Investing in the internet age promises fast fortunes, but the real lessons this week come from a courtroom win for Andrew Forrest and a reality check from Cathie Wood, proof that in markets, as in life, if it looks too good to be true, it probably is.
Investing in an internet world has become both potentially lucrative but also there are traps as investors, especially younger ones, dream of getting rich, quick! My reflections on the traps of investing in the age of online broking, no-charge brokers like robinhood.com and huge world-crushing companies such as the Magnificent 7, namely Apple, Microsoft, Amazon, Alphabet (Google), Tesla, Nvidia and Meta Platforms, has told me I better do some teaching.
My desire to set investors straight follows my interview with one of the world’s most tech-savvy US fund managers Cathie Wood, founder of ARK Invest. The feedback I received from viewers of the interview ranged from excited to know Cathie will have a private venture fund that sophisticated Australians will be able to invest in, to those who were surprised that I would give Cathie exposure.
Watch the Cathie Wood interview from the Switzer Show:
Andrew Forrest alleged that Meta used his name and likeness without permission to defraud Australians of millions of dollars in a crypto scam.
News.com.au reported that his lawyers “alleged Meta’s advertising tools helped to create and distribute thousands of fraudulent crypto scam ads.”
The report also explained: “On Tuesday, a California judge found spoliation, the destruction of evidence, had occurred and Meta failed to take reasonable steps to preserve the electronically stored information. The finding means Meta failed to properly retain electronic evidence, including the final versions of ads shown to scam victims.”
This is a great finding and if the financial hit ends up being a whopper, it will help make these big social media companies become better gate keepers and scam-beaters in the future. Given the world’s commitment to these big social media companies and with the threat of AI, we need these companies to be our protectors, not aiders and abetters to the work of scammers.
This is important because government bodies and politicians are increasingly ineffectual in beating these criminals using the internet.
Education is also important because when I was deep faked, the offering put out under my name and voice was for stock tips that people paid for. Inexperienced investors should look at stock playing as being akin to punting on horses.
Education starts with the basic premise that if you’re promised a big return, then the risks are also big. When we take on a new financial planning client we say we work to get 7% per annum return on a 10-year basis. And while we have been doing better than that, we know history says that someone with a 60% exposure to stocks and 40% more defensive can get a pretty consistent 7% return over a number of years.
Others who decide to take on more risk can do better but they will live with both big upswings and downswings.
And this brings in my take on Cathie Wood. She’s a very tech-smart investor who has had great results and some shockers, just like some of the entrepreneurs and their companies that this fund manager has supported over the years.
Her most famous fund is the ARK Innovation ETF, and this chart shows her ups and downs.
ARK Innovation ETF (ARKK)
The chart is a great teaching tool about investing with high wire players.
The fund was $20 in October 2014 and today is around $80 but at its peak was over $156 and foundation investors were up 300% by February 2021. Then the stock price tumbled as the Fed raised interest rates after Covid and tech/growth stocks were smashed.
There was a rotation out of growth stocks into value plays and some of Cathie’s once hot investments copped it, but that goes with the patch with a fund like ARKK.
If someone wants safety and good returns, an ETF such as VAS, VHY or A200 is the shot, but if you are looking for big returns, then ARKK and others like it are the go. However, education says there should only be a small percentage allocation to these high risk and potentially high return investment plays.
I can’t see anything wrong with someone allocating 1% of a portfolio to say bitcoin, with the unit price low at the moment. Similarly, gold could take 5% of a portfolio but this ‘safe’ investment can have a shocker for a long period of time. Even this year, this GOLD ETF was at near $72 but went as low as $52 and is now $56.79.
GOLD
With the likes of GOLD, ARKK and others that promise high returns and high risk, it’s better to buy them at low levels but you have to be patient.
The fund that Cathie Wood is bringing to Australia is for sophisticated investors and is a private venture fund called the Ark Venture Fund.
The Fund is an actively managed portfolio that seeks long-term growth of capital by investing in private companies aligned to the theme of “disruptive innovation”. ARK defines “disruptive innovation” as the introduction of a new, technologically enabled product or service that has the potential to change the way the world works. In simple terms, these are new technologies with the potential to reshape how industries operate.
Anyone who invests in this type of fund has to think like a private equity investor. It’s for the patient player who can wait for these speculative companies to become good, like Tesla, SpaceX, OpenAI and Anthropic.
There are no guarantees, but returns could be spectacular or disappointing.
Some critics point to Cathie Wood’s recent performance with ARKK up only 7% this year and down 39% over a five-year period. However, foundation investors are up 295% since late 2014, which implies a per annum return of about 24%, which is a pretty good result for a patient risk-taker!
And if you bought ARKK on the dip, which bottomed in late 2022, you would’ve made 142% over the past four years. Like most fund managers, Cathie can get it wrong, but when she gets it right, the returns can be impressive.
If you understand risk and reward and invest sensibly, then high wire fund managers can deliver, but they shouldn’t be seen as quick get rich schemes.
And if everyone stopped being seduced by get rich goals, people like Andrew Forrest and yours truly wouldn’t be easily misused by scam merchants on social media platforms.
(Note: I have a shareholding in Associate Global Partners that’s bringing the Ark Venture Fund to Australia.)
