But as we know in investing, that is all in the past and it is the future that counts. While my dim opinion of Cathie Wood has not changed in the slightest, I think we could be closer to the final lows than some perma bears may suspect. Net fund flows, while they have been positive over the whole of 2022 have been negative in the lasts 6 months, and especially in the last 6 weeks or so, indicating that many investors have reached exasperation and just want to get out - always a reassuring sign.
While I can't say that I have any confidence that ARKK won't fall further, such is its beta to the overall market, I think the risk/reward on offer for this type of long duration play is much better from these levels. Could end 2023 at $15 or $50 and neither would surprise me much.
I think our highest-odds scenario is a recession lasting roughly 10-18 months starting in mid-or-late 2023 that will bring the S&P500 to a PE ratio of about 15-16 (in terms of 2022 earnings) compared to the current 20. That means I'm thinking in terms of "what do I wish I or my family had done in the 1991, 2000-2003, 2008-2009, and 2020 recessions/corrections?"
The answer in all four cases was "I wish I/we had bought tech stocks near the bottom." Tech stocks had the fastest growth after all four recessions, I believe. So according to this logic, ARKK might be just the ticket after everyone has given up on it.
However, what gives me pause is the speculative quality of many ARKK holdings. Many of their holdings were unprofitable in the best of times, are burning investors' cash now, and are dependent upon future cash infusions which will not be available during the recession*. I wonder if companies like TDOC, SHOP, or PD will be around in a couple of years. If a handful of ARKK companies turn into penny stocks, it will be hard for the fund's winners to make up for the loss, even if they multiply in value.
So if ARKK is the bleeding edge of speculative tech, it could be possible the maximum returns will be somewhere lower on the risk spectrum - sort of like how junk bonds aren't always the highest yielding bond class.
VGT and VUG, for example, concentrate on mature and highly profitable tech companies. QQQ is tech-heavy but lets the market do the weighting, while being less vulnerable to any one or two companies blowing up. VBK has a good chance of catching the next great small cap growth stock that becomes a big cap. Any one of these has a lower ER - in some cases 10x lower - than ARKK's 0.75%. That's a lot to pay for a portfolio of only 30 stocks in an era of commission-free trading. Why not just click "buy" 30x and not pay so much for Cathie to click "buy" for you?
It probably makes sense to pivot into tech/growth within the first 6-9 months of a recession, which translates to right about the time a recession becomes apparent in the unemployment and GDP data. Stocks can, and often do, rise through a recession unless there is a cataclysm like the Great Depression, GFC, or 2000 stock meltdown going on.
Source:
https://www.forbes.com/sites/kristinmckenna/2022/04/01/how-stocks-perform-before-during-and-after-recessions-may-surprise-you/?sh=2b2fef1f249d*Yes, I am aware of how growth companies manage negative earnings to avoid tax liability, and I am aware of the value of R&D / marketing investments early in a company's trajectory, but to some extent that might not matter when the SHTF.
