ARKK Of The Damned

Here is a quick quiz. Hands up if you thought that during the previous calendar year, the chart below was a buy.

If you answered yes then there is something wrong with you but you can take comfort in the fact that you are not alone. Among the 234 thematic ETFs on offer ARKK took in a somewhat remarkable $US1.78B in 2022 – this is despite the share price cratering and its founder Woods making ever more odd pronouncements about the future price of their investments. Pronouncements that the market doesn’t seem to agree with as we will see in a minute.

For some wider context, this is a longer term history of ARKK showing both price action and drawdown.

You can see that ARKK is slightly off its lows but only just and this has largely been a result of a recovery in the NASDAQ100 dragging some of ARKKs investments up. ARKK not only serves as a remarkable lesson in how bad fund managers can be in their ability to manage risk (non existent in this case) But also the desire to cling to ideas such as dollar cost averaging – that is the process of buying more of an instrument as its price collapses. The table below details the current spread of ARKKs investments showing the weight a stock has in the portfolio, the current quote at the time of generating the table, the dollar cost price, the percentage gain or loss, and most importantly the gain required to get back to breakeven for those shares that are underwater.

There is also the obligatory chart.

For the sake of clarity, I have rearranged the table to only show the gain required to breakeven for each share and sorted those in ascending order.

I thought it would be interesting to post up the charts of the three worst performers to see if there is any life in them at all.

Whilst you can never make any sort of accurate prediction with regard to where future prices may go for a given share I would suggest with a fair degree of confidence that the chance of any of these shares putting on 400+% to get back to breakeven is fairly slim.

Too many ideas in trading sound good in theory and there are countless experts extolling the virtues of dollar cost averaging – there are even books on the topic. However, the market produces interesting real world experiments where tactics are laid bare by virtue of their results. ARKK engages in aggressive dollar cost averaging and its results are appalling as can be seen. There is a reason why there is the old saying – throwing good money after bad.