To The Moon

I'm reading a whole bunch of articles bashing Catherine Wood and giving her "advice" on how to manage her fund. These include strategy pivots by getting her to focus her fund on tech stocks that are trading at value stock range like Facebook (Meta), Alibaba, and have even gone so far as calculating the P/B, P/S, and valuation multiples that these other tech stocks are trading in. The advice seems to be – remain in tech, but go for the ones that will experience less severe contractions in this period so that ARK will not crater as much.

Well, yes, and no. Yes, from a short term perspective, this looks like the right thing to do to prevent further hemorrhage from her funds. But there is a reason why she seems to be pivoting in a direction that seems very interesting – and you might already see it because of the way people are bashing that particular tactic.

First, she claims that as a Tesla bull, Tesla is set for very high price. She gave her bull case and bear case scenarios. But on the other hand, she sold Tesla a few times over the last few weeks to buy into beaten up tech names that people are wondering if she has been thinking straight over the investment decisions.

Second, the names that she has been buying into seems to be out of favour, out of season. Which brings about the adage of not “using money to chase bad money”. But from the growth rate of these companies that she has sold Tesla out of and bought into, she has done her calculations right, and her rationale is that these are companies that are growing at a rapid clip will grow into their valuations fairly quickly.

Thirdly, if we investigate further into the interest rate hikes and the inflationary narrative, we will see that the market is buying too much into the permanence of inflation and thereby, leading into more than necessary hikes. by the second half of 2022, prices are expected to come down, based on the inventory build up that will lead to discounting of prices to clear out stock. Supply chain issues are rapidly being resolved at the same time.

What this means is that the market fears that will lead tech stocks, the NASDAQ especially to correct downwards further, will create buying opportunities, especially in secular compounders. These are stocks that continue to grow at a rapid rate, have excellent free cash flows (a la Warren Buffett), and are en route to becoming profitable (if they are not already beginning to be profitable). These are the new FAANGs (Facebook, Amazon, Netflix, Google, etc) which will drive your portfolio returns by 5x to 10x in the coming decade.

So while there is a rotation into value, I believe that the flight to safety has become overly done and there will be a meeting point where the indicators will flip and the drive back to growth will begin. This is simply because at the end of the day, what investors want is to see their portfolios grow and they want an early into businesses that have the potential to give them those returns. The names have already been carved out and the environment will favour these names. So yes, there are booms and busts, ups and downs, ebbs and flows. But the constant remains – tech and growth are the key to beating the indices. You can, if you are patient.

The time to sell out is NOT now. The time to panic is NOT now when you see tech and growth beaten down by 50% to 80%. If you wanted to sell out, it was back BEFORE. Always skate to where the puck is. Not AFTER the puck has arrived. That is the art to active portfolio management. One thing I can say about Catherine Wood is that she is quite lucky to have Tesla hold her fort, where she can still sell out of something so profitable and buy into her highest conviction names that have been beaten down. ARK has been way oversold based on the RSI. There will be other funds that will buy $ARKK $ARKQ $ARKG because it is cost efficient to do so at this juncture. Will it go down further? Possibly because I think the T yields will go up further to about 2 to 2.5%. This will lead the indices to roll over soon enough by about another 10 to 15%. It could be more. I don't have a crystal ball to gauge this. But what is certain, is that businesses that showcase the ability to grow like crazy will take off because they will grow into those multiples that the market values them at.