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Investing is also about what you avoid

Investing is also about what you avoid

| May 13, 2022

During this difficult market period, many investors are feeling the sting of a pretty severe correction.  Other investors, especially those more prone to speculation, might be feeling it much more strongly.

As the chart below from Morningstar shows, investors who dabbled in cryptocurrencies and the most aggressive growth stocks have had one thing in common over the past six months:  Pain.

That's not to say that these securities won't go back up. In fact, they are rising right now on more reassuring words from the Fed. The "takeaway" is that this is not diversification.  This is not risk management. It's a higher "beta" version of what you likely already own.  Just know that going in.

Likewise, cryptocurrencies are still in their formative years and still look more like speculation than investment.  They are not the portfolio substitute for a commodity, like gold, that many of crypto proponents claimed them to be. Crypto may have a role to play in a portfolio, but the jury is still out on what that looks like.

And finally, the amazing and revolutionary companies in a fund like Ark Innovation ETF (Ticker: ARKK) are indeed, truly amazing.  World changing, even. Brilliant fund managers may add value over many years and make investors wealthy.  But price matters.  Valuation matters.  And investments need a financial underpinning.

(The fund's top ten holdings are shown below. Negative P/E ratios indicate non-profitable companies.) 


The bottom line is simply to know what you own.  Sometimes what you avoid is as important as what you invest in.