'Star stock picker' made dumb move, dumped Apple

From Reuters' "Cathie Wood's ARK Innovation fund hits 13-month low in tech selloff" posted Friday:

Star stock picker Cathie Wood's ARK Innovation tumbled more than 7% and hit its lowest level since November 2020 on Friday as bets on a more aggressive Federal Reserve pushed investors to sell the high-growth, high-valuation stocks that rallied during the early stages of the pandemic.

The declines in ARK's portfolio were widespread, with nine out of its 10 top holdings falling as a selloff in technology stocks pushed the benchmark S&P 500 down 1.3%. Tesla Inc (TSLA.O), its largest holding, shed nearly 4%, while Teladoc Health Inc (TDOC.N), its second-largest holding, dropped 5.2%.

From Daniel Martin's "What Cathie Wood’s Position in AAPL Says About The Market" posted Oct. 25 on TheStreet:

ARK Invest’s CEO Cathie Wood is one of the most admired and followed growth investors in “mainstream asset management”. Recently, her company dumped whatever Apple stock its portfolios still owned, fully unwinding a position that had already been dwindling since earlier in 2021...

I have written a couple of articles outlining Cathie Wood’s investment philosophy. First, she is certainly a growth investor. But her definition of “growth stock” is probably different from what most of us would think about.

For instance, Amazon is projected to increase earnings per share 320% in the next five years. That sounds great to me! However, Cathie Wood would likely not be too impressed. Her idea of growth is better defined by this quote that she offered a few months ago:

“We are not saying that [the likes of Amazon and Apple] are bad stocks at all, and they were a part of our portfolios in the early days. But as they were scaling into the trillion-dollar category, we believed that our research would be focused better on ‘the next set of FAAMGs’.”

My take: Remind me never to follow Cathie Wood's advice.

See also: Bullish Tesla hedge fund manager takes pot shots at Apple’s project Titan (video)

17 Comments

  1. Jerry Doyle said:
    “… ARK, whose outsized holding of so-called stay at home stocks helped it outperform all other U.S. equity funds last year, is down 25% over the last month. Those declines have come as investors increasingly anticipate that the Federal Reserve could raise interest rates in the year ahead, which would weigh on growth stocks by discounting their future cash flows.”

    If someone on this forum can elucidate for me how the above statement of the Fed’s action of raising interest rates would weigh on Apple with its humongous FCF and piles of cash, would you be so kind as to do so. It would seem to me that Apple would be the exception for the reasons I denoted.

    2
    December 6, 2021
    • Mordechai Beizer said:
      All things being equal, a higher interest-rate will discount the future cash flow. It doesn’t matter if the future cash flow is humongous it still gets discounted. However, all things are not equal.

      Apple has pricing power in inflationary times. So Apple is well positioned to raise prices if need be and in that case future cash flows will grow accordingly. So I think the standard analysis of higher interest rates make stock less valuable ignores those companies that have the ability to Increase prices in inflationary times. Makes me sleep easier with my Apple holdings because I know inflation is going to be worse than whatever the official prognostications are.

      6
      December 6, 2021
    • Robert Paul Leitao said:
      Jerry: Interest rate increases have implications for the broad market. In general, market multiples will deflate. Apple may continue to perform well, but broad market conditions may put a “damper” on share price appreciation. Also, interest rate increases will diminish global economic growth and growth in Apple’s global user base is influenced by the pace at which more of the world’s population enters the global middle class. According to a recent report from the Pew Research Center, roughly 17% of the world’s population is in the global middle class. The faster the pace of global economic growth, the faster more people around the world can afford Apple products and services.

      3
      December 6, 2021
  2. bas flik said:
    Its as well story telling by journalists. they have to write every day. and they have stories when rates are falling and when they are raising. all those “growth” stocks lacks casflows. they buy sales. loosing money. they “grow” in profitless revenue. one day people will find out.

    0
    December 6, 2021
    • Tommo_UK said:
      Bas flick they never stay around long enough to find out which is why the few great stock pickers who do such a good job at the outset and stick with them are the quiet millionaires and billionaires who don’t have to follow the Toni C’s et al because they’ve made their own long term investment decision and are sticking to them.

      Yes you could make a few thousand percent in a new meme stock or crypto, but over 20 years, the return on AAPL has been … [cue any long term investor to fill in the blank since the low after the Cracked Cube Fiasco]…?

      0
      December 6, 2021
  3. Robert Stack said:
    No offense intended towards Ms Wood, but the “star stock pickers” are the ones that made the decision to buy and hold AAPL long term. The Joes, Jerrys, Bobs, Kirks, etc that figured it out a while back and now choose to exchange thoughts and analysis on this site…

    9
    December 6, 2021
  4. Robert Paul Leitao said:
    Lax monetary policies can lead to economic distortions including high valuations for enterprises that may never deliver on anything more than “theoretical future profit potential.” When it actually costs something to acquire the capital to invest in something that may be nothing,” investors begin to have an attitude adjustment on where to place their dollars. The days of “easy money ball” may be entering the late innings and just now the scoreboard may not look so good as the visiting team named “Reality Check” just loaded the bases with no one out and a fastball eating slugger is at the plate. The home team called “High Growth Potential” is ahead by just one run.

    1
    December 6, 2021
  5. David Emery said:
    One of the refreshing things about Warren Buffett is his willingness to publicly admit mistakes.

    2
    December 6, 2021
    • Robert Paul Leitao said:
      David: As interest rates rise and both domestic and global economic growth slows due in part to the expiration of COVID-related stimulus, ARK’s investing approach may need to adapt to a different global economic reality. Personally, I prefer to be a “value” investor. That’s been decidedly out of favor for awhile. We’ll see what happens.

      1
      December 6, 2021
    • Jonny T said:
      And, he has never been a smart assed, up himself, ‘inventor’ of ‘extraordinary’ new investing strategies.

      Cathie, not so much.

      1
      December 7, 2021
  6. Michael Goldfeder said:
    While reasonable minds can differ, I’ve always been of the mind set that as an investor you are always better served investing in a company that is making money. PE’s aside, the FCF generated by Apple is what all investors should be focused on IMO. Along with various other trends.

    Why purchase a company that isn’t making money but holds out hope that years down the road it will become profitable? Or not. When % rates go up those outfits get hurt. Then they dilute their stock by raising capital and issuing more shares.

    Apple buys back its shares and that’s comforting on so many levels for me as an investor in their stock. Cathie Wood has an investment philosophy that doesn’t work for me, but I wish her well.

    6
    December 6, 2021
    • Robert Paul Leitao said:
      Michael: Well said. In my view, more important than a particular quarter’s EPS growth or an earnings multiple (which is often a sentiment indicator), FCF growth reigns supreme.

      0
      December 6, 2021
  7. Tommo_UK said:
    Headline should have read:

    “Ark taking on water as Star Stock Picker Dumps FANG, Gets Bitten.”

    4
    December 6, 2021

Leave a Reply