The Case Of BRK Vs. ARKK

Again, one of my “chanced upon this article and I have to write about it” blog post, this time from this article:

“Warren Buffett closes in on Cathie Wood as tech stocks tumble.¹”

 

Inside, it described about the relative performance between Buffett’s Berkshire Hathaway (BRK) and Wood's Ark Innovation ETF (ARKK), and subsequently the two contrasting styles of investing, which were value and growth, respectively. 

 

Bear in mind that this piece was written in January 2022, so it was the time when the world was emerging from COVID-19, and before inflation and interest rates were rearing their ugly heads. Back in 2020, as most of us remembered, companies seen as disruptors (read: technology) were leading the charge, partially due to their expected heralding of change in a post-COVID world, and electric vehicles. When a sense of normalcy returned in 2021, things which were dubbed as game changers found themselves no more, and for some of them began to return to earth from their sky-high valuations.

 

What can we learn from here?

 

I will go through three issues related to this article.

 

Issue #1: Value Vs. Growth

 

Most investment literature tend to separate and compare the various investment styles, of which value and growth are two of the major ones. In short, value investment looks for undervalued companies that (someday) realise their true worth in terms of price, whilst growth investment seeks companies that are (potentially) heading for the moon. Stripping down to the most basic of investing instinct, value investing takes time to make money, while growth sees the dough “brrrr-ing” towards you.

 

As expressed in the eBook², both value and growth (and others) can blend to form a coherent approach. While value is easy to understand, growth is slightly challenging as we may not know what the next big thing is, and if we do know, would it be a short-lived fad or a long-term trend.

 

Issue #2: The Questions Of When

 

A graph from the article caught my eye, which I will reproduce here using Portfolio Visualizer (Figure 1):

 

Fig.1: Portfolio growth of USD 10,000 for Berkshire Hathaway Class B (blue) and ARK Innovation ETF (red), Jan 2020 to Dec 2021. Source: Portfolio Visualizer (click to enlarge).

 

The simple question would be: why not I just let go of ARKK sometime between Jan and Mar 2021, and I will gain the maximum profit from it all?

 

For this, I will pose three counters:

 

• If you had known it is going up, when would your entry point of ARKK be?

• If you had known it is going down, when would your exit point be?

• If you had ARKK, when would you know it is not going up infinitely?

 

If you had no answer for the above three posers, then only luck would have had assisted you in reaping the profits.

 

Hindsight is 20/20, so to speak, hence I rest my case here.

 

Issue #3: A Tale Of Two Actively Managed Funds

 

Both BRK and ARKK are considered actively managed funds, i.e., they do not follow an index but rather the wisdom of the fund managers behind them. Yet, they adopt different investing styles (value and growth), different focus (diversified across sectors and concentrated on technology) and different timeframes (long term and relatively short term). 

 

While I am not dissing one or the other, the message here is to select whatever financial instruments that float one’s portfolio boat, as I acknowledge the individual differences in investment principles and methodologies.

 

Disclosure

 

The Bedokian is vested in BRK.B.

 

Disclaimer

 

1 – Wigglesworth, Robin. Financial Times. 23 Jan 2022. https://www.ft.com/content/42bb6639-79a0-48da-9f21-01f33e7370f9 (accessed 6 Jan 2024).

 

2 – The Bedokian Portfolio (2^nd Edition), p148-149.