“History Doesn’t Repeat Itself, But It Often Rhymes” – Mark Twain

Cathie Wood, active stock picking manager for the ultra-hip ARK Innovation Fund (ARKK), is still a bona fide superstar. At least according to CNBC.

Unfortunately, the shine may be coming off the mantlepiece. The Nasdaq 100 Index via Invesco’s QQQ Trust (QQQ) is up more than 25% in 2021. Ms. Wood’s collection of disruptive technology growth stocks? Down more than 20%.

There’s more.

The poor showing in 2021 has brought ARKKs longer-run performance back into line with its Nasdaq/large-cap growth benchmark. Active stock picking is not beating passive indexing.

Perhaps ironically, the chart above rhymes with the 1998-2000 dot-com implosion. At that time, disruptive internet corporations (dot-coms) were changing the world like a tidal wave. You had to own the stocks… no matter the price.

By the end of 2000, dot-com disruptive stocks in the QQQ Trust, and virtually all of the large-cap growth space, had given back its outperformance over the broader market.

It gets worse.

Ridiculously overpriced growth stocks were not done “selling off.” Over the next two years, investors in hyper-valued equities watched their portfolios crash and burn.

If history is any indication of what happens to hyper-valued growth stocks, they will not simply come back to the pack. They will go on to destroy the retirement accounts of die-hard believers and hold-n-hopers alike.

Make no mistake about it. While history will not repeat itself in precisely the same manner, while the Federal Reserve may be willing do whatever it takes to avoid reliving the horrors of 2000-2002 and/or 2008-2009, hyper-valued asset pricing will not last.

How overvalued are stocks right now? You be the judge.

Or you can use these metrics…

Or even Warren Buffett’s favorite indicator… market-cap to GDP.

Fundamental overvaluation is obvious… no matter where one looks. The only question is whether or not the Fed has the “do whatever it takes” firepower to backstop stocks the next time the fit hits the shan.

The same holds true for the American love affair with real estate. Inflation-adjusted home values have now surpassed the 2006-2007 real estate bubble.


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