Ben Felix - Will ARKK Recover?

Short Summary

Main recommendation: Ben Felix argues it would not be wise to count on ARKK (the ARK Innovation ETF) recovering, based on historical evidence about revolutionary-technology investing, active-manager recovery from large drawdowns, and risk-shifting incentives, while explicitly saying he can't predict the future. He says the pattern of technology bubbles followed by sharp declines is consistent across more than a century, and that the ETF's narrative-driven appeal to novice investors fits that pattern.

Key Points

• Revolutionary technologies have repeatedly been linked to asset price bubbles followed by declines, from canals and railroads to electricity, the internet, cannabis, electric vehicles, and clean energy.
• An analysis of 88 revolutionary technologies over 150 years found bubbles require uncertainty about the innovation, pure-play firms tightly tied to it, easy-to-understand narratives, and novice investors driven by over-optimism and overconfidence; Felix says ARKK fits all four.
• Expected economic growth is not reliably tied to positive stock returns, because prices reflect discounted future cash flows and rising discount rates can drive sharp drops.
• Star active managers from the dot-com era, such as Garrett Van Wagoner and Ryan Jacob, delivered huge gains followed by deep losses and slow or no recovery.
• In a sample of 114 active mutual funds that existed in 2000, still exist, and suffered a 70%+ drawdown, the average recovery took just over 14 years, and about 28 (roughly a quarter) had not recovered.

Details Worth Noting

• Concrete instructions: The speaker gives one explicit exercise for overcoming the endowment effect: imagine you did not own the asset, and if you had the cash instead, ask whether you would invest it in that asset today (e.g., "Would you invest that cash in ARKK?"). No other step-by-step instructions, purchase criteria, or preparation steps were given.
• ARKK fell about 77% between 2021 and 2022 after taking large inflows, per the speaker's framing.
• Garrett Van Wagoner's Emerging Growth Fund returned 291% in 1999, then lost 21% in 2000, 60% in 2001, and 64% in 2002; he stayed until early 2008 without a comeback.
• Ryan Jacob's Jacob Internet Fund lost 79% in 2000, 56% in 2001, and 13% in 2002, leaving a $100,000 investment worth about $88,000 by end of 2002; it returned 0.73% annualized through March 2024 since inception.
• The speaker describes risk shifting: poorly performing managers may take more risk to attract assets, since inflows respond to strong performance but outflows are not equivalently penalized in the same way.
• Investors often hold losing funds due to the disposition effect (loss aversion, mental accounting, pride, regret) and the endowment effect.

Bottom Line

Based on the historical evidence the speaker presents, holding ARKK in hopes of recovery is not a well-supported bet, though he explicitly says he cannot predict the future.