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Cathie Wood vs. Warren Buffett: Who Will Win in 2022?

Cathie Wood's Ark Innovation exchange-traded fund soared in 2020 thanks to its focus on technology and growth stocks. But now Berkshire Hathaway is gaining on ARKK.

Ark Invest CEO Cathie Wood specializes in finding high-growth technology stocks. Her Ark Innovation ETF  (ARKK) - Get ARK Innovation ETF Report soared in 2020 as tech companies like Tesla  (TSLA) - Get Tesla Inc Report made huge gains.

However, high-growth tech stocks have fallen out of favor in recent months. With potential Federal Reserve interest rate hikes on the horizon, investors are looking for safety, rather than volatility. They're becoming wary of growth stocks, whose valuations are often stretched.

With such a shift in investor mindset, it's no surprise that Warren Buffett's Berkshire Hathaway  (BRK.A) - Get Berkshire Hathaway Inc. Class A Report is on the rise. Buffett is a dyed-in-the-wool value investor. Through his holding company, he invests only in companies with strong fundamentals and earnings potential.

Figure 1: Cathie Wood vs. Warren Buffett: Who Will Win in 2022?

Figure 1: Cathie Wood vs. Warren Buffett: Who Will Win in 2022?

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Ark Innovation: Shoot for the Moon

A year ago, super-investor Cathie Wood and her Ark Innovation fund were the toast of Wall Street. The ETF had gained roughly 170% since the start of the pandemic.

But since reaching an all-time high in February 2021, the ARK Innovation ETF has fallen more than 54%. The ETF hit a fresh 52-week low around $71 per share on January 21.

Figure 2: ARKK vs. SPY performance.

Figure 2: ARKK vs. SPY performance.

Besides Tesla, two of ARKK's top holdings were pandemic-era plays. Zoom  (ZM) - Get Zoom Video Communications, Inc. Class A Report was a pandemic darling through the stay-at-home trend. And Teladoc's  (TDOC) - Get Teladoc Health, Inc. Report remote medical services also benefited greatly from the pandemic.

Now that doctor's offices are reopening and employees are returning to work, these businesses — and their stocks — have fallen out of favor. And the other growth stocks in the ARKK portfolio have been hurt by macroeconomic uncertainty, impending interest rate hikes, and anti-risk investor sentiment.

But Cathie Wood's picks have great future potential. Even with their valuations stretched in the short term, we can justify long-term investments. Just don't look for them to repeat their historical peaks anytime soon.

Berkshire Hathaway: Get Rich Slowly

It's hard to dispute the Berkshire Hathaway strategy. Led by 91-year-old investing legend Warren Buffett, the holding company has had a successful track record that shows little sign of stopping, even though it's underperformed the benchmark since 2020.

Figure 3: BRK (red), SPY (purple) and ARKK (blue) performance.

Figure 3: BRK (red), SPY (purple) and ARKK (blue) performance.

Apple  (AAPL) - Get Apple Inc. Report — the world's largest company by market cap — is Berkshire Hathaway's biggest holding, at nearly 50%. That's followed by Bank of America  (BAC) - Get Bank of America Corp Report, American Express  (AXP) - Get American Express Company Report, and Coca-Cola  (KO) - Get Coca-Cola Company Report. These are not growth stocks, Instead, they are companies with solid fundamentals that pay dividends and have cash to spare to generate value for shareholders.

Throughout the years, Buffett has been also a strong bull on the American economy. Thanks to his decades of experience, he is able to see the U.S. economy's resilience and strength — compared to other economies around the globe — as a key to his successful investing track record.

Buffett believes that long-term growth in companies with solid fundamentals will inevitably generate value for their investors in different market cycles. Some of his notorious quotes, such as “Someone is sitting in the shade today because someone planted a tree a long time ago” and “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” reinforces his long-term view.

Wood vs. Buffett: Who's the Winner?

We'd say Warren Buffett is the winner here. He has managed to beat the market in difficult times, even if he has underperformed the market during periods of explosive growth.

Cathie Wood's philosophy has many good points. But managing a high-risk portfolio is like walking a tightrope without a net. Although the Ark Innovation ETF has shown investors high rewards, it's not without high risk.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)