When it comes to contrasting styles, there are no two celebrity investors that are more polar opposites than Warren Buffett and Cathie Wood.
US financial expert and buy-and-hold advocate Brian Feroldi described how Wood is well-known for backing "young, innovative, and 'risky' stocks".
"Her valuation decisions are based mainly on a company's opportunity," he said in his newsletter.
"In the other corner is Warren Buffett's Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B). Buffett prefers highly predictable, mature businesses that return cash to shareholders. His valuation decisions are based mainly on a company's actual performance."
So if you put $10,000 into each fund back in 2014, which strategy performed better?
Let's take a look:
How the funds were doing after 5 and 7 years
According to Feroldi, after five years, Wood's ARK Innovation ETF (NYSEARCA: ARKK) was slightly ahead.
"The ARK investment reaches $20,300, thanks to investments in 3D printing, Tesla Inc (NASDAQ: TSLA), and other tech companies," he said.
"Berkshire Hathaway grows to $15,200. A notable move — Berkshire now owns a big chunk of Apple Inc (NASDAQ: AAPL)."
By 2021, after the investments had seven years to grow, Wood was absolutely killing it.
"Buoyed by the pandemic, the investment in ARK is now worth an astounding $63,700 — making Wood one of the most famous investors in the world," said Feroldi.
"It seems like Buffett might be getting too old for the investment game: the Berkshire investment is worth far less: $20,600."
The shocking conclusion
But what about now? How are they performing after nine years of returns?
Incredibly, it's neck and neck.
"The onset of inflation and Fed rate hikes hit ARK's investments hard. Your original investment is now worth $23,400 — over 60% less than two years ago," said Feroldi.
"Buffett's investments, however, are far less affected. They eclipse Wood's returns, standing at $24,500."
So what's the moral of the story?
Over the long term, different approaches can still take you to the same destination.
"The returns are essentially identical, and both have helped investors more than double their money," Feroldi said.
"Investment styles can be diametrically opposed and still accomplish their goals."
Working out what you want out of your investments
This is why investment strategy depends so much on personal circumstances and tastes. There is a reason why all the financial advice you hear and read in the media is called "general advice".
Ultimately nothing beats making decisions based on your personal situation.
To work out your own preferences, Feroldi suggested asking these questions of yourself:
- Is your primary goal to grow your principal? Beat inflation? Generate income? Protect your downside?
- Is your time horizon less than a year? Three years? Decades?
- How much volatility are you willing to endure (in both directions)?
- Is valuation an essential part of your process or an afterthought?
He admitted the answers may not come easily.
"They might also change over time as you gain investing experience — and life throws a few curveballs your way.
"But figuring out your investing style is essential if you want to achieve your financial goals."
