Ark's Cathie Wood Expects Tremendous Volatility for Coinbase

[Music] well star stock picker kathy wood runs one of the hottest asset management firms on wall street one of the best performing etfs around uh over the past year the last three years uh 2020 over the last three years she's seen huge uh gains but 2020 was a big year for her firm after assets under management surged from 3 billion to over 34 billion she's hot on names like tesla major bitcoin bill kathy woods ceo and chief investment officer at arc investment management joins us now kathy thank you so much for being with us you know you used to come on all the time and then you had this explosive year in 2020 that's earned you nicknames and in places as far away as south korea as the money tree but it's also garnered you know uh if i can call it any other way you know haters out there who um you know look at your methodology look at the stocks that you pay just on a personal level what has this year been like for you because you haven't really changed your approach and what you talk about but boy has momentum really come to you in a big way yes well this year uh we started off very strongly um innovation uh was was on a hot streak continued from last year and then as as interest rates doubled nearly doubled uh over over one quarter time uh there was this fear of inflation and high valuation oriented stocks and so we we were hit with a bout of volatility and you're absolutely right amber nothing has changed for us so what actually happened is if we use our five-year price targets instead of expecting a 15 compound annual rate of return no promises here compliance we'll be happy that i say that uh instead of 15 which is where we were at the peak in february uh we now believe that our portfolios will deliver a closer to 25 compound annual rate of return again no promises but all i'm saying is the bout of volatility did not change our price targets they gave us a great opportunity to concentrate towards our highest conviction names talk to us about the methodology of those price targets because you know five years is a long time especially you know for a company like tesla you've got a three thousand dollar price target in 2025. i mean you know just using basic you know cfa modeling how do you arrive at that what is your methodology to get to these numbers with companies that you know are new unproven and working in completely new areas um that didn't exist you know a couple of years ago right thank you for that question amber our research starts from the top down we take a white sheet of paper first principles research how is an autonomous vehicle going to work that was a question we started with in 2014 for example and uh what we are doing is following these new technologies and in this case first breakthroughs in battery technology and we're trying to figure out are we at the point where the technology is ready and the costs are low enough to launch an exponential growth trajectory and in the case of electric vehicles for example with elon musk's advances in battery technology particularly battery pack systems and now batteries as part of the infrastructure of the car we see costs dropping to such a low point that in five years the average electric vehicle we believe will cost eighteen thousand dollars that's us dollars compared to a toyota camry which will still cost somewhere in the 25 to 26 000 range so what we think we're going to see is exponential growth in the auto sector when it comes to electric vehicles for the first time in a hundred years autos are have been in a very mature state this new technology is causing exponential growth uh in in a sector that most people think is very mature so it's a different way of thinking about the world looking for these new exponential growth opportunities modeling them out seeing how fast they are likely to happen as costs and prices fall your view on tesla perhaps more than any other evokes a really visceral response and i know you go back and forth with elon musk on twitter a lot i'm sure what kind of access do you have to elon musk are you talking with him about these ideas are you a distant admirer what is this relationship like between you and musk i think people would be very surprised at how little uh elon musk and i uh talk the first time i had a one-on-one with him for example was march of 2019 when we did a podcast with him he liked what we were doing in our research we push our research out into social media he saw some of our research on battery technology and autonomous vehicles and he dm'd our analyst he didn't dm me he dm'd our analyst rightly so and she tasha keaney automatically uh dm'd him back and said can we do a podcast with you so that's the first time we met and we've talked very few times since but we know he's he responds to our research as we're pushing it out there there's no selective disclosure on our part and there's no selective disclosure on his part because we're out there on social media talking about these very exciting new technologies all right let's talk about the new shiny object today which is coinbase the reference price is 250 dollars per share we're getting indications that it could open at 340 per share do you have a price target for coinbase uh we we do um i i am reticent to to give it it is uh far above where it's going to open we think now there are a lot of assumptions in there and you want to talk about volatility um just look at a chart of bitcoin so there's there's going to be uh they're going to be great opportunities between now and five years to buy on dips we believe uh i have no idea where it's going to open we were trying to figure that out ourselves today um we do believe however that it has miles to go because institutional interest in bitcoin alone which is the largest crypto uh currency out there is uh we think going to add uh up to 500 000 to the price of bitcoin and when i say that we've based this on a study uh focusing on what institutions are looking for they're looking for low correlations of returns this is a new asset class so institutions are interested they are moving in and if uh if they add up to five percent in their asset allocation to uh to bitcoin that alone could be up to 500 a 500 000 increase in the price uh so we're at the very beginning of what we believe is going to be a long and exciting journey okay let me see if i can prod you a little bit more to give us a specifics on on a price target for coinbase you're reticent to maybe give us a number but can you give me a ballpark on the percent gains that you think you could see you know using your your five-year approach this is well well above our minimum hurdle rate of return of 15 even if it does open i mean a 15 per year even if it does open uh as high as 250 or hundred dollars even at those prices uh given our assumptions now again we expect tremendous volatility in this it's going to be unstable uh in terms of uh uh and investors and analysts understanding what coinbase actually is it makes most of its money on uh on the trading uh of uh bitcoin and ether those are the two biggest and it's going into a lot of other cryptocurrencies and crypto assets so it's got a lot of open-ended uh opportunities but right now uh they're making about 70 basis points uh on each trade on each dollar traded and we think there will be fee compression as there always is in uh in the institutional world and as competition increases so i think the opportunities uh in this stock uh to the extent there are dips out there will come around the idea of oh my goodness how much is competition going to drive these fees down and we do think the compression will be to 50 cents within the next five years or 50 basis points uh and so you'll watch the dynamic volume explosion fee compression and again we'll pick our spots around volatility so it sounds like you're saying this could be a more by-the-dip opportunity and that you wouldn't necessarily be chomping at the bit to get in at the ipo price well we can't we're not allowed to say what we are are not going to do at any point in time you'll see our trades at the end of the day and so you'll know what we've done but we we can't we can't tell you what we're going to do but as if you do watch our training what you'll understand about arc is we're extremely opportunity opportunistic we'll buy the dips and we are also at the same time very optimistic about how far coinbase has to go in terms of uh delivering returns uh relative to our five-year target uh so stay tuned all right does it have four digits or five digits the price target well if we're right if we're right on where uh bitcoin is going just bitcoin alone based on institutional investors getting involved and based on institutions diversifying some of their cash into uh bitcoin uh it has a lot of room on the upside okay all right i'll let that one go now um some of the other things i want to focus on because you talk so much about innovation and that's really front and center looking at these disruptive things how often do canadian companies screen and come up for you you know our tech darling here is shopify do you have any thoughts on that particular name or other uh stocks within canada that screen favorably when you're looking at the innovation lens yes shopify is in our top 10 in in the flagship fund we're very excited about social e-commerce shopify is one of the biggest and most important plays on social uh social commerce uh much much better play than amazon we're trying to figure out how amazon is going to deal with this notion of individuals seeing uh something on on instagram or elsewhere on facebook or on twitter or on snap and just buying there that's a shopify enabled uh commerce opportunity and we think it's going to be big uh we see uh we see of course tick tock doing the same thing lining up with walmart so we think it's going to be a pretty explosive space we know shopify is a very expensive stock but because of these viral networking opportunities around commerce we think it's the most exciting one uh probably out there because uh shopify doesn't care who wins it it's going to be involved with many if not most of all of the sites that are are going to be powering up commerce it's interesting you bring up amazon because every day becomes more and more apparent that these two are rivals although shopify goes to you know used to go to great pains to kind of separate itself do you think there is a day where amazon really views shopify uh as a as a huge competitor do you think it could grow to the size and scale of an amazon um we do and i think the the question will become for amazon if social commerce is is going to continue to take share from e-commerce what is amazon going to do to to insinuate itself into this business it doesn't have a social network itself it would have to be more on the back end again fulfillment by amazon and so forth i think what will happen is amazon and jeff bezos has always said that he thinks aws could be as big as retail but what he doesn't say is that aws so amazon web services which is a technology platform uh is going to be so much more profitable than retail so amazon and shopify will probably uh i don't i don't think they'll be meeting eye to eye i want to ask one last question it's about your latest launch which is the space exploration etf and i gotta say a lot of the holdings kind of raised my eyebrows because i don't think of them as space stocks you know trimble is a gps company boeing airline company lockheed huge industrial these are not stocks that strike me as ones that move on any space-related news what do you say to people who say this is not truly a space etf because these are companies that are not going to move based on what's going on in space exploration well we don't believe that the big uh the big needle movers in terms of revenues for companies is going to come from space exploration anytime soon uh we we believe that uh low earth orbital businesses are probably more relevant uh we think uh mobile connectivity connecting the uh the three to four billion people who do not have broadband is going to be a 40 billion dollar revenue opportunity we believe that hypersonic flight getting at the boeings and the lockheed sometimes you need big companies to deliver big ideas uh hypersonic flight so uh flying from uh from toronto to japan in uh in two to three hours instead of 14 hours or so it's going to be a 270 billion dollar opportunity we believe that uh space tourism is going to is going to be a very small business relative to those opportunities and uh trimble you know it's interesting from space we're going to be able to change the way to change agriculture increase productivity help drones understand where to fertilize or uh how much uh to spray uh so i think that uh that the first opportunities are more lower uh earth or lower uh opportunities as opposed to the distant orbital opportunities

Channel: Bloomberg Markets and Finance

Views: 361,793

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Id: SU_YjT6KvT8

Length: 15min 59sec (959 seconds)

Published: Wed Apr 14 2021