about 1 year ago • 1 min
Not so long ago, Cathie Wood’s ARK Innovation ETF (ARKK) was beating Warren Buffett’s Berkshire Hathaway (BRK-B) by almost 300%. Berkshire’s now ahead by 70%. Here are five big takeaways from that change of fortunes:
Taking higher risk doesn’t mean you’ll achieve higher return. While investors would only invest in a riskier asset if they expect a higher return, it doesn’t mean they’ll realize it. High risk means a higher chance of a sharp loss, and a higher chance of not achieving the return you were hoping for.
Time horizon is everything. You’d have been called a genius for holding ARKK a year ago, but now you’d be called a clueless speculator. Truth is, you could still be either depending on what happens over your time horizon.
Taming your behavioral biases is key. Most investors never benefited from ARKK’s initial high returns because they got in only after the fund’s big spike. Behavioral biases like FOMO (fear of missing out) are often your biggest enemy.
Focus on your process, not the outcome. Buffett didn’t change his investment philosophy when he was underperforming sharply and feeling the heat. He put his head down, stuck to his process, and it paid off. Wood is probably doing the same now. Over the long term, having a good process prevails. They still could both end up ahead.
Things can change faster than you expect. Asset prices and economic variables can change quickly – and extremely. Realize that nothing is ever permanent and don’t rely too much on the past to forecast the future.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.