IT'S OVER. Cathie Wood Just Destroyed ARK Invest Shareholders

we believe that our portfolios will more than triple over the next five years so that's more than a 25 compound annual rate of return over the next five years actually it's approaching 30 after today consider the source it's our research our research I think is the best in the business but we're expecting a 50 compound annual rate of return you know our expectation is that we will deliver a 15 compound annual rate of return over the next five years why did that not happen over the last five years I'll tell you why because you can't have your cake and eat it too in this episode I'm gonna break down the massive bombshell that Kathy Wood just dropped on her shareholders and what it means for everybody holding Arc invest funds right now your time is valuable so let's get right into it look I've been following Arc invest for about six years now and I have a ton of respect for their research on advanced technology they really do a great job analyzing everything from artificial intelligence and Robotics to genomics and even the metaverse but there is clearly something lacking when it comes to Translating that research into Financial models five-year price targets and ultimately their own investment decisions I think context is really important here so let me show you a few examples of just how egregiously wrong their recent performance predictions have been on May 19 2021 Kathy Wood said that she expects Arc invest funds to more than triple over the next five years here's the clip so you can see for yourself just how confident she was in that prediction we're not going back to the old world we're not going back to the Old Worlds so you know my confidence has only increased in our strategies what about though the tech underperformance Kathy that we've seen how much longer do you think you know we see that I can tell you that the valuations in in our in in our portfolios would suggest that over the next five years again if our research is correct no promises uh we believe that our portfolios will more than triple over the next five years so that's more than a 25 compound annual rate of return over the next five years actually it's approaching 30 after today uh so you know I'm looking at that with great confidence because these Innovation platforms have hit escape velocity and they there is no turning back there is no turning back there are no minced words here at the time of that interview Arc invests main fund RK was trading at around 105 dollars per share so Kathy Wood's prediction implied that it would triple in price by May of 2026 to around 315 dollars per share I also want to point out something else that I personally find to be at least a little bit inappropriate during that same interview Kathy would literally told her shareholders not to sell her funds warning us that selling would be a terrible mistake that what pains me more than anything as a portfolio manager is when I know our clients are selling at the bottom and it usually is that people sell the big capitulation that I described earlier with Bitcoin is selling at the bottom so so you make a terrible mistake and you don't want to ever get in again and it just pains me so I'm just praying that we don't have a lot of that this isn't some random person making crazy predictions on YouTube Arc invest has tens of billions of dollars in assets under management and their funds outperformed the market by triple digit percentage points just three months before this interview I think that's a pretty big conflict of interest when a famous fund manager goes on a well-respected outlet like Bloomberg and openly tells investors how to trade their own funds either way our case price actually went up by over 20 percent over the next few weeks following that interview so it seemed like holding on to Arc invest funds really was the right call here but over the next year or so our case price dropped by about 44 percent down to 59 dollars per share and on April 12 2022 Kathy would made another price prediction for her funds this time in an interview with CNBC and if you thought that a 25 compound annual growth rate was aggressive check this out from the trough in covid to the peak we were up 360 percent and at the end I was saying keep some powder dries now down this much uh we're saying if you believed that at the peak when we we expected our total return for the next five years to be 15 at a compound annual rate if you believe that then what has happened since prices have come down but our models actually our earnings return expectations have actually gone up so over the next five years we're expecting consider the source it's our research our research I think is the best in the business but we're expecting a 50 percent compound annual rate of return a 50 percent compound annual growth rate for five years straight on April 12 2022 RK was trading at around 59 per share so this prediction meant that our K would touch 450 dollars per share by April of 2027. but wait there's more Kathy Woods biggest price Target actually comes from a blog post that she herself authored with the following title Innovation stocks are not in a bubble we believe they are in deep value territory in this bog post Kathy Wood showed how stocks like Zoom DocuSign and toadoc each went down by more than 50 percent even though their revenues went up by more than 50 percent over the same time frame she explained how algorithms account for roughly 70 percent of all trading volume in the US and how they were tuned against high-tech growth stocks she warned that even though inflation was bad now in 2021 that the bigger surprise to the markets would be deflation and that after collapsing in 2021 growth stocks could turn around dramatically in 2022 she went on to bash the market for worrying about another.com Style bubble and rotating into safer stocks that sit at the top of the indexes like Facebook Apple Amazon Netflix and Google in our view these pavlovian responses will prove just as wrong as those in the early days of the coronavirus crisis they are backward looking and do not recognize that companies investing aggressively today are sacrificing short-term profitability for an important reason to capitalize on an invasion age the likes of which the world has never witnessed end quote and at the bottom of that blog post Kathy Wood concluded with this with a five-year investment time Horizon our forecasts for these platforms suggest that our strategies today could deliver a 30 to 40 percent compound annual rate of return during the next five years in other words if our research is correct and I believe that our research on Innovation is the best in the financial world then our strategies will triple to a quintuple in value over the next five years yet as this year winds to a close investors seem to be more interested in playing it safe and moving closer to the benchmarks that in our view are unlikely to generate even average returns during the next 10 years when Kathy would publish this blog post on December 17 2021 RK was trading at 97.20 a share so a tripling over five years would be 291 dollars per share and a quintupling would put RK at a whopping 486 dollars per share by the end of 2026 making this the most aggressive public price prediction that Kathy Wood has made about her own funds and that brings us to her latest interview on cnbc's fast money which took place on September 18 2023 you already know the drill from previous price targets Kathy would expected RK to grow by 30 per year from 105 dollars per share back in 2021 and she expected it to go by 50 per year from 50 nine dollars a share in 2022 on the day of this interview RK was trading at 42 dollars per share so Kathy Wood should be expecting RK to grow by at least 60 percent per year from that price point after all sixty percent per year for five years straight would put RK at around 440 dollars per share in September of 2027. that's right in line with her 450 price Target from last year so the math checks out okay so here's Kathy Woods actual new price prediction for RK hey Kathy it's Tim thanks for joining us and you know you're talking about five to ten years some level an extraordinary long time uh to be looking out and and modeling back but uh this fund is down 1.32 percent on average over the last five years um the stories you're talking about are long-term growth exciting stories help us understand that a little bit more well first let me put in context that uh five-year number because you know our expectation is that we will deliver uh a 15 compound annual rate of return over the next five years why did that not happen over the last five years uh the biggest reason is an increase in interest rates what a massive bombshell it actually took me a while to absorb just how Monumental the self-reported downgrade is a 15 compound annual growth rate over the next five years from forty two dollars per share means that RK will be worth just 84.50 by the end of 2028. that's 81 percent lower than her previous price targets and two years later it's actually even 25 percent lower than the price at which Kathy would flat out told investors not to sell her funds back in 2021. that what pains me more than anything as a portfolio manager is when I know our clients are selling at the bottom the fifteen percent Kathy Wood now expects is actually Arc invest's minimum hurdle rate of return she literally cannot say oh our number so her latest price prediction is actually much worse than it even sounds let me explain why in this same interview Kathy would reiterated Ark invests fourteen hundred dollar bare case and two thousand dollar base case price target for Tesla in 2028 that means she still expects her biggest holding by far to go up by anywhere from a 5 to 7x over the next five years Tesla is currently 11 of our k and a whopping 14 of Arc Q by weight so if it goes up by as much as our confess predicts plenty of the other stocks can underperform while the funds could still go up by this 15 per year which stocks are the ones that will underperform the most we have no idea because out of the 120 or so stocks that are held across Arc invests actively managed funds they've only released a handful of price targets and almost none of them appear to account for interest rates check out what happened is when I change the interest rate of their Tesla valuation model from four percent to eight percent their 2027 predicted share price goes down by just one dollar there's really no excuse for Arc invest to not account for interest rates in their models given how sensitive their funds are to them this alone is a massive multi-year-long oversight and the resulting bloodbath The Arc invest has caused for its investors cannot be overstated I personally have lost over thirty eight thousand dollars in RK twenty three thousand dollars in rfg five thousand dollars in rfw and another thirty five thousand dollars on teledoc that's over one hundred thousand dollars in losses if Kathy Wood's prediction of fifteen percent growth per year holds true it'll take me nine years just to break even by the way I'm not asking for any sympathy here I'm responsible for my own investment decisions just like everyone else I'm just trying to show you that I put my money where my mouth is and I really am right there with you in terms of these losses all right so so what happens now if anyone from Arc invest is watching this I have a few suggestions as a long time follower and shareholder first your valuation models have to actually account for interest rates especially given the long-term nature of the stocks that you invest in second you need to stop the public price predictions about your own funds if we're supposed to think of them as indexes for Innovation then talk about them that way the point of an index isn't to maximize performance but to track it for a specific area of a market it's just a financial tool and if your funds are about performance then how can you not manage the risks associated with Rising interest rates when you were given years to adjust to them your funds cannot be both whenever it suits you you can't have your cake and eat it too and finally you have to stop ignoring the Innovations coming out of the mega caps Tesla is not the only innovator at the top of the indexes and the narrative that these companies are going to get disrupted no longer makes any sense Nvidia Google and Microsoft aren't just embracing the gender AI Revolution they're leading it Facebook and soon Apple will be the biggest players in the virtual reality and mixed reality markets Amazon's market share and e-commerce and cloud services has only been going up over the last five years these are also some of the only companies holding up the entire stock market right now so far in 2023 the top seven companies in the S P 500 are up by more than 50 percent while the rest of the index has basically been flat and the top 10 stocks in the NASDAQ account for around 70 percent of its gains that's because of disruptive innovation not in spite of it you have to stop ignoring them and it's because of these flaws that Arc invest just changed their Funds growth projections from 50 per year to 15 percent that's an 81 percent decrease over the next five years even more if you account for the time difference between their predictions we shouldn't just ignore that either and if you found this video useful consider hitting the like button and subscribing to the channel that lets me know to put out more content like this either way thanks for watching and until next time this is ticker symbolu my name is Alex reminding you that the best investment you can make is in you what pains me more than anything as a portfolio manager is when I know our clients are selling at the bottom so so you make a terrible mistake and you don't want to ever get in again and it just pains me so I'm just praying that we don't have a lot of that

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Keywords: ARK Invest, Cathie Wood, arkk, arkk etf, growth stocks, tech stocks, stocks, ticker symbol you, best stocks to buy now, tsla, tsla stock, tesla stock, nvda, nvda stock, nvidia stock, goog, goog stock, google stock, msft, msft stock, microsoft stock, aapl, aapl stock, apple stock, meta platforms stock, meta stock, amzn, amzn stock, amazon stock

Id: iakz52LMBi4

Length: 14min 20sec (860 seconds)

Published: Thu Oct 05 2023