Cathie Wood runs a relatively famous ETF: ARK Fund. This fund crushed it in 2020 with a focus on growth stocks and tech, stumbled in 2021 and crumbled in 2022, and is up 50% this year. The definition of a rollercoaster, but people are finally pulling their money. I have said before that I think she is a very smart person, but I also think she has a very stupid strategy.

The main ARK Fund’s top 10 holdings included the classics: Tesla, Coinbase (woof), Roku, Zoom, Block Inc, UiPath (software company), Exact Sciences, Unity Software, DraftKings, and Shopify. Merely the presence of Coinbase (9% of holdings) would make me question the strength of strategy that the ARK Fund possess. While they sold some Coinbase it is still a hollow company. I think it is plain to see for almost anyone who isn’t drinking the Kool-Aid that Coinbase is merely a hype machine, lacking a lot of inherent value. Same thing with Robinhood a company outside of their top-10, but a company they have been buying up. Robinhood is a company beset by legal woes, with some recent leadership problems, and a consumer base that hates them. Tesla is a really interesting company, but their future is not certain and I wouldn’t trust a fund in which 12% is Tesla.

Despite all of this, despite only 10/30 companies ARK is invested in even turning a profit, they’re doing pretty well this year. Investors are taking this and sprinting. The fund has gone from $30 billion under management to $9 BILLION. HOW, HOW DOES ONE DO THAT? That is unbelievably atrocious, anyways they’re up 50% this year and investors have pulled out nearly a billion over the past 12 months. I think they know that this is the best moment to pull. So, what lessons can we learn from Cathie Woods and her team’s stupidity?

The first thing you should learn and take to heart is that profit is good. These aren’t just made-up numbers, profit matters. Without profit, companies have to find new investments and/or loans. Being unprofitable is the definition of unsustainable. It’s fine to buy into companies because you think one day they will be profitable, but it is unacceptable and a borderline rejection of your fiduciary responsibilities to buy into companies that have little to no chance of becoming profitable. That is too risky and just plain stupid.

Greed is good. Greed is what we base our economic system on. Capitalism utilizes base emotions like greed, anger, and lust to motivate. However, this system fails when those emotions become blinding. This happens naturally every once in a while, it’s almost healthy when dealt with in the right way. The Great Depression and the ‘08 Crisis are great examples of this. After these catastrophes, the economy gets to running after a couple of years, and after each one, we get better. But, I’m in no rush to get into another financial disaster and foolishness like this runs that risk. As Brad Pitt said in one of my favorite movies “Every time unemployment goes up 1% 40,000 people die.” Those invested in ARK won’t lose any one of their homes, but promoting this type of investing is reckless. I’m just glad that this experiment self-destructed so hilariously and publicly.