On Friday May 13 ARKK rose nearly 12% bringing its YTD return to -53.9% according to Lipper. That’s still substantially worse than the -45% reported by the WSJ in this earlier excerpt. I will no longer be updating the return here as I’ve done now for several weeks. However, you can check the performance at Lipper
. Thanks for reading my post.
(Extended excerpt) Cathie Wood’s ARK Innovation exchange-traded fund keeps falling, but investors aren’t jumping ship. Shares of the popular ETF, which is known by its ticker ARKK, have declined 45% so far in 2022—including 21% in April alone—as rising interest rates punish stocks that are valued on the prospect of robust future growth. Those are just the type of companies that ARKK targets through its investment theme of “disruptive innovation.”Its big holdings include Tesla Inc., Zoom Video Communications Inc., Roku Inc., Teladoc Health Inc. and Coinbase Global Inc. With the exception of Tesla, those stocks have all fallen more than 35% this year. The S&P 500 has dropped 10% over the same period, while the tech-heavy Nasdaq Composite has retreated 18%.
Ms. Wood and her fund shot to prominence in 2020, when its shares soared nearly 150% as the Federal Reserve slashed interest rates to near zero and investors loaded up on risk. The S&P 500, by comparison, rose 16% that year. Since then, it has been tough going. While the S&P 500 gained 27% in 2021, ARKK shares slumped 24%, stung as rising government bond yields prompted a flight from high-growth stocks. The downdraft has continued this year as the fund sticks to its strategy of buying and holding companies it believes offer the greatest potential for innovation. Many of them haven’t yet achieved consistent profitability. Despite the drawdown, investors haven’t fled ARKK. Instead, they have funneled more than $658 million into the fund this year, according to FactSet data through Thursday, including about $59 million in the latest week. That is even as investors yanked $2.3 billion year-to-date from the Invesco QQQ Trust, a prominent ETF tracking the Nasdaq-100 index … From
: The Wall Street Journal
April 25, 2022
Article was published Monday morning. So numbers are a couple days out of date. I also wonder about the conclusion here that money hasn’t fled. My hunch is that a lot fled and a lot of new money has raced in hoping to buy near bottom. Other thoughts welcome.
Did he really come out ahead by keeping his "powder dry" for years? I think the numbers show that the opportunity cost of holding onto that power exceeded the benefit of waiting. While Buffett is often used as a model of patient investing, patience has its price.
He purchased about $51B worth of equity in Q1 2022 (plus repurchasing $3.2B of Berkshire Hathaway stock).
$11.6B of that was to acquire Alleghany Insurance at a 25% control premium. That's BH's primary MO - to buy control, not equity for income/gain. So IMHO we can discount this as not a "regular" investment.
Of the remaining $40B, at least $14B (35%) went into Chevron stock. You can infer this by noting that the $4.5B owned at the beginning of the year was worth 40% more at end of quarter. Subtracting that $6.B from the $25.9B owned at the end of the quarter means that BH bought shares worth $19.6B at end of quarter. The cheapest those shares could have been purchased in the quarter was $14B (at beginning of quarter).
So it is fair to focus on CVX.
Certainly he benefited from waiting with some stocks, such as OXY. Though if we're going to look at other acquisitions, we should also look at AAPL (even though he bought "only" $600M during the quarter). Using the same links I gave above for Portfolio Visualizer analyses, one sees the opportunity costs of waiting to buy AAPL. A purchase 5 years ago (beginning of 2017) would have returned 45% annualized; 4 years ago, 45% annualized; 3 years ago, 67% annualized (!), 2 years ago, 57%; and the return he could have had by deploying that cash at the beginning of 2021 was 35%.
- Had the same shares been purchased at the beginning of 2017 instead of the beginning of 2022, he would have made 24.6% cumulative, 4.5% annualized instead of whatever cash was paying over those five years.
- Had he purchased the shares at the beginning of 2018, he'd still have beaten cash, though not by much, with an annualized 3.02% return.
- Investing three years ago (beginning of 2019) would have yielded 7.68% annualized. Now were talking real opportunity costs.
- Two years ago? 4.07% annualized return.
- And had he invested at the beginning of 2021 instead of the beginning of 2022 or later, he would have come out a whopping 46.32% (or more) above where he wound up.
Even though BH didn't add much to its AAPL holdings, its worth a mention because Buffett made a big deal about buying more on a three day dip. After a multi-year meteoric rise.
FWIW, here's BH's cash and cash equivalent holdings over the past five years (always over $100B):
Edit: It’s occurred to me one might not necessarily get a “better price” with cash. More likely it’s a case of not having to compete against as wide a field of bidders. Those who would have used a leveraged loan to finance said acquisition have in a sense been priced-out of the bidding by more expensive credit. Those with cash have a competitive advantage in the bidding process.
Yes, I've always found that to be true. But now the trouble is with the going-up part.
Amazing she still making headlines. What is her supposed skillset again?
Oh yeah, she can make money disappear.
Talk to pilots who fly for the large package delivery services....they KNOW that a recession is coming, those co's are preparing for it...kinda strange to me, how everyone now is becoming a technical chartist and is ready to jump back into this shit show of a so called market.
Who knows, I certainly don't!
Good Luck to All,
“What goes up, must come down. Right?
Umm. No. Not necessarily.
If an object is thrown upward fast enough it will go up and never come down. The minimum speed needed to do this is called the escape velocity.
No human has ever traveled faster than the escape velocity of the Earth. The Apollo astronauts got very close, but they were headed to the moon, which is trapped by Earth's gravity into a closed orbit. In some sense they didn't really want to escape the Earth. They did manage to travel faster than the escape velocity of the moon, however, which is why they were able to return to the Earth.
Any spacecraft that has ever traveled to another planet or asteroid has managed to exceed the escape velocity of the Earth. Counting them all is too much work. It's somewhere in the low hundreds. Five space probes are currently on trajectories that will take them out of the solar system, which means they have exceeded the escape velocity of the Sun”
Aside from negative P/Es, there's a more basic question of how the P/E of a portfolio is calculated. Agrrawal, Pankaj, et al. “Using the Price-to-Earnings Harmonic Mean to Improve Firm Valuation Estimates.” Journal of Financial Education, vol. 36, no. 3/4, 2010, pp. 98–110
M* currently uses a weighted arithmetic average of the P/Es: https://www.morningstar.com/invglossary/price_earnings_ratio.aspx
FWIW, I agree with the JSTOR paper that a weighted harmonic mean makes the most sense: Add up all the earnings in the portfolio and divide that into the total price of the portfolio. This also does a somewhat better job at handling negative P/E stocks.