stocks Tesla (Nasdaq: TSLA) It jumped more than 700% in 2020. However, this made some people question whether the stock was not due to a pullback. In fact, these fears crystallized last week Tesla’s stock fell steadily To drop below $ 800 a share by Friday.
For many who have a large profit on a stock position, a drop may lead to modest profits or even a complete liquidation of their holdings. But for the ace investor Cathy Wood at ARK InvestThe plunge into Tesla was a buying opportunity – and buying I did so without hesitation.
Selling at a high price, buying at a low price
Wood has been a big fan of Tesla for a long time. Many of them are active Exchange-traded funds She has large holdings in stock. specially , ARK Innovation ETF (NYSEMKT: ARKK) And the ARK is the next generation of the Internet (NYSEMKT: ARKW) Both have roughly 10% of their assets invested in the electric vehicle industry.
last week, The ARK ETF has downsized their Tesla position. Perhaps some just watching that single week of activity concluded that Wood could lose her confidence in stocks.
But Wood reversed course on January 29, taking advantage of the low share price to buy back some of the shares it had sold the previous week. ARK Innovation bought more than 85,500 Tesla shares on Friday, which represents about 0.3% of the fund’s total assets. ARK Next Generation Internet made a similar volume purchase in proportion to the smaller fund size, purchasing approximately 23,500 shares.
How Much Money Did ARK Invest Make?
With active ETFs, we do not get real-time information about the purchases and sales made by the fund managers. However, money is required to advance its positions every day, and ARK Invest reveals the exact number of shares involved in each buy or sell.
However, you can estimate the amount of benefit for the fund that Wood’s transactions produced. Tesla traded at $ 845 on January 19 and $ 850 on January 20, the days when ETFs sold Tesla shares. With Tesla closed on January 29 at $ 794, the fund could save $ 51 per share on the 85,500 shares ARK Innovation bought. ARK Next Generation Internet only sold 10,500 shares last week, but could have saved $ 56 per share on its buyback. Do the math and that adds up to $ 4.36 million for ARK Innovation and $ 588,000 for ARK Next Generation Internet.
Benefits of rebalancing
Interestingly, what Wood did is very similar to what most financial advisors recommend that people do with their gross investment portfolios. Basically, Wood has rebalanced in the short run. Tesla shares sold out as the percentage of the ETF portfolio rose more than it wanted. But when this ratio became very low later, the funds bought shares to return to equilibrium.
You can see the same types of gains through a broader rebalancing of your equity, bond, and cash positions. In years of rising stocks, selling a small portion at higher prices to convert to lower priced assets reduces your level of risk and capitalizes on some profits. If the stock market drops in a year later, rebalancing makes you buy shares cheaply.
What’s next for Tesla?
Tesla is causing much controversy, and there is no end in sight. Some still argue that Tesla’s profits are artificially inflated through regulatory creditsAnd hide the weakness inherent in its business. Others point to An enormous choice in Tesla’s work, As well as the strong demand for its vehicles.
For Wood, her versatility is largely due to her investment in Tesla, but the carmaker isn’t the only stock that is doing well for her. ARK Innovator and ARK Next Generation Internet both earned five-star ratings from Morningstar, and the list of other acquisitions appears to be among the emerging giants in their respective fields.
Tesla shares rose so much that shareholders need to anticipate declines, and they could be much larger than what we saw last week. However, for long-term investors who see value in CEO Elon Musk’s vision and the technology Tesla has produced, these short-term swings are essentially an opportunity to pick up stocks at a slightly cheaper price.