Timing Is Everything

In the January issue of my flagship newsletter, The Wealth Advisory, I recommended a very small ag-tech company to my subscribers. 

I am very bullish on ag-tech for the simple reason that there is not enough arable land and fishable waters to feed the global population. We simply have to find better farming techniques. 

And I’ll tell you straight out: That includes modifying genes to get better yields. Humans have been selecting for better genes long before Brother Mendel showed us how to get curly-vined pea plants. The very first ears of corn cultivated in Mexico weren’t even 2 inches long…

I don’t know when humans figured out they could influence the evolutionary process and select desirable traits in plants and animals. But I will tell you that there is a similar evolutionary process for investments. 

It’s all well and good for you to find a technology, service, or process that is so streamlined or cost-effective or indispensable that it represents the future. But what if the market isn’t ready for that future? 

3D printing, cannabis, solar panels — stocks in each of these sectors hit the ground running in the early days of adoption. But a funny thing happened on the way to early retirement for their shareholders — the stocks started tanking just as widespread adoption happened.

If you just looked at the sales growth and usage numbers for solar, you might think that First Solar (NASDAQ: FSLR) would be worth more than the $300 a share it was back in 2008.

I remember when Tesla (NASDAQ: TSLA) broke out. It had been rolling around between $5 and $8 for a few years. It crept up to $10 or $11 in the spring of 2013. And then there was an earnings report that set it off. Shares jumped 50% in three days and they never looked back.

So what’s the difference? Why do some rally and crash and others just rally? 

An Idea Who’s Time Has Come 

Funny thing: I don’t actually have an answer for this question. Mmmm, on second thought, maybe that’s not so funny. 

But the thing is, it’s this element of timing, this figuring exactly when an idea’s time has actually come, that really separates the superstar investor from the “by the numbers” crew.

Cathie Wood, the ARK ETF lady, gets treated like a superstar a lot lately. This is my second time writing about her. And as I told you the first time, I only learned of her existence a few months ago. But I came across a stat that demanded some attention…

In January 2018 Wood’s ARK ETFs had $800 million under management. Today, they have $50 billion. That is nuts. Sure, some of it is new money coming in. But some of it is amazing performances by stocks like Tesla.   

Superstar investor or not, Cathie Wood absolutely nailed the timing aspect of many of her choice investments. 

I don’t get the love for Tesla. The stock looks overvalued to me. But I’m not blaming Tesla or Cathie Wood. The market was ready for Tesla; I missed it. 

I didn’t miss Teladoc (NASDAQ: TDOC), another one of Wood’s faves. Near as I can tell, she announced her position in Teledoc in January 2020. Shares traded between $85 and $103 that month…

Which means that Wealth Advisory subscribers were already up as much as 71% in Teledoc, because I recommended it a couple months ahead of Wood.

Risk and Reward

There are a lot of people that are critical of Wood and her popularity. I read a great piece about how much riskier her funds are than most anything else, according to the Sharpe Ratio. 

The Sharpe ratio is the ratio of a fund’s average returns to the standard deviation of those returns.

In other words, if you come in with 8% returns year after year, your fund is not risky. BUT if you come in with a 50% return one year, well, that’s four standard deviations from average, so your fund is obviously very risky. 

I don’t think there’s any industry on the planet that hates outperformance more than the investment industry. What a bunch of babies. I wonder how they’d feel about the 167% average I’ve got in The Wealth Advisory? OOooo, very risky, kids!!

If you ask me, the risk is always opportunity risk. And metrics like the Sharpe ratio and the CAPE ratio? People win Nobel Prizes for these formulas that seek to smooth out gains so that different years with different dynamics can be compared on an apples-to-apples basis. It’s an abomination, the exact opposite of what investing should be about.

You mean some years are better for investing than others?? BLASPHEMER!!

You want predictable returns? Buy a stupid annuity. Otherwise, embrace the fact that difference is the whole point. Things change, you see that change, and you can make some outsize investment gains. It’s missing those changes, it’s not seeing that the world is changing, that’s risky…

Oh, and that ag-tech company I recommended in the January issue? Institutional ownership data came out just after we emailed to our subscribers — Cathie Wood had just bought 12% of that company. Ya don’t say…

Until next time,

Briton Ryle

@BritonRyle on Twitter

The Wealth Advisory on Youtube

The Wealth Advisory on Facebook

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.