To The Moon

The portfolio of Warren Buffett and Cathie Wood perfectly illustrates the switch in investing styles.

Cathie Wood transferred from tech stocks(especially $Tesla Motors(TSLA)$ ) to cyclical stocks and consumer stocks, which turned to a series of losses; while Warren Buffett's Berkshire $Berkshire Hathaway(BRK.B)$ bought a large amount of  $Apple(AAPL)$ shares-tech stock, which helps it hit a new high.

This shift was astonishing but reasonable.

The Fed's interest rate hike, high inflation and tightening liquidity together drove financial, consumer staples and cyclical stocks (such as oil) higher. These stocks happened to the sector that Warren Buffett favors.

Tech stocks, which surged during the pandemic, are now sliding on expectations of interest rate hikes. ARK focuses on the future technology, so yields have been falling so far this year.

Holdings: Warren Buffett vs. Cathie Wood

Buffett's Holdings

As of September 30, 2021, tech sector accounts for the largest proportion of 43.41% in Berkshire's position, with $Apple(AAPL)$ 42.73%; financial stocks take up 32.24%, including $Bank of America(BAC)$ ), $American Express(AXP)$ ; consumer staples sector ranked 3rd, including $Coca-Cola(KO)$ and $The Kraft Heinz Company(KHC)$ .

During these two decades, Buffett's investment style has undergone a major shift.

At the beginning of the 21st century (2001 to 2010), financial and consumer staples stocks made up the bulk of the portfolio.

Since 2011, Buffett increased the holdings of tech stocks, and the share of consumer staples stocks dropped to the lowest level in two decades.

Cathie Wood's Ark Invest has launched 9 ETFs so far, 6 of which are active ETFs, including ARKK, ARKW, ARKG, ARKQ, ARKF, ARKX.

Unlike Berkshire which invests in mature and profitable companies, ARK mainly invests in innovative and unprofitable new companies. Three of the six active ETFs bought $Tesla Motors(TSLA)$ , with Tesla's proportion ranking first in these ETFs.

Return on investment (ROI): Warren Buffett vs. Cathie Wood

Buffett's holdings have a market value of $293.447 billion (as of September 30, 2021), 8.71% higher than the $269.928 billion at the end of 2020.

Berkshire's cost price is low and has maintained a floating profit.

According to its 2020 annual report, the cost of Buffett's investment is only $108.62 billion, while the market value reaches $281.17 billion, a return of 158.86%.

Six active ETFs of ARK Invest have performed badly so far this year, with ARKK, ARKG and ARKF all having cumulative declines of 10% or more, and ARKW, ARKQ and ARKX also having cumulative declines of 9.98%, 5.31% and 4.82% respectively.

Investing Styles: Warren Buffett vs. Cathie Wood

Warren Buffett's value investing emphasizes the true value of a stock. After considering the financial situation, business performance, and development prospects, the difference between the net present value(NPV) and the share price is equal to the company's true value. If the difference is high, the company's potential is higher and vice versa.

Warren Buffett loves consumer staples stocks. They are defensive in economic downturns. In fact, for US investors, Apple is also a consumer stock. The mobile phone has become a consumer product that is indispensable in people's lives, and the US is the largest market for $Apple(AAPL)$ .

Cathie Wood's innovation concepts focus on disruptive innovation technology that has the potential to change the world. She is committed to finding unknown companies but may become leaders in emerging industries with their innovative technologies. Tesla is a classic example.

Style: Buffett invests in defensive stocks that benefit from consumption and economic development. These companies have proven good performance and low valuations; Cathie Wood invests in the future concepts and emerging companies that can change the world in the future but have low profitability currently.

Concentration: Berkshire's position is highly concentrated, with $Apple(AAPL)$ accounting for 42.73% and the top 10 holdings accounting for 88.46% of its position; Ark Investments is more diversified, with the top 10 holdings together accounting for 52.62% of its portfolio.

Change hands rate: Berkshire is a good example of "becoming friends of time". Its change hands rate for the quarter as of  September 2021 was only 11.63%, with the top 10 holdings and top 20 holdings held for as long as 7.4 years and 6.7 years respectively.

ARK Invest has extremely high change hands rate. $ARK Innovation ETF(ARKK)$ , $ARK Next Generation Internet ETF(ARKW)$ , $ARK Genomic Revolution Multi-Sector ETF(ARKG)$ , $ARK Autonomous Technology & Robotics ETF(ARKQ)$ , and $ARK Fintech Innovation ETF(ARKF)$ , had change hands rates of 71%, 120%, 45%, 86%, and 78% respectively in the most recent fiscal year.

Cathie Wood's turnover rate is extremely fast, which is consistent with her investing style - following the trends of new concepts. Her investing style is very different from Buffett's buy-and-hold philosophy.

Implications for investors

Many people have taunted Cathie Wood about her recent failures. But Cathie Wood's fund has been ignored as it has continued to outperform most funds' annual returns.

Just as everyone teased Warren Buffett for missing the tech bull market when Cathie Wood was on a roll.

Buffett and Cathie Wood represent two different investing styles. When the market changed, their performance inverted just in line with their investment philosophy.

So the first lesson from the two masters is:

• Understand the market and follow the trend, and do the right thing at the right time.

Investors should have the ability to think independently, and have your own investing plans in advance based on objective insights when the economic development cycle shifts.

Second lesson:

• Invest companies they understand.

Buffett's value investing inherently requires a very thorough understanding of a company's business, prospects, and financials.

To invest in the future, Cathie Wood must also have a deep understanding of the companies in which she invests in order to anticipate whether disruptive impact will create value.

Clearly, understanding the companies is the key to success.

If investors can bear the two lessons in mind and put them in exercise when investing, you surely can perform better in stock market.