Like It or Not, It’s Time to Face the Facts

I want to start today’s piece with a sincere apology to Cathie Wood and her investors.

Last week, I highlighted the poor performance of her flagship fund ARKK. This offended some Wood fans. They weren’t happy that I suggested she’s lost investors nearly all their money.

One unsettled subscriber went so far as to demand a retraction.

Instead, I encouraged him to unsubscribe from True Options Masters. I won’t pander to threats or demands. I will always share the facts.

And Cathie Wood’s poor performance is not an opinion. It’s a fact.

Now, I’m not saying she isn’t brilliant. She is.

She’s just far more brilliant at marketing than investing. That’s how she gets investors to keep pushing money into her funds.

And, like many traders right now, she seems unwilling to accept the reality of this bear market…

ARKK’s Performance Speaks for Itself

The blue line in the chart below shows the average price investors paid to buy ARK Innovation ETF (ARKK) since its inception.

The red line shows the average cost for investors since stimulus checks hit in 2020 and stocks roared higher.

(Click here to view larger image.)

There’s no denying it…

Almost everyone is underwater on ARKK right now. It doesn’t matter if you bought it all the way back in 2015, or more recently when it started going higher. 

And I’m not alone in questioning Cathie Wood’s strategy. CNBC host Jim Cramer has said, “I am shocked at what she buys and how she buys. She buys like someone who just started yesterday.”

But Wood didn’t start ”yesterday.” She’s been an investor for 45 years. This is her seventh bear market.

And yet, for some reason, she just keeps pushing tech stocks. Many are down 80%, but she insists they’re coming back.

Wood seems to think the stocks in her fund will be the next Amazon. The online retailer fell 90% in the 2001 bear market. It took 10 years to recover, and is now more than 1,500% above its 2000 highs.

But Amazon was an anomaly. If you look at other tech companies in 2000, you’ll see that many of them failed — even those with good business models, like Pets.com and WebVan. 

Unsurprisingly, Cathie Wood’s investors suffered in the dot-com crash. But she was okay, because after the internet bubble burst and Wood’s funds suffered losses, she switched firms.

The same happened in 2008.

But Wood has nowhere to run this time. ARK Invest is her firm, which is why she’s digging in and hoping for a recovery.

Have YOU Accepted the Bear Market?

My angry reader’s response to all this confirmed a suspicion I’ve had about this bear market…

Many investors haven’t accepted the reality that we’re in one.

That means we have a long ways to go.

Investors need to learn that a stock that’s down 80% can still fall another 50%. At that point, it’s down 90% from its high — and could still fall further from there.

After all, in the last tech bubble hundreds of stocks went to zero. That’s happening right now, with stocks like Netflix and Peloton down 70% from their peaks.

The market doesn’t care about old highs. It only looks forward. That’s why we must put our biases aside when looking at the market.

And no matter how much backlash I get, I’ll keep warning about the risks of buying hype instead of trading with sound rules.

That being said, I spent 20 years in the Air Force defending your right to tell me I don’t know what I’m talking about.

I welcome your feedback, but no one is forcing you to read my thoughts. And if the truth about the bear market upsets you, you can cancel TOM now. 

I hope you stick around, though. I don’t want you to learn these lessons the hard way.

Regards,

Michael Carr, CMT, CFTe
Editor, True Options Masters

P.S. If you’ve accepted our new reality, and want a better way to trade ARKK, take a look at what my colleague Andrew Keene has been doing.

Last month, the Big Money alerted him to an opportunity in none other than ARKK.

On May 11, he placed two trades on Wood’s ETF — and closed them out two days later for gains of 56% and 59%.

Remember, investors holding ARKK are down 52% in 2022. Andrew made twice that in a matter of two days.

This is not the time to dig your heels in and cross your fingers. Face the facts, and follow a systematic trading strategy like Andrew’s. It’s the best way I know to navigate this bear market.

But last I heard, spots are filling up fast. Click here now to learn more and reserve your spot in Trade Kings.

Chart of the Day:
Knockin’ on Heaven’s Door

By Mike Merson, Managing Editor, True Options Masters

(Click here to view larger image.)

Want to know one of the best investments of 2022? The year of 8.6% inflation?

Is it gold buried in the backyard? Pristine farmland? Gasoline?

NOPE.

It’s U.S. dollars — measured against other major currencies, that is.

If you sold all your stocks at the top of 2022 and moved it all into cash, you’ve avoided a 20% downturn in the market… and are 10.5% ahead of the rest of the major world currencies.

Hard to believe with inflation what it is, but the chart doesn’t lie.

And if you’re looking for a bottom in risky assets like stocks and crypto, maybe stop. Because the market won’t bottom out until the dollar cools off, and/or the Fed starts slashing interest rates again. I don’t anticipate either of those things happening anytime soon.

As will soon become abundantly clear, the U.S. economy is in recession. We’re in for at least another year of hard times before the cycle resets. Investors should focus on building up cash to take advantage of further depressed stock prices in the months ahead.

Regards,

Mike Merson
Managing Editor, True Options Masters