The hypocritical criticism of Michael Saylor, Cathie Wood, and Frank Thelen.

Once-celebrated investment gurus, today more criticized than ever: tech and crypto investors.

Once-celebrated investment gurus are getting more criticism than ever today: tech and crypto investors. With the market malaise, they're under more pressure or in need of explanations. Why the criticism of their investing style is often hypocritical.

This year has not been easy for tech and crypto investors like Cathie Wood or Frank Thelen. Amid a serious market correction, their funds have fallen. Cathie Wood's Ark Innovation is down about 70 percent from its US$138 high to US$42. The Thelen 10x DNA fund has dropped from €28 at its all-time high to around €14, a decline of roughly 50 percent.

The sentiment has shifted

Other investors, especially from the crypto sector, also faced some mockery and venom. Michael Saylor, Elon Musk, Mike Novogratz or other well-known names who poured heavy bets into Bitcoin and friends were publicly criticized in their investor image. The latter was even heavily invested in the collapsed Terra Luna Coin.

Many small investors who themselves were heavily invested in tech and crypto will have felt this firsthand. Family, friends, or coworkers who asked for tips a year ago or quietly and perhaps a bit enviously watched investment success can’t help but feel a certain schadenfreude, provided they’re not invested themselves. Or in other words: they secretly knew better and kept their hands off the innovation stocks.

Without tech investors, there’s no value

It’s understandable to laugh at meme investors, because they clearly invest in nonsense. The vast majority of investments, however, aren’t meme cryptocurrencies or stocks, but projects with real future potential. Whether it’s the gene sequencing company Invitae, the telemedicine firm Teladoc, or the cryptocurrency Ethereum.

As far as belief in technological progress that will help us solve problems in the years ahead and create substantial value, you can’t ignore innovation stocks. Some may have forgotten that today’s stock value and the Black Forest’s hidden champions were starters once.

In the era of Carl Benz at the end of the 19th century, very few people believed the car would catch on. Yet hundreds of startup auto makers emerged in those early years. Wikipedia even cites 3,000 auto manufacturers in the U.S., of which only three well-known companies ultimately gained significant market penetration: Ford, General Motors, and Chrysler. Innovation values have always carried a risk of failure.

Timing and overvaluation

Now there are two other popular points of criticism: timing and the valuation of the companies or cryptocurrencies. That means: How can you invest at such a high valuation in such a heated market—referring to 2020/2021?

The valuation argument is certainly not unfounded. Companies burning more cash than they earn, doubling-digit valuations, is, to put it mildly, very bold. In hindsight, we’ve all learned something.

Critics conveniently forget that optimal market timing is wishful thinking and more a matter of luck than skill. Given the huge money supply expansion and rapid technological progress, it’s very hard to judge when and at what level valuation is justified. This is especially true for the elusive crypto sector.

ETFs aren’t hedge funds

Let’s circle back to the prominent tech investors Cathie Wood and Frank Thelen. Their funds focused on tech and crypto are built on a simple promise: We’ll curate a portfolio of innovation stocks with correspondingly great future potential. Nothing more, nothing less.

These aren’t hedge funds trying to apply a total return strategy in every market condition with short options and other derivatives. Anyone expecting that clearly wasn’t well informed beforehand. Even Thelen’s 10x DNA fund, which isn’t an ETF but an actively managed fund, shows that at least half of the money is invested in stocks, i.e., long-only.

It should be clear that the performance of these funds cannot be separated from macro or market conditions. The heavy losses in recent months were therefore inevitable. In general, investors should not overestimate fund managers’ abilities. Ultimately, they’re usually as surprised by market moves as individual investors. Their performance is more about underlying asset analysis and stock selection than an active trading style.

Tech investors have the cards

Those who don’t see themselves as active traders who also use short derivatives are left hoping for the best in the markets. Those with a long enough investment horizon and diversification have generally been right in the long term.