Cathie Wood Tells Goldman: The Dream Is Alive
The world is changing. Nobody knows that better than Cathie Wood.
Wood's meteoric rise was predicated on a changing world. She built an ETF empire making large, concentrated bets on disruptive technology in all its manifestations, from AI to clean energy. The world was changing and, in many respects, dying. In 2014, Wood decided to go all-in on companies changing with it or trying to save it. Subsequently, she made a fortune for her investors and, one imagines, for herself.
Wood's equally spec
She might be right about everything she says but for the unfortunate masses, their dream is to be able to pay for gas, utilities, and food and have a little something left over each month.
Unfortunately the masses are slow to realize that we need to stop burning gas, we have to convert our utilities to renewables, and we need to change the way we produce and consume food. If we (our species) were on a rational path to realize these changes, then it would absolutely make sense to invest in these areas. But we aren’t on a rational path.
Rational thought also told us we should have started all this work decades ago and, if we didn’t, we would just be driving up our costs. Those chickens are once again coming home.
In a society governed by selfish greed and officials who only care about protecting their seats, no chance we’ll ever change the way we must in a timely matter. The cost of fixing the mess we made is now trillions higher than if the fix had started in Reagan’s time. The biggest fear controlling our lives is the Fear of Pissing Off our Constituents, who just want to keep their piece of the pie growing.
Quite apart Joey’s point, it’s also worth noting that the masses are rarely at the forefront of history. Not never (revolutions being the big exception) but not commonly.
Cathy is financing people who have a very decent shot at transforming the masses’ lives for the better.
H-Man, isn’t it always a matter of timing?
Look at the top 10 of ARKK.
TSLA ROKU TDOC SQ ZM SHOP SPOT TWLO COIN U
Not exactly the laser focus on “Genomic sequencing, adaptive robotics, energy storage, AI and blockchain technology” that she touts. I see a streaming device, a video conference service, another one, a streaming service – all kind of pedestrian stuff really. An exchange that is a consumer of rather than a source of blockchain technology. A car company whose days of biggest product differentiation are in the past. A payment processor that is branching into other things with just as much competition and just as thin margins as its original biz. Etc.
She’s claiming the market’s behaving irrationally, if she can stay solvent long enough…
(Also, VC is probabilistic, so how many companies does she really need to return 100x?)
Interestingly Warren Buffet’s “own it” approach protects from public market (sometimes wild) sentiment, and of course he’s into Oil and Railroad and only recently a big Apple fan…
Her macro view sounds right.
However, I have not/can not willingly invest in a company that is not profitable or has an insanely high PE….I am ok with “slightly insane” (for both stocks and people)!
For sure, you can modulate her strategy. Ignore the highest PE ones unless you know enough to judge their products directly. And add some ‘defensive’ tech (AAPL, MSFT, AMZN, GOOG maybe FB if you’re feeling brave).
Of ARKK’s 35 holdings, only 10 have any “E” at all and for most of those it’s a very little “e”.
Possible to cherry pick a name here and there, but her strategy is so extremely extreme that modulating it to be otherwise basically means building an entirely different portfolio.
I looked at ARKG’ holdings list about a year ago, hoping to harvest ideas from her crack research team. It turned out to just be a dump of every name that had an (sometimes remote) association with “gene-“anything – gene sequencing, genetic testing, genetically directed customized medicine, gene editing, gene therapy.
There was no actual security selection discernible. Basically Ark was doing “thematic investing”.
Thematic investing is dangerous in very early stage industries. The great majority of the companies will fail and be your huge losers. You need the remaining 5% to be monster winners (10-20 baggers) just to break even.
Thematic investing only pulls in investors when the theme is “hot”. The stocks are already bid way up by the time most of your AUM arrives. You need 10-20 baggers from names that are already very expensive by any standard metric.
When I saw what Ark was doing in an industry that I know about (I picked and traded clinical stage biotech stocks for a decade) I didn’t bother to look at what they were doing in industries that I don’t know as much about (ARKF, etc).
Like JYL, a while back i looked at the holdings in ARKG. The head-scratcher for me was the size of their holdings in ARKG. Telemed as a genomics play? Huh?
Interesting that Cathie Wood still firmly believes that her dream is still alive, but just hit a temporary bump in the road.
AUMs began to increase significantly in late 2020 and during all of 2021, AFTER the meteoric rise of the ARK funds during the pandemic period of 2020.
For all of these late investors, the dream has now become a nightmare.
Her dream is very much alive.
$15BN AUM implies management fees of $150MM or so? I’m not going to look up her fees, just using 1%. Even if her AUM drops another 50%, the company is still taking in $75MM ish revenue? She is so promotional that I’ll wager she can maintain several $ billion AUM levels for the next decade almost regardless of performance. Unlike the companies it invests in, I’m sure that Ark is very profitable.
(I mean, Hussman Funds has an unmatched record of miserable performance, but has held on to an appreciable amount of its peak AUM. After looking through ARKK and ARKG, I think I’m more likely to scour the Hussman portfolios for ideas than Ark’s, especially in this market environment which really should be his cup of tea?)