The Weekend Edition is pulled from the daily Stansberry Digest.
Not everyone can scoop the Economist...
But it seems like I did.
In the February 11 Digest (reprinted in last Saturday's Weekend Edition of DailyWealth), I highlighted the ballistic price charts of ARK Investment Management's several innovation-focused exchange-traded funds ("ETFs")... And I explained why I believed this firm signaled the advent of the Mother of All Melt Ups ("MAMU").
I called ARK founder Cathie Wood "the Gerald Tsai of today"...
As I noted, Tsai was the most famous investor of the 1960s "go-go" era stock market bubble. He generated outrageous returns during the bubble... then his popular Manhattan Fund became the worst-performing mutual fund in the world during the ensuing bust.
Now, the Economist is jumping on the ARK bandwagon...
A week ago, the financial publication pointed out in its Buttonwood column that ARK's flagship fund – the ARK Innovation Fund (ARKK) – is the largest actively managed ETF in the world. And the publication referred to Wood as "the investment manager of the moment."
Unfortunately, the Economist seems to have discovered Wood's prominence a little bit late...
The ARK Innovation Fund peaked at $156.58 on February 12 – perhaps coincidentally, one day after my Digest on the topic. Since then, it has been dropping almost daily... It's down about 25%.
Following the ARK Innovation Fund's worst two-day rout since September, investors pulled their money out of Wood's company in droves. It resulted in ARK's biggest outflows to date... And due to a combination of these withdrawals and price depreciation, the ARK Innovation Fund lost roughly $8 billion in value.
Look, you can't take anything away from the performance of Wood's ETFs over the past year. They've helped a bunch of investors make a lot of money. And I can see why some folks – including the Economist – would reason that Wood is a brilliant fund manager.
However, you shouldn't forget the flip side to any incredible run higher. Volatility is a two-way street... to both the upside and the downside.
So when it comes down to it...
Yes, I'm feeling somewhat vindicated today...
What I said in my piece on ARK is still true now: Wood and ARK's funds point to the MAMU on the horizon.
Market bottoms are self-contained events. Stocks fall, hit bottom, and turn back up. But market tops don't happen all at once... They're a lengthy process that can take years to unfold.
I'm not saying I successfully called the top. But if nothing else, I believe I successfully identified an important sign for investors to keep an eye on moving forward...
ARK's funds will crash. It's inevitable. That's what always happens when an asset's price goes ballistic, like what happened with these ETFs over the past year or so.
Much like the Melt Up itself... it isn't sustainable forever.
I'm not in the predictions business. That's a foolish game to play. Instead, I prefer to say, "Prepare, don't predict."
Prepare by holding a truly diversified portfolio of stocks, bonds, plenty of cash (at least 20% of the total portfolio), gold, silver, and if you like, a little bitcoin, too. Add other stores of value – like real estate, and maybe art or collectibles (if you understand them well enough).
By doing that, you should be able to grow and preserve your wealth indefinitely for decades.
Throughout history, some folks have looked at gold in particular as valueless and worthless...
In 1924, English economist John Maynard Keynes called the gold standard a "barbarous relic"... meaning that it was effectively out of fashion as a form of money and no longer a useful store of value.
And in his 2011 letter to shareholders of his holding company Berkshire Hathaway (BRK-B), famed investor Warren Buffett put gold in the same category as tulip bulbs. As he wrote...
assets that will never produce anything, but that are purchased in the buyer's hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future.
But the emphasis on gold's utility is, I would've thought, rather obviously misplaced. In fact, it is gold's status as a thing of beauty that makes it such an excellent store of value...
Human beings can't be human without such beautiful things.
Longshoreman philosopher Eric Hoffer described this idea well in his 1971 book, First Things, Last Things. As he wrote...
Man is a luxury-loving animal. Take away play, fancies, and luxuries, and you will turn man into a dull, sluggish creature, barely energetic enough to obtain a bare subsistence. A society becomes stagnant when its people are too rational or too serious to be tempted by baubles.
But Hoffer didn't go far enough... We're not merely "tempted by baubles" (like gold). Humans require baubles and relics – barbarous and otherwise – to be fully human.
Buffett thinks that equating gold with tulips as an unproductive asset, valuable only to greater fools, indicates its limited utility as a store of value. But he has it exactly backwards... It's a wonderful store of value because it is an unproductive object of beauty.
We will never stop wanting gold.
In 2011, Buffett criticized the metal's utility. He compared the purchase of all the gold in the world (worth $9.6 trillion back then) to an identical amount invested in all the cropland in the U.S., along with 16 ExxonMobils and $1 trillion in cash. He asked who would choose the gold over the latter collection of assets, implying it would be stupid to choose the gold.
Buffett is right in his rationale, of course. But it's important to realize... those are not the choices that anyone is presented with. And as a result, the argument works against him...
In real life, humans want to own productive assets like stocks for one reason...
They want to have the means to purchase those other things that make them feel most human – like Ferraris, vintage guitars, and the ultimate useless bauble, an ounce of gold.
In his 2011 shareholder letter, Buffett reasoned that a century later, 400 million acres of land will have produced "staggering amounts" of crops, and the ExxonMobils (all 16 of them) will have generated "trillions of dollars" in value. But the gold will "be unchanged in size and still incapable of producing anything."
First of all, the fact that gold won't change over centuries is good. Humans need things that never change. They can't live without them. Otherwise, we'd all be totally disoriented just by trying to live moment to moment. And most important, a store of value must not change (too much) over time... Gold is arguably the best store of value known to man for this reason alone.
Then, Buffett showed us how poorly he understands both gold and human nature when he quipped, "You can fondle the cube, but it will not respond."
The inability of gold to produce anything is why we love to hold and fondle it...
Gold is an object we desire for its own sake... the same way we desire works of fine art. They don't produce anything either... or do they?
Gold and artwork produce that which is useful only to human beings, because only humans beings value inanimate objects for the pure pleasure of looking at them... or "fondling" them, as Buffett might say.
The utility is in what we feel when we gaze at them and hold them in our hands. By having no use, and by gold being shiny and rare, it fires up our imagination.
Maybe you don't think I'm countering Buffett's criticism of gold's lack of productivity well enough... or at least not well enough to justify putting 15% of your wealth into precious metals. If that's the case, let's agree to disagree. But I want to make sure you see my point...
I'm not telling you Buffett is wrong about gold being unproductive. I'm saying that its lack of productivity to match farmland and one of the world's biggest oil companies is why he's wrong about it... and why gold is so perfect as a long-term store of value for humans.
Part of Buffett's mistake is to view us as being too much like other animals. No other animal in the world has use for unproductive inanimate objects the way we do.
Go into the average American home... It's loaded with art, knickknacks, keepsakes, and all types of useless objects owned and displayed for the pure pleasure of doing so.
That is why gold will never disappear as a store of value.
My belief that gold is – and always will be – a great store of value is behind my No. 1 recommendation...
I've rarely found a better, more capital-efficient business model in my 23-year career writing financial newsletters.
Now, my loyal Extreme Value subscribers would probably be pretty angry if I gave you the name and ticker symbol for free here in today's Weekend Edition...
But I'll give you a hint: It's not a gold mine or an exploration company... And it's sort of like a royalty company, but it's not one of those, either.
You can hear the whole story about this opportunity in my brand-new presentation. And at the end, you'll find out how to get instant access to this recommendation – and all of my research in Extreme Value for the next two years – at 50% off the normal price.
So again, if you want to learn about perhaps the single best way to earn five to 10 times your money in gold over the next five to 10 years, just check out this video right here. If nothing else, you can see how worked up I get about an investment that I love so much.
Enjoy!
Dan Ferris
Editor's note: Dan recently went on record to explain why his favorite gold business is one of the best recommendations of his career. It pays a steady dividend and gushes free cash flow every quarter. And he believes it could have 1,000% upside over the long term... Click here to listen to the full story.
