The only example you need for why diversification is key.

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Today's Letter

• Why diversification is key - the only example you need

• ARKK sells NVDA for the nth time, buys COIN

• ARKK Major Trades

• Top Meme Stocks

Last week I ran a poll asking the following:

The market has been very volatile, but the QQQ and SPY are roughly flat over the last 6 months (-6% and -3% respectively). Do you think with interest rates nearing the Fed target, are we near the bottom?

Here are were the results, in order from most popular to least popular answer.

1. More pain to come as recession looms.

2. The bottom will be in the next 1-2 months.

3. We are at the bottom.

4. We stay flat until Q2-Q3 next year.

Seems retail investors think we will be in for a bit more volatility through the next couple months.

Why diversification is key - the only example you need

Blue chip or shit-stock, is there really a difference? Probably, but not by much. Even in this bear market we are seeing mega-caps down 25-70% (hint: look at Meta Platforms). On the other side we have growth names such as SNAP, PLTR, SOFI, FSLY, etc, etc, etc down 70-90% YTD. Pretty insane, who would have thought companies trading at P/E of 100x or more could have possibly dropped that much. The answer: literally nobody, not even Wall Street "professionals". I'll get into that in just a second, but before I do. This headline made me realize that no company is safe in a bear market, not even the monsters of tech.

Amazon loses a trillion in market cap and Microsoft loses ~900 billion during this bear market... you don't say? That sh*t is wild.

Even though these stocks haven't plummeted like growth names or small caps (aka dropped 90%), they've still seen significant contraction in valuation and a decline in the 25-40% range. This leads to my next point that even the analysts don't know what they are talking about and exactly why you shouldn't throw all your investment eggs in one basket, metaphorically speaking.

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Why diversification is key (cont'd)

It's time for a brief story slash lesson in finance on a stock that has dropped 98% in the last 16 months. The stock? Carvana (CVNA), here's the chart. Pretty FKn ridiculous.

The thing is, it's been a graveyard for growth this year, and unfortunately most small-cap stocks have a chart very similar to what you just saw. Complete devastation of value.

I didn't look into the deep history since the existence of this company, but in the last 5 years Carvana was never profitable. Even through the pandemic when used car sales were selling at a 25% markup the closest it ever got to being profitable was an EPS of -$1.02 in June, 2021.

That was back when it was trading at $300 per share, and on a P/S (price/sales) of 4x, which was actually fairly reasonable. Anything 10x or more would be considered very high, with 5-10x still being expensive. Here's the historical P/S chart (looks cheap, doesn't it?)

Not profitable through the greatest tailwind ever seen in the car industry? Probably red flag number one, but who am I to judge.

... But who else was wrong on the trade? Everyone, including analysts. Below is a chart that shows price targets by month for CVNA. What we're seeing is that peak price target, of $372 was in Dec, 2021... 11 months later and the stock is trading at roughly $8 and -98%.

Surely nobody could have predicted this abrupt change in monetary policy and subsequent bear market, but 97%... really? Remember, these analysts are professionals and do this for a living, studying the auto industry and analyzing all sorts of comps, catalysts, and DCF models. Here's another look at some of the price targets for CVNA throughout the year.

To make things easier to visualize I've highlighted the price targets.

Gold = Upgrade.

Purple = Downgrade.

You're telling my the stock price was upgraded on the way up, and downgraded on the way down? Almost always after-the-fact? You don't say...

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ARKK sells NVDA for the nth time, buys COIN

Cathie Wood's ARKK ETF has made 3 major changes to the holdings in recent weeks. What are they?

• Nvidia (NVDA): Sold roughly ~600k shares and full position.

• Coinbase (COIN): Bought roughly ~1 million shares, increasing position size by 20%.

• TuSimple Holdings (TSP): Sold roughly ~10.5 million shares, almost closing out entire position.

Here are the respective charts and the trades, visualized.

Top Meme Stocks

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