Can Cathy Wood's Stock Picking Still be Trusted?

By Brian O'Connell

With October demonstrating the stock market is in no mood to transition out of correction mode, Real Money's Kevin Curran wonders whether ARK’s Cathy Wood is a stock-picking brand that can continue to be trusted.

Recent poor performance has critics popping up across the market landscape.

“Few investment stars have risen as quickly or shined as brightly as Cathie Wood,” Curran wrote on Real Money recently. “Wood rose from relative obscurity to tout eyebrow-raising price targets on high-growth names such as Tesla  (TSLA Get Tesla Inc Report, Roku  (ROKU Get Roku, Inc. Class A Report, Robinhood  (HOOD Get Robinhood Report, Zoom  (ZM Get Zoom Video Communications (ZM) Report, and more. She has also been a major proponent of bitcoin, advocating for its inclusion on corporate balance sheets and herself buying into Coinbase  (COIN) as a major position for her Ark Innovation Fund  (ARKK Get ARK Innovation ETF Report.”

Wood proved to be a seer in the pandemic-driven panic of early 2020 showed her prescience as an uber-bull.

“However, as many of her most famous picks begin to falter in the current correction and investors begin to be wary of soaring valuations, there remains a question of how much investors can trust the prescient portfolio manager in a less exuberant environment,” Curran wrote.

Curran points to Michael Burry, of Big Short fame, as possibly the best-known investor eager to profit off of the market rotation and the ensuing pain for Wood's biggest bets.

“His firm, Scion Asset Management, has actually taken short positions not only against Wood's ARK ETF, but against some of her favorite names like the aforementioned Tesla,” Curran stated. “Thus far, the bet against Wood has paid off as her flagship ARKK fund has fallen about 14% year-to-date, about the inverse performance of the S&P.”

That’s not bothering Wood, who stands behind her picks as the last quarter of the year opens for business. In fact, Wood believes that critics like Burry don’t understand the trends that underline her stock-selection successes.

“Nonetheless, even bulls are somewhat befuddled by Wood's continued sales of her most bullish calls,” Curran said. “For example, at the close of September she sold more than 340,000 shares of Tesla, totaling about $270 million. Overall, she has sold more than half of a billion dollars in Tesla stock in a matter of months. Given her expectation of an over 300% return for Tesla still ahead, the sizable sale is one that begs questions.

That said, past performance and general transparency should certainly offer some benefit of the doubt for Cathie Wood. But that’s not going to stop the critics.

“No doubt, the recent trend of negative returns remains a significant test of investors' faith in Wood's status as a market prophet,” Curran wrote.

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