, but just too small for large professional investors to bother. Like a once a month mis-pricing that you could make a few thousand on, max, due to low liquidity.
Hilariously enough, that’s exactly how the most famous “value” investor Buffet started out: convertible bonds arbitrage. So much for “buy and hold undervalued but very good companies forever ” lol.
He eventually grew out of that niche and became too big, so he had to develop a new image to sell to his LPs/investors and move on to bigger things.
I have a hunch that the hedge funds proliferation in some part is due to the availability of speed and compute. Today you can leverage machines to exploit a million small niches, and lots of funds are doing just that. Tons of mini buffets around, they just can’t grow as big anymore, or at least with much lower frequency.
But, notably, only with their internal, smaller fund that only partners and employees can participate in. Which has presumably driven interest in their large funds open to the public, which have not performed anywhere near as well as the internal fund.
Hedge funds are more a tax vehicle than a true investment. The first scam is the managers can take 15, 20, 25 or 30% of all profits monthly and then carry that part that is then the managers forward tax free even multiple trades or move from options to farmland etc. The other scam is they can do short term trades, which if you do is taxed like income w the marginal rates and combined w your other income. The hedge investors get their short term trading gains as if they were long term gains. This is all done w she'll companies and an accountant's "hand wave". So the manager is still ahead as she keeps whatever is left of those carry forwards.
Career hedge fund trader here: this is nonsense. Of course HFs are tax optimized but saying they are not investment vehicles doesn’t even align with your view. If they aren’t true investment vehicles which generate profits, then there is nothing to protect from taxes…
Your premise is based on funds making a lot of money, which they want to shield from taxes. How do you think they make money? (Caveat: most HFs underperform, but that’s a different issue entirely)
> I'm more interested in this phenomena with hedge funds treating short term cap gains as long term.
I think what GP means is, your fund has some trading profits, which if an individual did the same trades would be taxed as earned income or short term gains, but the fund actually doesn't have profits or pay taxes at all - it's a pass through entity. You, as an individual investor in the fund, pay taxes (long term or short term cap gains as appropriate) when you exit your investment in the fund.
This is a pretty reasonable way for capital gains taxes to work. The secret sauce successful hedge funds have is not access to this tax optimization, but some way to actually generate those trading profits in the first place.
Manufacturing a fake loss with a false valuation is not the same thing at all - you've just said that "if you can do fraud, then sure there's money to be made from losses". Fraud makes money? Sure! Losses do not.
It is literally a thing. I cannot for the life of me make sense of how to make it work that doesn't strike me as off, but enough people get utility out of the moniker that it's got a page. So...
Tax loss harvesting is real, you just time when you take a loss to offset a gain. Then immediately reinvest. You haven’t lost any money in total, you can just claim the loss on your taxes (but will pay higher capital gains in the future).
>A similar thing happened with Bear Stearns. It beat the market consistently every month... until it didn't. IIRC it blew up very very quickly
Very subtle difference,though. I am simplifying things here but IIRC, Bear Stearns blew up because they wrote insurance for things they didn't think would ever happen (housing mkt going down) and had a lot of exposure vis-a-vis how much premium they collected (i.e. sold a put -- limited upside , unlimited downside).
I doubt ARKK has _written_ put options. It might be the case that the value of the ETF will go down drastically but they won't go bust because of liabilities.
Long Term Capital Management is an interesting related story. They severely miscalculated the potential risks of what they were doing (both illiquid and very leveraged at the same time).
I was reminded of this because Bear Stearns was actually the only major player that refused to bail out LTCM [1], which pissed off a number of other firms. I don't know if the institutional memory was long enough for this to impact Bear 10 years later, but it is ironic they were looking for a bailout after being so adamant about not participating in one.
To your point, the main LTCM crew raised money to start a new fund only a couple years after their disastrous failure. People were willing to gamble millions on these guys still!
ARK is like a gambler who won his first lucky bet on a horse in life (TESLA), got hooked on gambling (growth stocks), made some incredibly stupid bets and is now in complete denial when markets turned against him..
LTCM did some novel and sophisticated stategies (for a time), realized the markets got too shallow for its strategies, returned most money to investors and lost liquidity due to black swan event. It is too easy in hindsight to tell they should have known better.
If you want better comparison for Cathy it is Bill Ackman's Persing Square Capital Management buying Netflix in euforia without any analysis and dumping the stock in panic 4 months later, loosing 400 mllion dollars..
I don't doubt LTCM was smarter at the start. But I don't think it takes hindsight to say that it's a stupid idea to put your entire net worth in one fund and then take out additional personal loans to put even more. One of the main dudes was like $30 million in debt after the whole fiasco!
Also FWIW the next fund that the core group started didn't last much past 2008. I think it's fair to say they were wrong about the amount of risk they were taking.
But yeah the initial bets were smart and not "gambling". The problem is the insanely big and leveraged positions they took and continued to build even while their core business was clearly shrinking. Especially the way they dove into markets they were less knowledgeable about, at least the way the book presents it they did not do their homework on e.g. merger arbitrage in the way they had with the bond market.
IMO they totally got cocky too, even if they got cocky for a better reason.
Remember when Chamath Palhapitiya was claiming he's the new Warren Buffett on CNBC. Blew up a lot of retailer investors funds through his SPACs although he himself Madeoff quite well given the closing conditions.
> when Chamath Palhapitiya was claiming he's the new Warren Buffett on CNBC.
I don't remember that. I watched a few of his videos. Seems like rational statements explaining why Warren might be wrong about Bitcoin. https://www.youtube.com/watch?v=RAvYvyj37UU
> Blew up a lot of retailer investors funds through his SPACs although he himself Madeoff quite well given the closing conditions.
I was not aware of that. That's a pretty strong accusation you're making there, it sounds like he committed crimes. Do you have a link to substantiate this?
> I was not aware of that. That's a pretty strong accusation you're making there, it sounds like he committed crimes. Do you have a link to substantiate this?
A lot of his SPACs are trading under their initial price of $10/share.
Here's 3 examples: CLOV, SPCE, SOFI. If you bought in during the SPAC stage or at IPO, you'd have lost quite a bit on any of these.
> Blew up a lot of retailer investors funds through his SPACs although he himself Madeoff quite well given the closing conditions.
does not seem to be comparable or descriptively equivalent to this part:
> CLOV, SPCE, SOFI. If you bought in during the SPAC stage or at IPO, you'd have lost quite a bit on any of these.
Was your reference to "Madeoff" intended to convey a ponzi scheme? Because that doesn't seem to be what those investments are.
Instead googling indicates these are real companies that appear to be operating, albeit in challenging businesses.
Here's what I found:
CLOV Stock: Is It A Good Long-Term Opportunity?
Clover Health is a former SPAC that became a penny stock. At the $2-3 level, could CLOV be presenting a decent long-term opportunity?
Bernard Zambonin and Guest Contributor
May 23, 2022
SoFi Technologies, Inc. is an American online personal finance company and online bank. Based in San Francisco, SoFi provides financial products including student and auto loan refinancing, mortgages, personal loans, credit card, investing, and banking through both mobile app and desktop interfaces.
Premarket Mover: Virgin Galactic Holdings Inc (SPCE) Up 1.65%
He said that Metromile was going to be his GEICO, thus implicitly comparing himself to Buffett. Those SPACs did turn out to be garbage, but I still find them somewhat interesting at least when viewed as a financial innovation.
I was impressed by ARKK performance until I heard her podcast where she lays out her reasoning. Her idea was that some tech will change world so much that there will be 100X return. This makes her buy into all kind of fishy things which we in tech know as usual startup BS that fails 90% of the times. The problem is that her bets are $125M instead of $125K. As someone working in tech, I thought she was just following buzzwords and hopping at least part of her portfolio would do 100X over 10 years. She is not a tech person. She isn’t a visionary. She has no magic crystal ball. Her fund is directional day trader and nothing more which means it will invest in all kind of bogus companies and likely lose or get lucky.
VC normally looks for deals like “stock that gets treated like a pseudo creditor”, so even if a company fails, they’ll break even. Also a seat on the board.
A VC putting in $1M for a Series B and getting $100M out is within the realm of possible.
Buying $10M of public stock and having it turn into $1B isn't quite so realistic, at least not on a continued basis that an investing thesis would require.
It's not but then it's more appropriate to use a VC vehicle where the money is locked up then an open ended fund that people can buy or sell every day. ETF is also investible by normal people, not just accredited investors.
It is not same as VC because (1) VCs enter way before IPO which allows 100X return, (2) ARK bets are far more bigger than typical VC rounds which means any failure hurts a lot.
Listening to her podcasts she is indeed a visionary and knows a hell lot about tech. Exponential growth mindset for 100X is normal in this industry's visionaries, including the founders of the very medium we communicate now HN.
> some uninformed comments about "velocity of money" decreasing and that's the reason we won't have inflation (this was during the "transitory" phase of inflation denial).
Far be it from me to defend ARK but this statement I've seen repeated by CFAs -- velocity of money is linked to inflation -- it's the only reason we didn't see inflation in the "real" economy earlier, no?
Since financial assets were still moving freely (and sovereign bond yields were crushed), they felt the immediate effects of inflation. It's obviously idiotic to say that velocity of money will be decreasing going forward or something (did she say this? surely not?), but it seems like the recent increase in inflation is due to the real economy opening back up (and velocity returning to normal) along with lingering supply side shocks.
Would love some correction if I've got this the wrong way 'round.
Wasn't the lack of inflation driven by countervailing deflation from moving supply chains into lower cost regions like Eastern Europe and China? It's been a good 30 year run but that chicken is now coming home to roost.
I would say more precisely it was a major variable in our ability to have huge economic growth, huge money printing all while having low inflation and a very low volatility in the amount of inflation. Of course, anything in this domain is going to have many dimensions but exporting our inflation was a major variable.
It is tough being mid 40s and realizing my entire adult life was a golden age that is gone forever.
That sounds like reasonable analysis, but I do want to point out I was thinking much shorter term -- like literally in the last 3 years and this situation specifically.
I do agree You're right that we are probably seeing the effects of globalization policy though, but I can't say I've thought much about that long of a time frame.
Understood. There's a certainly a difference between short term effects such as interest rates driving currency exchange rates vs. secular trends that depress currencies permanently. It seems as if some of the latter are becoming visible in a very short timeframe. The US has not experienced this kind of rapid shift since WW II.
Yes. Also technological improvements have kept costs down (and hence prices) in some sectors, such as consumer electronics.
Mass onshoring will likely drive higher prices.
Cathie Wood thinks that more technological improvements are coming to counter-act this, and might even cause deflation. Most commentators are unconvinced.
The lack of inflation was literally the lack of use of the "extra money". When the fed started buying assets and giving "new money", a lot of banks held onto that money instead of using it. The fed paid interest on holdings at the federal reserve bank.
It took a while for banks to extend themselves based on capital like they did prior to 2008. Once they did, the full extend of the "new money" drove inflation.
>I've seen repeated by CFAs -- velocity of money is linked to inflation
It can be, as increased demand can increase the velocity of money, but it's not directly or intrinsically connected (as you can also just suddenly trade something back and forth many times without prices changing and the velocity would have increased).
Really, it's demand/supply which determine prices.
The crazy thing is that right up until March 2020 the ARK fund had good returns but had only a fraction of the AUM of where it is now(or where it was at the peak in 2021). The fund had an incredible run in 2020 due to the Fed stimulus, but then again, anyone who was in the market was making a killing. The 2020 performance attracted more investors, but by that point the magic was gone.
If you were unlucky enough to hop on the bandwagon near the end of 2020 and you're still holding on now, that is really unfortunate.
> You can have 4 years of 20% returns and if the last year you're down 50%,
You can also have 4 years of 20% returns with 10bn of capital, and then 1 year of down 50% with 50bn and have actually lost $$$'s despite a nice looking % return.
It also happened to some household names that you would consider "legendry investors" who made massive returns in 08.
Yeah. If someone wants to do a levered bet on tech, they should. This is essentially what Cathie Wood is selling. So let's just drop the BS.
Peter Thiel gave a speech at a Bitcoin conference a few months back where he explained Bitcoin price movement resembling a levered tech stock. And I'll say, it makes a lot of sense and dispels the whole idea of Bitcoin being an inflation hedge.
Also in competition for most controversial investors are
1. Tiger Global that lost most of their VC bets [1]
2. Softbank's Vision Fund [2]
While it's entertaining to judge from the timeline and smirk at these losses, the role they play in building a future that is "better" is still important.
All of them benefited a lot from a decade of liquidity and now they need to show resilience to survive once the music stops.
Is it really controversial though? That makes it sound like they're doing something wrong. They're just big, concentrated bets on the market going up that went sour.
All you can say is maybe they're not as smart as they looked when the market was rocketing.
I'd like to add Melvin Capital... Not so much because they got caught on the wrong side of a short squeeze, but they wanted close their fund and get a "do over", leaving their investors to swallow the losses and they get to start anew.
I hate to say it but people are underestimating how much Cathie succeeded in an Adam Neumann kind of way. She has made many careers worth of money in the last 2 years just by selling the right narrative and sitting back and collecting her points.
I think to some degree she believes her own bullshit but I think she also knows that it doesn't matter at all if the fund does well in the end. She already generated so much volume, the performance doesn't even matter anymore.
Cathie Wood is playing classical martingale strategy with investor money. Her business is ARK Investment Management, LLC. and fees. It's winning strategy for her, not long time ARKK investors.
During lockdown I found that a bag of ‘meme stocks’, like Gamestop and AMC was outperforming the ARKK ETF, and still does so in the current downturn. I don’t quite get how a huge ETF could perform worse than an obviously stupid investing strategy…
Michael Lewis talks about his time on Wallstreet in Liar’s Poker and in several interviews. His take was that he had no idea what he was doing and realized that he was far from alone. He just knew enough to know he knew nothing; many his colleagues fooled themselves.
I don’t think Cathie Woods has ever read a single book on investing. If she has she ignored everything she read.
> I don’t think Cathie Woods has ever read a single book on investing.
Just fyi, your prior comment somewhat contradicts this one. If Wall Street professionals themselves don't know anything about investing and are just fooling themselves, then how can any book know more than they do, given that investing books are written either by Wall St professionals, or by not-Wall St professionals. For someone like Cathie who is actively studying the markets all day and has her, or her clients', own skin the game, investing books would be no better and likely worse sources of information for her.
I wouldn't extrapolate on what she has or hasn't read haha, that's just silly, but it is clear that she is a hardcore believer in high tech and is willing to go down swinging. The sad thing is that she will just blame a recession, or the fed, or something else for the poor performance, close up shop, and go on to the next thing. But plenty of people that invested with her won't be so lucky.
Not quite... she says there was divine inspiration for starting ARK, not that she is getting stock picks from God. God would never suggest buying the unholy creation that is Zoom.
It’s no wonder it was hyped. Even I held ARKF for a little bit when I saw the +150% YoY returns and started feeling fomo. Thankfully I soon realized they had ran out of gas at the end of last year and moved to safer funds
I think people are very harsh on Cathie Wood. At the end of the day it is an ETF fund. She sets the % holdings and that's it. It trades by itself every millisecond of every day to maintain those allocated %s. Of course it will rise and fall with the market, as it has done. Pretty much every tech/growth focused fund has done the same thing over the last two years.
It is very telling when people start writing "career obituaries" like this just because a stock is 50-70% down. What is it that Warren once said: If you can't stand your stock pick being 50% down then you shouldn't be doing stocks?
The macroeconomics is clear. Depopulation and digitisation are the major trends that will define the coming decades. If you're -50+% down on your tech/growth picks right now. It may be 1000%+ (gains) by the time you actually want to draw-down your investment during, say, retirement.
I'm confused by this reaction along with all of the comments on this thread. Half are saying that Wood's strategy is no better than a martingale strategy (bet twice what you lose) while the other half are expecting positive contiguous yearly returns.
Is Wood engaging in a martingale strategy? If so, can someone point me to resources that show it?
Should Wood be getting positive returns every year, even when the market is in a down turn? My understanding is that the common sentiment is that one can essentially do no better than the market average, which is what an index fund is essentially trying to do. Are these funds profitable even during a market downturn? Why are index funds expected to lose money but Wood's fund not?
I appreciate that a one year 50% loss can wipe out four years of 20% returns but a market down turn affects everyone, not just Wood's fund. Is the market downturn affecting Wood's fund more than a vanilla index fund even after taking into account the explosive growth before the crash?
For some clarity, Wood's fund has more than doubled it's stock value from 2017 [0], which puts it at an average 14% yearly return.
My understanding of index funds is that the expected return is somewhere between 8%-10% APR. My take on Wood's fund is that it's trying to be more judicious about which to use for it's index fund so has the potential for more upside because of undervalued tech stocks. Even under this conservative APR (as of this writing), Wood's fund still beats out a vanilla index fund.
If I were an investor in Wood's fund with a time horizon of 5 years, I would be happy with the performance, regardless of a the last years crash.
I'm pretty skeptical of high returns from Wood's fund but, at the same time, the strategy seems pretty straight forward: invest in emerging technology that has the potential for high return and, essentially, make an index fund out of it. Isn't this what YC does, except by taking ownership stake in companies rather than investing in the stock market?
> Why are index funds expected to lose money but Wood's fund not?
index funds are getting market returns, which could be negative. However, over a long period of time, the market returns of a highly diversified portfolio is expected to be positive, and this is based on historical evidence, and the theory that the market's growth is tied to the growth of humanity.
A sector specific fund has no such evidence for it's growth long term. It may be obvious in hindsight that tech must grow, as it's the future, but imagine if you did invest in a train based sector fund back in the industrial age - what would've happened to your investments compared to the market average?
> index funds are getting market returns, which could be negative.
... so they're losing money? Isn't this precisely the point I was making? Index funds are losing money in a bear market as is Wood's fund.
Wood's insight is to focus on technology, as these tend to have high returns because of the value they provide and are (potentially) undervalued by the market. Again, isn't YC doing exactly this strategy except for company ownership?
While I appreciate your pushback, I think it's a bit dismissive to compare Wood's strategy with investing in railroads. Wood is investing in a diversified portfolio, the focus of which is technology. At least, it's a strategy that's diversified in specific technology sectors and diversifying the investment in each sector by betting on a few players in that space.
I don't have a lot of historical knowledge but to me, this would be like someone investing in an "industrial revolution" tech sector in the early 1900s. That is, invest in steel, railroads, automobiles, etc.
Yeah. It’s just reversion to the mean. Also, the previous year’s highest performing fund is almost always a laggard in the following year. Source: I forget where I read it, so it may be total bunk.
The efficient-market hypothesis (EMH) says that it is impossible to "beat the market" *consistently on a risk-adjusted basis*.
According to the efficient-market hypothesis it's possible to beat market.
HODL or ARKK are not evidence against EMH. BRK is probably the closest evidence that EMH is not as strong as assumed.
I’m aware of the Chicago/Fama school of thought, its history, and the difference between strong-form and weak-form efficiency, thanks.
And before something like Berkshire even becomes interesting to any version of the EMH, you have to show that Medallion is a fraud. Which, who knows it’s pretty fucking opaque, but they haven’t taken outside money in a long time and keep putting up 30-40% annualized almost every year.
Given the verbatim quote from the first paragraph of the wikipedia page, I'll assume you've read it:
"The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information."
You'll note that "consistent", "risk-adjusted", and "beat the market" are all in quotes, because they are not well-defined technical terms, at least thusly contextualized. What Wikipedia's over-simplification in the first paragraph says is that all available information is incorporated into asset prices.
Now even that's more than a little nuanced than one might conclude, because not only is there considerable controversy about how quickly and by what mechanisms this incorporation into prices takes place even in you buy into this malarky, but Eugene Fama himself would sound like Greenspan in front of Congress trying to explain how a defunct Chinese wireless company goes up 47,000% in year on the back of a different company having it's IPO [1].
But I'm really going to hang this on your use of the word "misplaced", and no, I don't think a playful comment with actual information in it ([1] again) is misplaced in a thread full of playful comments about Silicon Valley the TV show. I think grab-the-first-paragraph-from-wikipedia-and-be-a-killjoy-pedant is misplaced.
Isn't the market taking money away from people who confuse "Diamond Hands" fund for Diamonds exactly the sort of efficiency markets are meant to promote: people who do dumb things are punished, those who do useful ones are rewarded.
I think plenty people quietly sold e.g. Tesla at whatever nutcase valuation before it pulled back.
Lots of people get in and out of some crazy asset bubble at the right time and then go on to lose money at everything else while spewing advice the whole time: just ask Peter Thiel or Mark Cuban.
We seem to be in a bear market rally. Remember, 2000 took 2 years to go from peak to trough. 2008 took 18 months. Lots of people wanted to call the correction over with last week, but history suggests we will see many rips upward during an overall downward trend. Lots of retail investors seem to be getting suckered in as usual.
an "investor" cannot be suckered in because they invest money as soon as they have it and don't sell for decades. I guarantee that a purchase on Tuesday will be up by 2040.
"traders" trying to play short term trends may indeed be wrong about the near term direction of the markets.
what’s more interesting to me than these hucksters and morons in finance are the seemingly smart people who not only buy into their shtick but seem to worship them.
i’m talking my coworkers at FANG companies or very smart investors in other areas.
i think it’s because although people can be talented in one area it doesn’t mean they are well rounded and sophisticated in other areas
The smarter you are the better you are at justifying your own beliefs and decisions, even in the face of countering evidence and/or cognitive dissonance!
totally agree! is it because we trust the known (i.e. celebrity faux-experts) over the unknown (i.e. legitimate experts)? For instance, Trump asking voters to place all power in his hands rather than an anonymous administrative class. Is the answer as simple as familiarity breeds trust? Or do we prefer the superficial answers they give us, which we would instinctively reach for, as opposed to the 'shades of grey' answers experts usually provide?
Personally, I interviewed with ARK and quickly walked away once I spoke with the actual analysts on her team. They spewed the same hype-babble she does and lacked an informed view of the industries they covered. Its fine to market the hype if that's what you're selling, but you can't sell yourself on it too.
The year between 1st and 2nd COVID waves was a smaller scale 1995-2000 dotcom bubble all over again. Forced work-from-home trend pushed some tech stocks to ridiculous values and created unhealthy, hope-driven optimism in almost anything tech.
After that period there was a flood of headlines using Cathie Wood's name to pump some not-doing-so-well stocks even though the name started being correlated with less than great investment opportunities.
Buying almost every tech dip doesn't make a great investor. But when an index like SP500 suffers due to unfavorable major tech stocks price movements, one cannot expect that thematic ETF like ARKK will do great when the sector isn't doing well.
Its almost the opposite, during the pandemic the All-In podcast has become quite popular and they openly talk about the shenanigans and plays they would make hah.
Ben Felix did a video "Chasing Top Fund Managers":
> Seeing people around you pouring money into a hot fund that only seems to get hotter can make sticking with any previously well-thought-out investing strategy difficult. As if your diversified portfolio only returned 10% last year when you could have earned 200% in the best fund. While each hot fund manager will seem brilliant at their peak, the phenomenon of star fund managers, including their powerful narratives, huge returns, and media adoration, is nothing new, and it’s not a story that tends to end well for investors.
Basically: Cathy Wood and Ark were/are nothing new. Over the decades there have been many such fund managers. The video was a summary of a longer (1h) podcast episode he did on the topic:
> When you see funds performing monumentally well, you may feel regretful for not investing in them earlier. There is, however, a long history of funds that skyrocketed only to have major falls from grace a brief period after. The bulk of today’s episode is spent exploring this idea in the portfolio topic section but before getting into that, we kick the show off with some updates. We begin by talking about the GameStop short and whether this casts any new light on the concept of market efficiency. From there, we take a look at some recent news, particularly one story about the meteoric growth of New York-based investment managers ARK Invest, who recently hit $50B in assets under management up from $3B this time last year. This story acts as a great segue into the portfolio topic where Ben traces a history of funds that performed colossally well for a brief period but then plummeted thereafter. These funds were under the direction of ‘star’ fund managers with a focus on investing in tech disruptors. The discussion acts as a cautionary tale about overpaying for growth leading to poor realized returns. For the planning topic, we continue to shine a light on the ‘Talking Cents’ card game, a financial literacy outreach strategy created by The University of Chicago Financial Education Initiative. We invite the director of the Financial Education Initiative, Rebecca Maxcy, onto the show to speak about some of the thinking around this project and then discuss a few of the questions posed by the cards ourselves. Tune in today!
Bunch of links to the research papers he mentions/cites.
Basically: top managers do have some skill, but as the fund gets bigger it takes more skill to out-perform the market. The problems with many managers really start arising with 'open' funds where anyone can throw in money: generally these people 'run out of runway'. Whatever skill they may have eventually gets overwhelmed.
It's probably why Renaissance Technologies' (RenTec's) Medallion Fund can get such great returns: closed to everyone except a select few, and even then the fund limits its size to 'only' US$ 10B, and 'excess' money has to be removed. They realized whatever they're doing can't scale.
This is just a repeat of the .COM bubble. Back then you had cheerleaders like Henry Blodget who were lucky to jump on the bubble at the right time and ride it on the way up. They all blew up when the bubble popped because their previous success was just lucky timing without any understanding.
Being a successful investor during a bubble is not exactly difficult. Getting out at the right time is the hard part.
Time will tell, but I think Cathie Wood's biggest mistake was just starting her funds too late. From 2010 to 2021, picking the highest P/E ratio stocks was actually working--Netflix, Salesforce, Shopify, MercadoLibre, Zoom, DocuSign, etc etc. I guess timing really is everything.
As the name hints, hedge funds were originally meant to "hedge" risk, offering consistent returns regardless of whether the market goes up or down.
Of course, this turned out to be pretty much impossible in practice, and now the name seems to be applied willy-nilly to anybody who invests large amounts of money in ways that are for some reason or other not available to the average punter. And even that distinction seems to be gone now that funds like ARK are available in handy ETF format to anybody with a Robinhood account.
It’s not impossible in practice at all. It just turns out that when the Fed pumps all risk assets for 15 years, nobody really wants to be hedged (until, of course, they do). Hedge funds are in the game of absolute returns. And it turns out that many investors time horizon for absolute returns is shorter than it should be.
ARK is far from failing. According to the article they still have $16 billion under management.
Which is a lot. For context, Ackmans' PSH is $12 bilion.
It's a hit piece because it's all character assassination and zero arguments for why she might be wrong.
Even if you don't like her investing it should bother you that the article is all innuendo.
"She's crazy christian". "She took money from Bill Huang". "It's all fed-driven mania". "She's trading like an amateur hodler". "That guy says she doesn't know what she's doing". "clickbait-like flood of dopamine-inducing buzzwords".
Bill Ackman, Jim Chanos, Micheal Burry - those are just few investing douchebags that had one or two hits and then proceeded to be wrong and loose money many times over.
I've never seen such hit piece written about any of them. They're still considered successful investors.
I think she's getting a bit of reflected Musk hate because unlike pretty much all wall street "professional" she was right about Tesla.
When Chanos, Ackman, Burry (and many, many others) were calling Tesla overvalued company nearing bankruptcy and loosing money shorting it, she made the right bet for the right reasons and won big.
ARK is heavily invested in tech stocks. Tech stocks took a beating for reasons you didn't predict so if you're making fun of her investments, you better be doing it from private island you bought after shorting tech stocks six month ago. Cathie Wood is stupid because it was all so obvious that inflation, war and fed rising rates will happen, right?
> "She's crazy christian". "She took money from Bill Huang". "It's all fed-driven mania". "She's trading like an amateur hodler". "That guy says she doesn't know what she's doing". "clickbait-like flood of dopamine-inducing buzzwords".
You just nailed it. There was no talent, it was just pure survival bias. Out of all the portfolio combinations, someone out there was going to go with purely speculative unprofitable tech. Someone always does. ARK began in 2014 and they were too early. For several years they were mostly flat, offering meager returns.
And then again, through sheer statistical probability, that person did it at a time when the Fed went nuts, the President at the time was highly focused on the market, when the new Dot Com bubble was inflating and VCs were desperate to give anyone with an idea and the right buzz words money, and across the ocean, some guy was committing hilarious financial crimes that make Wall Street Bets seem like responsible investing. In fact Bill Huang blowing up marked the peak of speculative tech's valuation.
And it's happening again - but this time in energy and commodities, except those fund managers have all been humbled by the absolute knackering that has been the last decade. They don't go out there and talk about how WTI crude is going to trade at $500 and their projections for 50% GDP (before inflation of course). They generally just talk their book in the appropriate channels, and err on the side of cautious optimism instead of outrageous projections. Their models are also infinitely better than anything ARK has ever put out.
In summary: "there are no gurus, only market cycles".
Not if you can explain it. Listen to some podcasts where she talks about AI, Gdp growth and futuristic Societies and you will see she is not a monkey throwing darts. The thing is, the absolute favorite game of humans is hating and laughing on the failure of others.
The sad thing is that these types of hit pieces about [insert hot name here] tend to work in terms of being an article that people both click on and discuss. I try to avoid clicking into them now, and if I do happen to, I might try to block that news source unless I have seen other value from it. It's just noise.
Another tactic I have seen used a lot is that of the "if we all use the same hashtags, this is an ad, it will then spread through the ecosystem." This tactic doesn't work. If I use #StopHateCamps with every retweet and the article still gets flagged, this would be a waste of my time and effort.
I haven’t read the piece yet, but am commenting on your comparison of the AUM of Ark versus Pershing Square. Because they are different asset types (hedge fund vs ETF), I don’t think it is fair to compare the two. And, in my opinion, a hedge fund with $12bn is much more notable than an ETF with $16bn, although bravo to both of them.
For context, I’ve been a professional public markets investor for a number of years. Also, this isn’t a comment on either Ackman or Wood.
It’s also ridiculous to claim that Chanos is a one hit wonder, Enron, Wirecard, Luckin Coffee, Valeant if memory serves, any one of those is impressive. Not to mention Kynikos is designed as a market hedge, since markets tend to go up so pure shorting as an investment strategy is foolish. Cathy Wood clearly got extremely lucky by taking huge, risky bets on Bitcoin and Tesla that both paid off dramatically but are starting to come back to earth. This isn’t a hit piece, the dozens of worshipful CNBC segments where she pumped garbage companies, and often turned around and sold them after, those were the real fluff pieces.
The fund still exists, but it's a failure. Many funds lost far less money than ARKK.
ARKK was levered bet on growth stocks, and buys them at high multiples. There's no risk management. Good funds manage risk well so that it's harder for them to be cleaned up by a black swan.
> it was all so obvious that inflation, war and fed rising rates will happen, right
I'm an extremely boring passive investor who doesn't know anything about macroeconomics but I was definitely hearing people across the political spectrum warning about inflation 2 years ago. And as long as I've been on this site people have thought the Fed's interest rate was causing market distortions.
Yes, and everyone would have been right in that observations. But they probably would have lost money anyway because saying something happens 2 years before it does is dead wrong in terms of investing and you would have had your eyeballs squeezed out by the market rally we had last year if you tried to short
Would Ark still have that huge run up if a completely unpredictable event (pandemic) and an even more unpredictable response to that event (lockdowns and massive money printing) had happened?
If the answer is no, then it’s largely pure stupid luck.
Not sure what you mean. Inflation drives prices up so it was a great run up. Not going to short my house or anything (especially living in it) because, as they say, people can stay irrational for a long time. I did get out of all my investments (stocks, crypto, etc...) a few months ago when it was obvious central banks would have to act.
Also hedge funds have different goals for themselves and their clients. It's not necessarily hard to beat them, the question is whether it's worth your time and if the returns hold up when you trade larger amounts. I daytraded for awhile, got good returns but more traditional work is more rewarding and a better use of time, not to mention less stressful.
Paul Krugman amongst others, a novelist predicted that massive spending will not lead to lasting inflation. Many top notch economists said that. If you think you knew better hindsight bias.
You don't get it. If 50% predict a and another 50% predict b and a layman predicts b saying "hey it was so obvious" he is in great error. You that is my friend.
ARK is still earning fees, and a -50% drawdown in a highly volatile thematic fund isn't that bad. Comparing her to investors who lost everything they had because of leverage? Yeah, she's definitely not falling.
You could possibly argue that ARK investors have fallen, but even that is a question semantics and of what the future holds for innovation. She has a broad set of funds in the growth space. Perhaps a bit US-centric, but that's easily known before buying. Are we really seeing a future where those companies won't be bid back up?
>I think she's getting a bit of reflected Musk hate because unlike pretty much all wall street "professional" she was right about Tesla.
Too bad her fund is composed of many companies that are not tesla and have done horribly. Just being right about one stock means nothing if the rest of them do poorly.
>I've never seen such hit piece written about any of them. They're still considered successful investors.
Success at raising money does not mean successful as in making their clients money or making good investments.
No, Cathie Woods is stupid because she runs her fund like an institutional scale day trader and makes knee jerk reactions to catch falling knives in bad companies that just compound her losses. She has made errors that even basic stock market investors know not to make and refuses to learn.
>Bill Ackman, Jim Chanos, Micheal Burry - those are just few investing douchebags that had one or two hits and then proceeded to be wrong and loose money many times over.
See the link between the 3? She was basically the only woman of the lot. Do you see a lot of famous hedge funds women? Yeah. None.
I don’t think it is hit piece. She is supposed to be expert day trader. She is supposed to be surrounded by economics gurus. She is supposed to have eyes and ears in her investments. She should have offloaded her positions in time, pocketed the gain and waited to re-buy assets she believed in at lower prices. That’s what the day traders do. That’s why they get paid obscene management fees. Instead she sat on risky bets which are underwater and there is no sight when it will get back on track. It is ok if ARKK isn’t growing because they are all in cash Buffet style but it is not ok if it severely underwater. It is an actively managed very high management fees ETF with expected anytime liquidity and shouldn’t fail so horribly.
Mind you, Cathie Wood and Bill Huang and Masayoshi Son and Tiger are all levered beta plays with Ponzi dynamics. The core premise is not valuation but rather can they find another buyer willing to pay a premium for the story they shill. Think We Work but in the equity markets. The high beta stocks in these funds aren't only held by ARK, they're held by many, many hedge funds and are known in the business as "hedge fund hotels".
As such, many on Wall Street are incentivized to juice these stocks, promote them, and find bag holders as exit liquidity at the highest prices possible. This does not make them good investments and it absolutely makes these fund managers shitty fiduciaries.
What's worse, she makes statements to lure in retail investors:
"""
For those who aren’t following along closely, Wood once again publicly predicted that ARK Invest’s flagship exchange-traded fund — ARK Innovation ETF (ARKK) — would generate annualized returns over the next five years of 50%. Said another way, she predicted that ARKK would generate over 650% in total returns in five years. We all know this is highly unlikely. In fact, I believe that since the enactment of the Investment Company Act of 1940, it has only been achieved by a registered investment company a single time. In that instance it was achieved by a 3X leveraged fund.
These outlandish predictions help ARKK and Wood at the expense of retail investors. Unsophisticated retail investors look to ARKK’s incredible past performance and Ms. Wood’s stature in the industry and are likely to rely on these predictions in making investment decisions. If these investors place a high level of confidence in Wood, they may lose a large portion of their capital. Retail investors are the real victim of these predictions.
"""[0]
Think about everything Chamath promoted. Every single one of those companies had multiple rounds of VC funding which were ultimately unloaded on the public at insane valuations through SPACs. Sure he and his LPs made out like bandits, but was he right about anything other than the fact he could lure retail to pay stupid prices and hold his bags? Think about alt coins. Same bullshit.
IT'S ALL FRAUD. JUST LIKE CRYPTO. IT NEEDS TO STOP. THE CAPITAL MARKETS ARE A CIRCUS FOR VCs.
I don't think it some coincidence Tesla mooned alongside crypto. It's all the same crew...
i think a “hit piece” is the least they can do after 2 years of fawning uncritical admiration for a fool who won the lottery and thinks it was cuz of skill
Cathie Woods has no idea what she is doing. She rose to prominence betting on tech stocks during the bull market and doubled down on them despite most being grossly overvalued even if you assumed they would double or triple in revenue. Now we have entered a bear market and all of her gains have been erased.
Just a few months ago prominent investors were on the record saying Warren Buffett style value investing is outdated and dead. They were and are wrong. Value Investing might not realize huge one year gains, but it also won’t see all of those gains erased at the hint of an economic downturn.
Honestly though, I'm not sure what she should have done differently. Her funds are pretty transparently about making wild speculative bets and that's the branding she's known for. People piled in on the hopes that her speculative bets would continue to pan out as they did before.
Like, sure, if she'd been able to, she could have saved her investors a lot of money if she sold everything last year and held cash, with each of her ETFs remaining frozen near the top. But that would defeat the purpose of having ETFs open to public investors. And maybe so would buying instruments that hedge against declines in her picks.
Yeah investors who piled into her fund near the top got burned but it's not like they got bait-and-switched.
You're right. Cathie Wood's ARK is all about "disruptive innovation". It's no surprise to see the fund falling after tech. stocks were so grossly inflated.
As an investment strategy, it's a long-term play. Whether the holdings make sense is a whole other question. But don't expect a huge change in strategy just because the markets are down.
She got captured by her own success: after she got successful, CEOs of crappy companies, like Teladoc (number 1 position in their genetics ETF) started to approach her team directly and the days of using open data for evaluating stocks was over. At this point ARK invest is looked upon as an exit strategy for startups instead of making profit.
Any sane person knows that Teladoc has no experience in genetic therapeutics (unlike BEAM for example, which has a chance of fixing genetic mutations without a double stranded break...I call that disruptive innovation).
>Honestly though, I'm not sure what she should have done differently.
Oh there was nothing she could have done different. From the moment she decided her fund would be an ETF she was essentially locked out of the one action that could have avoided this.
Major nitpick: ARK is not a hedge fund but an ETF. My understanding is that it tracks an actively managed list of public stocks.
I'm sure it's not much consolation, but "actual" hedge funds are for the sophisticated investor. These funds have access to more sophisticated ways of wiping out investor money.
Yes, her high level thesis is correct. Which is that technology is transforming the world and is incredibly valuable. But anyone following the stock market at all could have told you that companies like MSFT, AAPL, GOOG, have huge returns and that there may be more companies like that in the future. The key is to invest in those and not into COIN.
The stocks she bet on were valued too high. Betting on growth stocks has some inherent risks, but I agree, there is a way to do it successfully. She also put a lot of money in companies that were just not good companies and that should have been clear to anyone.
It's important to note what this really means. You can have 4 years of 20% returns and if the last year you're down 50%, you gave back nearly everything you've ever made, assuming you had no new money come in those years, otherwise even more. The max drawdown is whats important. You can almost always make money writing out of the money call options, except the one year where you give back everything you've made and then some. As expected:
> Her ARK Innovation fund, often known by its ticker as ARKK, returned some 157 percent during that first year of the pandemic, compared to just 18 percent for the S&P 500 as a whole... Wood’s fund is now exactly where it was in March 2020, meaning pandemic investors who bet on her have now round-tripped all the way up and all the way back down. Adjusting for inflation, they have lost money.
Cathie Wood is one of those investors that just makes directional bets, in her case high growth tech stocks. They happened to do well last 5 years or so, so it appears that Cathie has done well. But same as someone who just plowed a bunch of money into Bitcoin in 2012, it doesn't mean you're a good investor or you have anything interesting to share today.
I read her Twitter occasionally and found her very unimpressive. For instance, she made some uninformed comments about "velocity of money" decreasing and that's the reason we won't have inflation (this was during the "transitory" phase of inflation denial). Then she had some ridiculous examples of things actually going down in price like AI training costs, which should balance things out. It was so comical it could have been on the show Silicon Valley.
https://mleverything.substack.com/p/cathie-wood-inflation-an...