The Capitalist Investor - Episode 67 People are reaching out to me on Twitter and sending screenshots showing their investments up 72% in 2020. They’re searching for an “atta boy” when they just got lucky. Most of the time, the compliments are not deserved. You can’t build yourself up because you made ONE lucky stock pick. We don’t think it’s impressive. What is? Outperformance in a diversified strategy. We dissect the two strategies in this episode of The Capitalist Investor. Don’t miss it!Outline of This Episode[0:30] Pimping your performance[4:45] Outperformance in a diversified strategy[7:10] Catherine Wood of ARK Invest[11:32] The right risk concentration[12:14] Cheer on the success of others[15:07] There is a place for thematic strategiesPimping your performanceWhen we look at performance, we never see a concentrated strategy outperform a diversified portfolio. What do we mean by concentrated? A niche or themed strategy. We’ve never found it to be impressive. It’s being in the right place at the right time. No one cared about valuation last year. It was all about high-growth and momentum. If you owned Zoom and work-from-home plays, a percentage of it was luck. It’s not a stock-picking skillset. Outperformance in a diversified strategy is what’s impressive. That means that the manager is going sector by sector and providing value for his or her clients.When stocks have huge runs and start to sell off, you need a strategy around when you unload. It’s why you have to set price targets and have discipline. Your overall picture needs to match what you want it to look like. You can’t pick random stocks and call that your portfolio. You need a plan for the next step.ARK Invest’s big runCatherine Wood—the CEO of ARK Invest—has been the darling of Wall Street in the last year or so. She’s been pumping Tesla. She grew her AUM from $4 billion to $40 billion in 2020 because she saw inflows into her flagship ETF—ARKK. It’s an innovation ETF. Everyone thinks she’s a genius. It may be an unpopular opinion, but anyone who invested money in Tesla looks like a genius today.But the thing is, it’s a concentrated strategy—it’s not meant to be 100% of your holding. When high-growth and high-momentum plays work, the ETF will do well. She’s done what she praised her investors—and then some.But putting all of your funds into a specialty ETF is not a plan—it’s greed. You have to have the right risk concentration for your situation. On the wild ride up, everyone’s a hero. On the wild ride down, there’s finger-pointing and laughing.Cheer on the success of othersCathy Wood haters are coming out of the woodwork. They’re calling her a hack and cheering that her fund went down 22% from its peak. But her ETF is still up 150%. It’s phenomenal growth. We don’t get the hate. You should want to be like successful people—NOT hope they fail. What’s wrong with people? It doesn’t make you feel better about your lack of initiative in life.Social media amplifies jealousy and tearing others down. I was at TopGolf recently and a server dropped their entire tray. Everything shattered. Most people were cool about it, but others laughed and clapped. Who does that?! There are some miserable people out there who enjoy seeing other people fail. Take some time and try and better yourself.There is a place for thematic strategiesCathy Wood has built a fantastic business. The key is that her strategy isn’t meant to be 100% of someone’s portfolio. There is a place for niche strategies—but maybe as 10% or 25% of your exposure. The only way you can have it as 100% of your strategy is if you’re willing to take extra risks.We live in a world where concentrated bets are rewarded and praised. It’s easy to fall into that trap. But to be truly successful, you need to manage your risk with a plan. A winning stock doesn’t go up forever. The takeaway? Be diversified—and don’t be a hater.Resources & People MentionedCatherine WoodConnect with Derek GabrielsenTwitter: @DerekGabrielsenFollow Derek on LinkedInSend Derek a message hereCheck out Derek’s YouTube channel!Connect With Mark TepperTwitter: @MarkTepperSWPFollow Mark on LinkedInSend Mark a message hereThe SWP Connect YouTube ChannelSend your questions and comments to us at info@SWPConnect.comSubscribe to The Capitalist InvestorShow Notes by PODCAST FAST TRACK https://www.podcastfasttrack.com
