I'm confused by this reaction along with all of the comments on this thread. Half are saying that Wood's strategy is no better than a martingale strategy (bet twice what you lose) while the other half are expecting positive contiguous yearly returns.
Is Wood engaging in a martingale strategy? If so, can someone point me to resources that show it?
Should Wood be getting positive returns every year, even when the market is in a down turn? My understanding is that the common sentiment is that one can essentially do no better than the market average, which is what an index fund is essentially trying to do. Are these funds profitable even during a market downturn? Why are index funds expected to lose money but Wood's fund not?
I appreciate that a one year 50% loss can wipe out four years of 20% returns but a market down turn affects everyone, not just Wood's fund. Is the market downturn affecting Wood's fund more than a vanilla index fund even after taking into account the explosive growth before the crash?
For some clarity, Wood's fund has more than doubled it's stock value from 2017 [0], which puts it at an average 14% yearly return.
My understanding of index funds is that the expected return is somewhere between 8%-10% APR. My take on Wood's fund is that it's trying to be more judicious about which to use for it's index fund so has the potential for more upside because of undervalued tech stocks. Even under this conservative APR (as of this writing), Wood's fund still beats out a vanilla index fund.
If I were an investor in Wood's fund with a time horizon of 5 years, I would be happy with the performance, regardless of a the last years crash.
I'm pretty skeptical of high returns from Wood's fund but, at the same time, the strategy seems pretty straight forward: invest in emerging technology that has the potential for high return and, essentially, make an index fund out of it. Isn't this what YC does, except by taking ownership stake in companies rather than investing in the stock market?
> Why are index funds expected to lose money but Wood's fund not?
index funds are getting market returns, which could be negative. However, over a long period of time, the market returns of a highly diversified portfolio is expected to be positive, and this is based on historical evidence, and the theory that the market's growth is tied to the growth of humanity.
A sector specific fund has no such evidence for it's growth long term. It may be obvious in hindsight that tech must grow, as it's the future, but imagine if you did invest in a train based sector fund back in the industrial age - what would've happened to your investments compared to the market average?
> index funds are getting market returns, which could be negative.
... so they're losing money? Isn't this precisely the point I was making? Index funds are losing money in a bear market as is Wood's fund.
Wood's insight is to focus on technology, as these tend to have high returns because of the value they provide and are (potentially) undervalued by the market. Again, isn't YC doing exactly this strategy except for company ownership?
While I appreciate your pushback, I think it's a bit dismissive to compare Wood's strategy with investing in railroads. Wood is investing in a diversified portfolio, the focus of which is technology. At least, it's a strategy that's diversified in specific technology sectors and diversifying the investment in each sector by betting on a few players in that space.
I don't have a lot of historical knowledge but to me, this would be like someone investing in an "industrial revolution" tech sector in the early 1900s. That is, invest in steel, railroads, automobiles, etc.
Yeah. It’s just reversion to the mean. Also, the previous year’s highest performing fund is almost always a laggard in the following year. Source: I forget where I read it, so it may be total bunk.
Is Wood engaging in a martingale strategy? If so, can someone point me to resources that show it?
Should Wood be getting positive returns every year, even when the market is in a down turn? My understanding is that the common sentiment is that one can essentially do no better than the market average, which is what an index fund is essentially trying to do. Are these funds profitable even during a market downturn? Why are index funds expected to lose money but Wood's fund not?
I appreciate that a one year 50% loss can wipe out four years of 20% returns but a market down turn affects everyone, not just Wood's fund. Is the market downturn affecting Wood's fund more than a vanilla index fund even after taking into account the explosive growth before the crash?
For some clarity, Wood's fund has more than doubled it's stock value from 2017 [0], which puts it at an average 14% yearly return.
My understanding of index funds is that the expected return is somewhere between 8%-10% APR. My take on Wood's fund is that it's trying to be more judicious about which to use for it's index fund so has the potential for more upside because of undervalued tech stocks. Even under this conservative APR (as of this writing), Wood's fund still beats out a vanilla index fund.
If I were an investor in Wood's fund with a time horizon of 5 years, I would be happy with the performance, regardless of a the last years crash.
I'm pretty skeptical of high returns from Wood's fund but, at the same time, the strategy seems pretty straight forward: invest in emerging technology that has the potential for high return and, essentially, make an index fund out of it. Isn't this what YC does, except by taking ownership stake in companies rather than investing in the stock market?
[0] https://finance.yahoo.com/quote/ARKK?p=ARKK&.tsrc=fin-srch