Posted August 01, 2022
By Zach Scheidt
This Broken Clock Is Hardly Right
They say a broken clock is right twice a day...
But that doesn't mean you can gather any useful information from it.
The same can be said for Wall Street gurus who give you the same (wrong) prediction for months...
Then crow about how right they are when markets make a small shift in their favor.
Today, I'm a bit unsettled by the arrogance of one of this decade's most widely followed investors.
And I want to make sure that her words don't lure you into a wealth-destruction trap.
Let me explain...
Cathie Wood Says... (Who Really Cares?)
As we kick off a new month in the market, media outlets are fawning over a prediction from infamous investor Cathie Wood.
This founder and CEO of the asset management company Ark Invest predicts that growth stocks will lead the market higher.
That’s basically the same thing she's been saying for the last two years!
But even though this broken-record message from Cathie Wood is nothing new, the financial media are eating it up!
Because during July, Cathie Wood's flagship ARK Innovation ETF (ARKK) was up a whopping 13.2%.
That's tremendous, right? Unless you look at the long-term chart of her fund's performance.
The green circle on the chart above highlights the 13% gain ARKK investors enjoyed last month.
And while 13% sounds like a big number, it hardly makes a dent in the fund's dismal performance over the last two years.
Don't Take Advice From a Broken Clock (or Record)
I realize I'm mixing analogies here, but Cathie Wood is both a broken clock and a broken record. And she does not deserve your attention or trust.
Frankly, I don't understand how she has any credibility left…
Especially after turning a blind eye to any form of risk management and allowing her investors to lose untold amounts of money over the last two years.
Maybe I would be a bit easier on her if these losses had come from legitimate investments that simply lost value as the economy crumbled.
But at the time ARKK was loading up on speculative tech stocks, these plays were trading at values that any professional should have known were completely unsustainable.
And her fund continued buying all the way down.
Meanwhile, Cathie Wood continued to pound the table on speculative (and usually unprofitable) tech stocks — no matter how risky or how much damage these stocks were doing to her investors' lives.
Her approach is a broken record that keeps replaying the same message that led to huge losses over the last two years.
And her broken clock was only right in July when speculative stocks held a bear market rally making up a tiny fraction of those inexcusable losses.
Don't take her words for anything more than what they are: continually "talking her book" (or cheering on the stocks she currently holds).
Now Is the Time for Value — Not Growth
After years of taking a back seat to growth stocks, value plays are coming back into focus. And my guess is value stocks still have a long way to run!
Value stocks are shares of companies that generate real profits. And the price investors pay for these stocks is low compared to the earnings they generate.
Think about it this way...
When you buy a stock, you're buying a piece of a company. That means you're buying a percentage of that company's future profits.
Would you rather pay $8 for a stock that generates $1 in profit every year… or $108 for a company that generates that same $1 in profit every year?
Value stocks give you more profit for every dollar you spend. And they also give you more safety because value stocks typically don't fall as much during bear markets.
Cathie Wood may have an exciting strategy for investing.
But the true value of any investment strategy is in the profits it generates. And so far, ARKK has done a lot more damage than good for investors.
Don't get sucked into believing a broken clock!