Chasing the Last Big Thing

There have been numerous investment trends and financial industry headlines that we all have heard about over the past few years, whether it be the FAANG stock’s rise and fall, the meme stock craze, cryptocurrency or the one we one going to pick on in this piece – the ARK Innovation ETF (ARKK).

ARK Innovation really started to gain traction in 2021 as the media markets began hyping it after spectacular 2020 returns. The public was drawn to ARK in hopes that the ETF could repeat its performance.

Ironically, investor volume picked up in 2021 and increased dramatically in 2022, all while the stock price was falling like a rock.

In other words, after magnificent performance, tons of money poured in at an unbelievable pace (over $13 billion from March 2020 to March 2021 according to Morningstar’s estimate), while the stock price cratered.

The only investors that made out big with ARK were those that invested prior to 2021 and sold out before the decline. For instance, the COVID investors that purchased during the price decline of March 2020 now have about a -7% return as of 2/14/2023 (as shown in the chart).

This is another case of an investor’s tendency to buy last year’s winner. FOMO mentality at its finest.

We go for base hits every time, rather than try for the home run.