If you are just starting your investor’s journey, still learning about investing and the stock market, I would recommend reading the first article called “Investing in the stock market: where to start” before looking into any of the below strategies.
ARK Invest is an interesting investment firm. Their CEO (and CIO) Cathie Wood has been publishing a few interesting videos throughout the year, providing updates on the US’ fiscal and monetary policy and key economic indicators. Well worth the watch.
On October 14th, ARK Invest published a White Paper called “Bad Ideas” and it highlights how parts of the current economy are ripe for disruption. Get it here:
It’s packed with stats and interesting data.
The key point is this: a big piece of the economy is about to be in big trouble. The expected changes will impact the industries mentioned in the report in two ways: dead-weight on their balance sheets (like branches for banks, basically fixed assets becoming stranded assets) and possible inability to adapt to change and be rendered completely obsolete by innovation.
Here’s a recent video from Cathie referring to this paper (towards the end):
So.. is that true and what can we do about it?
Well, looking at the categories in the report, I’d say it’s an understatement. Many more industries and business models will be disrupted, but as a starting point, finance, retail, entertainment and transport seems to be a very safe bet.
Cathie said that these industries will account for 35% of the S&P500 and that broad-based benchmarks (basically ETFs or Mutual Funds that track the S&P500 or the total stock market) are “not a good place these days” and that it will lead to “subpar returns”.
What she is really doing is promoting her ETFs which are built around innovation and built to capture its expected exponential growth. Fair enough, why not!
Choosing to invest in specialized ETFs like AKK’s does not seem to be a bad idea, they may turn out to be more profitable than the broad-based ones. Just know the associated risks: higher potential reward always means more risk. Also, ARK's ETFs' TER (total expense ratios) are much higher than for example VTI's (0.75% vs 0.03%).
Remember, with total stock market ETFs, you will get a piece of the innovation growth. True, some stocks will perform terribly, as hinted by Cathie and explained in the white paper, but others will show resilience and will adapt and thrive. Everything that was said in Collin’s book about the stock market and the simple strategy it promotes still remains true, it may simply return a little less than innovation specific ETFs.
My personal strategy is to keep with Collin’s for the most part, but because I’m investing for the very long term, I have invested a portion of my portfolio in ARK’s ETFs so as to increase my exposure to the aforementioned disruptive innovation. I have, to be perfectly honest, also invested in specific stocks directly, to even further increase my exposure to very specific companies and innovation thesis. Read my other article below on how to look at stocks beyond fundamentals:
But my overall strategy remains mainly on a broad based index fund.
Note that I would not recommend any deviation from Collin’s strategy if you don’t intend to stay in the market for at least 15 years or more or if you don't understand the risks associated with industry or thesis-specific ETFs.
Disclaimer: The information above is provided for information only, it is the reflection of the author's opinion and does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell, or otherwise transact in any investment including any products or services or an invitation, offer or solicitation to engage in any investment activity. The author invites you to do your own research and come to your own conclusions.