Tesla share price continues to plunge, Cathy Wood ‘buys the dip’
‘When we get opportunities like this to invest in pure plays instead of more mature plays...we will move back into pure plays.’
The battle between the old and new economy resumes
‘Buying the dip’ has become somewhat of a lampooned concept.
According to Bloomberg:
‘The trouble with buying the dip: It’s basically a form of market timing, which even professional traders can rarely do well for very long.’
And to be sure, with that article published on March 5, 2020, it would still be a few weeks before markets bottomed out on March 23, 2020. While stocks have recovered since then, the message remains the same: timing the market is an extremely difficult enterprise.
Markets are in turmoil again, the Nasdaq 100 is down ~10% from its recent highs, fears or rising inflation and interest rates are circling, and again, we are seeing the notion of dip buying remerge. Tech stocks have been some of the hardest hit as investors rotate out of new economy stocks and into old economy stocks.
Despite those concerns, rock star money manager Cathy Wood, founder and CEO of the wildly successful ARKK Innovation ETF, recently told CNBC that she was buying the dip in a number of high profile names which have faced heavy share price declines in recent weeks.
‘When we get opportunities like this to invest in pure plays instead of more mature plays...we will move back into pure plays,’ Wood told CNBC.
‘We do think the speed of the increase in interest rates is scaring people. It became very comfortable in a low interest rate environment: nothing much changing, the Fed has our back and so forth,’ Wood also said.
Tesla share price revisits its past
Tesla – a darling of the ‘new economy’ – currently trades 37% off its all-time high, finishing out last Friday’s session at $563 per share. Tesla has fallen during each of the last six sessions. Despite those declines, the stock remains up 362% over the last year and continues to trade on a mouth-watering 883x earnings multiple.
Highlighting the battle between the old and new economy, in a recent LinkedIn post, Vikto Shvets, Managing Director at Macquarie Securities, argued that:
'As the world recovers, old economy will deliver faster growth, but within several quarters, new economy will once again overtake. The question is how much should investors reduce old economy multiples to reflect this surge?’
To highlight this distinction most squarely: In the last five sessions the Nasdaq 100 has plunged 7.5%. How much has the Dow Jones Industrial average dropped one wonders? It’s actually up 0.84% or 265 points in that period.
US futures were also up at the time of writing.
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