Why Do You Care What Cathie Woods Thinks?

Just this week the media posted headlines about what Cathie Woods thinks of El Salvador and investments she recently made. I don’t get it.

Wealth Creator or Destroyer?

Cathie Woods gained notoriety in 2020 when she posted very strong returns. Her flagship ETF was up over 150% that year. The market is very inconsistent and unpredictable, but one thing that is very consistent and predictable is that investors will chase strong performance, as they did after 2020. And they got in just in time to experience significant losses. Her fund was down 23% in 2021 and 67% in 2022. Ouch!

She was a wealth creator so long as an investor got in early and sold after the big gains, which is highly unlikely. Her fund has been more a wealth destroyer than anything. Morningstar reports that she has destroyed over $7 billion in wealth.

Why Are People Listening?

A broken clock is correct twice per day. Every now and then someone will get something right. Being a good investor is not about getting lucky; it is about persistence. And Ms. Woods lacks persistence, big time! She can’t even make money when the technology sector is booming – demonstrating that she tends to pick those that don’t go up. If that is the case, why does the media continue to report on her? Because people continue to click on the headlines.

Who to Follow?

It is very natural for us to want to follow someone, or some idea, when we lack knowledge or expertise in a subject. Therefore, it is natural for investors to seek to follow “experts” that have more experience and know more than them. But humankind lacks persistence – instead of following an individual’s views, it is better to follow a durable strategy. Investors need to put more time and effort into their own investment strategy rather than someone who got lucky one year says.

And if you are intent on following some individual, at least pick someone with persistence in investment success. Someone like Warren Buffett or Howard Marks. Sure, they won’t give you any “exciting” stock tips, and may not speak with the astronomical confidence of someone like Ms. Woods, but their critical thinking and recognition of uncertainty in the markets are something to mirror in your own investing.

 

– JAY