Ark's Cathie Wood on Tesla, Crypto, China, Investing

safe to say this is a woman investor of i feel like our decade already and she and i've been talking for about seven years since she started first interview first interview we were barely off the ground and i was so grateful well you resonated with me that's for sure because you have really tapped into so many of the trends that have we we're we're talking about today and living i mean i live with this thing for instance um but you know one of the questions i think we all want to know today is did you buy the proshares bitcoin etf no we did not and one of the reasons is we're looking at this very carefully the futures there are some tax ramifications we'd like to understand more having to do with contango which is where what can tango versus normal more normal backgroundation right so uh not yet we're not yet all right so i said that kathy and i have known each other for seven years and we have been talking when you did come on i don't even think you had your funds launched yet nope um you talked with pim fox and myself on bloomberg radio so let's go back because how did you get here i mean my gut from just talking to you is that there was no plan to be a celebrity fund manager and someone that we print out a story every day about your comings and goings so um what was your plan well my plan because you've been in the financial industry yes i've been in the financial industry and um after the tech and telecom bust and then even more so after 0.809 i began to see just incredible risk aversion career risk business risk and everybody was worshiping uh the almighty index benchmarks and that was not consistent with what we were doing at all so we were becoming i i describe it as an otter and otter duck you know and i also felt this was very bad behavior i i feel like uh the maybe investing in tried and true is not wrong but investing only in the past i do believe is wrong uh you know because there are so many so there is so much in the way of innovation evolving right and i did not feel like it could be funded appropriately in the uh in the public markets the private markets were screaming so valuations were crazy there the same kind of stock was selling for a fraction of the valuation in the public markets right so i felt there was an uh i felt there was an arbitrage opportunity many people in the public world said oh those private evaluations those are going to crash we didn't think that was true we thought the public market valuations were going to move up so i i felt that this focus on innovation had been lost research lost investing lost in the public markets and i said we could we could fulfill a huge unmet need and and change this misallocation of capital which is all about the past especially because of the explosive growth opportunities there are in the future so tell us about and i know there's been a podcast you've done and there's been some writing what was the aha moment yeah you said i'm going to do this differently and i want you if you don't mind i mean i know your faith is important to you and the name of your company is ark so how did that play into it sure so i remember walking into my home on a beautiful sun i get these epiphanies on beautiful sunny days when i'm not really thinking about anything but i walked into my home beautiful sunny day silence now i had three children two dogs and a nanny and it was complete silence uh because they were gonna all be away for two weeks first time ever in this house and i walked into the kitchen and i wasn't happy but i wasn't sad it was just like whoa this hasn't happened to me before and i wasn't even thinking about work and and i got the message loud and clear you have to take all of the technologies that have disrupted other industries and start to disrupt your own and focus on the new creation it sounds like and i want to stay here for a moment i have faiths and beliefs that are very important to me it sounds like your faith guides you in a lot of ways how does it as you look at these companies make your investments make your decisions how does that play into it kathy um well first of all in terms of that aha moment you know many people would describe that as the force or the universe uh i would call it the holy spirit and so the holy spirit as a guide you know as much as we in the financial world would like to think we're in control uh we're not uh there are much bigger forces uh in control some would say the fed's in control right now no not even the fed's in control so um and and this idea of the new creation in fact i got it was after i described what i uh the the ecosystem that i wanted to put in place involving social media and giving our research away and you know i wasn't even thinking about going viral in the way that we have gone viral i was just thinking how can we get our message out because we can't get it out through traditional channels right nobody believes in us well if you're going to do it differently like you're going to do differently all the way all the way all the way and so um i i forgot your question what was the last bit of it uh what was my last part of the question i forgot to i was like caught up with you um well it's what's interesting is you know i'm curious about i was talking about you know how your faith has guided you in terms of the specific investments that you make whether it's a tesla whether it's bitcoin whether it's you know a biopharma company right um so we are seeking the truth as these news new technologies evolve all of them at the same time right and cause like a lot of chaos a lot of confusion a lot of fun fear uncertainty and doubt in our markets and uh we're trying to allocate capital to its highest and best use do the right thing how hard was it in the early days and you essentially bootstrapped it went for three years yes and you had people working at home right no we all worked in an office we were all worked in we worked in an office yes but how hard that was very actually that was a very important part of coming together the bonds that we created during that time will never leave us uh so how was it in the early days we were on a mission and uh you know i never thought we were going to fail many other people thought we were going to fail right i remember eric belchunis is very kind in in the beginning he's very kindness bloomberg followed blueberry followed yet uh he's i think your top etf journalist and uh he really thought we were destined for failure and uh and basically told me so in a very nice way but i just didn't believe that and one of the reasons people thought we were going to fail is here we chose a rapper that was dominated by passive portfolios right and put an active strategy in there and people thought that was crazy now after two and a half years of no traction effectively um i began to say wow was that a bad was that a bad move and so we did we started doing separate amounts separately managed accounts and so forth but it turns out that was a great decision because so many people thought it was such an awful decision right we had so much visibility that when we started to gain traction when we started when the inflows started it was like a head fake and you know it got us so much more attention than we would have gotten otherwise i mean what were institutional investors saying to you in the early days when you made your pitch too volatile that that was the pitch i mean that was the response too volatile we couldn't possibly do that and here we are we are a volatile strategy and our our our response was well volatility on the upside is not a bad thing right and last year was a good example of that um but that's the charts but the other thing we we we said at the time and and we actually took our cues from a value investor who said to us i would never buy one stock in your portfolio but i like your research and you might be right so i'm going to just put five percent this is a value investor five percent as a hedge and uh as did our first institutional invest investor um which is value-oriented right uh and kind of thought we were behaving like a value manager long-term time horizon and looking for extreme values well value investors are using price to book and and dividend yield and that sort of thing we're using growth you know we're using spectacular growth rates that no one is expecting and tesla was our first uh proof of concept i would say a very visible one where people are saying what are they talking about and all we had done was used wright's law which is the centerpiece of our our research to try and figure out how quickly costs would decline in battery pack systems and therefore how how much prices would fall for electric vehicles and how quickly the uptake would be and we saw elon musk magnificent things happening but it wasn't so easy to be invested in tesla early on for us it was easy because you just believe the story or uh we well for the the most important call that we made initially with tesla was all right tesla's battery technology is unlike any other auto manufacturer's battery technology tesla was riding down the cost curve of the consumer electronics industry so laptops cell phones huge volumes right and when you get a scaling like that costs come down it's called a learning curve in in the tech industry so elon you had auto manufacturers and uh auto analysts laughing at him elon is building his car on top of cell phone batteries isn't that funny and uh what they didn't believe was that the engineering was possible right so there was a it wasn't um they just didn't think it was possible and he did and so even today these cylindrical batteries that he's been using relative to lithium-ion pouch lower cost and will remain lower cost for at least three years we think which means that any other auto manufacturer who wants the same performance and the same range at the same price we'll have to lose money on every car sold so it keeps him in a really great position and that's only one of four barriers one entry well but that was the first call we had to make so elon musk and tesla so there is a point that you would get out i know there's a story you've talked about you put a mark on the stock price i think it was 3 000. yeah 3000 is our base case not our bull case but our base case okay so there is a point where you could say okay i'm moving on you've gotten out of apple i mean these are backward looking companies or technologies that you don't think are not necessarily not necessarily they are very well understood their dynamics are well understood they are the fangs right they're well-owned and we just want our clients to be exposed to the next fangs which are not going to be in the fang category but the next pangs and tesla tesla's becoming a fang you know i think i end up uh in that grouping at some point uh so yeah what we would sell so our minimum hurdle rate of return expectation for a stock is 15 at an annual annualized rate over five years so a doubling over five years um tesla is about nearly a quadrupling over five years so well within our range so you know we we have been taking profits and uh and that's because tesla in here i think it's becoming very obvious now that electric vehicles are taking massive share from traditional gas-powered vehicles and so the stock finally is responding to that reality because that has been true yes it has whereas most of our much of our portfolio has still been in a bit of a weak spot so this is called portfolio management that's all this is let's talk performance because it's been off the charts and it was certainly last year this year it's been a little bit tougher if i go last year seven or five of ark seven etfs returned an average of 141 percent three were the top performers among all u.s funds we wrote the story you were the top stock picker in 2020. this year um if we look at ark innovation down around 25 from its peak in february of this year it's up seven percent for the year what's tougher about this year for you guys well what it's not tougher we expected it and wanted it actually not that we want our stocks go down but what we didn't want was another bubble which which was when the market became more and more narrowly focused on just one group right um instead what happened uh energy's up 50 percent this year financials are up 30 percent and oh by the way we think those two sectors are going to be the most disrupted of any but what's happened is there has been a rotation into value as a style as fears of inflation and interest rates increasing picked up and therefore there's been a broadening out of the this bull market i think we are in a very strong bull market very strong bull market it has overcome a doubling of interest rates long-term interest rates in the first quarter all of this tax talk all of this strife no worry that there's so much money chasing too many options i mean am i worried about inflation is that the question yes well and bubbles within the market not bubbles i can tell you the the way i know that is uh from the nature of the questioning that we get when we go into any meeting retail or institutional right it's much more about risks very little about opportunity that's not what happens during a bubble but inflation now we do have a differentiated point of view there um art laffer is my mentor and we did an interview with you yes and um so i've always had to as part of my uh portfolio management perspective i've always had to have an understanding of the economic backdrop you actually debated henry kaufman way back when oh yes from what i understand yeah doctors doom and gloom no doctors doom and death right yeah yeah yes and so and that's where i learned about you know wow if everyone is going in that direction and back then it was inflation and interest rates are embedded in the system at a double-digit rate this is the early 80s right and and someone dares to go the opposite way after those who had gone the opposite way had been bludgeoned with higher interest rates and higher inflation so this was timing there's a lot of money to be made and that's how i felt about innovation and that's how i still feel about it so inflation and we expected inflation i do these youtube videos and we started talking about the base effect and supply chain issues uh last year i didn't expect a second round of supply chain issues where now we have people hoarding because of christmas that i didn't expect right and so we're getting another round of inventory building but not in businesses in homes that car they bought last year is in their driveway or their garage auto sales auto sales people don't real many people don't realize this in the u.s peaked in april at 18 and a half million units and are now at 12. now that is not just chip shortages that is i bought my car last year i'm probably never buying another gas car again i'm going to wait for an electric vehicle that's what i think is going on or some of what's going on right so if we're right on that then then i think there's a lot of double and triple ordering in the system right now this happens at the end of every cycle and certainly when they're raised building up your inventories whatever they may be toilet paper right you know tissues and all of that clorox um and so i do believe that after christmas we will see the other side of this and and we've already seen it with lumber so then there's an easing you think that yes i think i think a lot of information is transitory i think it is i know that's a dirty word now but i i think it is and there are two other reasons i think it is they're two very powerful secular forces so what we just discussed was cyclical right the two secular forces one is good and one is bad the good one is innovation innovation is inherently deflationary and because we do the analysis using wright's law we can tell you how deflationary just to give you a sense artificial intelligence training costs are dropping 68 per year think about that we've never seen anything like that and artificial intelligence is um is uh uh starting really a technology war uh the companies with the biggest pools of data the highest quality data the best ai expertise with the best domain expertise in the genomic space you know curing disease and here's the incentive you know so the human being has to ha has to set the goal and uh and uh the reward system uh but the machine's now just training itself uh and those costs are dropping 68 per year ai is going to be a part of every industry and and that's not the only one dna sequencing is deflationary robotics is d deflationary uh blockchain deflationary it's taking all the middlemen out of the equation massive deflation which is going to hurt companies who haven't spent enough on innovation but have leveraged up on uh leveraged up to satisfy short-term oriented shareholders who want their profits now and their dividends are not thinking longer term i've said this is what like i remember from the first day and talking to you and just being kind of pulled into it what do you say you become a celebrity fund manager and maybe an unlikely celebrity which is what everybody sees i mean how do you feel when someone says she's an unlikely celebrity and and they're tough on you especially when the performance isn't there or it's not where it's been right how do you how does that you know i've dealt with this all my career except it's usually been inside firms i just mentioned odd duck you know how does it feel when your own colleagues are looking at yukaka like what the heck are you doing right so it does i'm used to it it it i i actually enjoy pushback because again it tells me we're not in a bubble right and you know as a portfolio manager i much prefer to be climbing a wall of worry those are the strongest markets and i do believe when value uh when we rotate out of value uh will come back into innovation so what do you say kathy to when you know people say you're chasing bubbles no when you if you look at our trading and we do publish our trades at the end of every day we're a liquidity provider we don't chase anything we are not a momentum player uh if you uh we're i was just talking about uh ginkgo over there and this is public um you know it got slammed two weeks ago by scorpion a new short and you know just investigating the um the background of this person right um it's not the background that our three genomics analysts have and so ginkgo got it was down 50 over a few days over the short report we were buying the heck out of it and then today it's up i don't know if it ended up 15 or 20 percent so we are not a momentum chaser we are a liquidity provider do you often have investment in hindsight at all do you ever like cutting we always learn from our mistakes of course like is there something you said man i missed the cycle on that one um i can tell you it this is why i'm paying so much attention to oil prices right now so in 06 after the five financial regulators wrote a paper together that was historic they were usually fighting with each other for power right right about these exotic home equity loans uh we became very concerned and pulled all the risk out of our portfolio uh at my former firm and then of course commodity prices just took off no it wasn't well not initially in that initial that initially it was extremely painful right and so part of it was oil prices just kept going up because i think between opec and you know our banks which uh fund fracking and you know there there are a lot of there were a lot of uh dislocations and talk about chasing on that well here we have oil again doing the same thing so i'm saying okay how long do how long do we have to wait for the rotation back into our style uh we had to wait uh a good it was a good six to nine months then and as the price just went crazy painful right every day well not for us anymore the the beauty of what we're doing now at a firm that looked at our performance every day and frowned when it was below the benchmark and frowned when we were not just frowned like asked if we were out of our minds when it was a thousand basis points below the the benchmark um that psychologically when you have to walk into that every day and that kind of um philosophy you have to try and fight it we have our own philosophy five-year investment time horizon truth will win out this is a bargain this you know i believe i'm our compliance department say i believe that uh that innovation stocks are on sale so all that has happened in the last uh few months is the price has come down that means the law if we're right on our forecast that our rates of return have gone up so we've talked tesla we've talked a little bit tell me a bit more about bitcoin and where you see i mean i've never seen anything so debated obviously we're seeing more legitimization as we see regulators certainly in the u.s and around the world moving forward today was a big day um what is the long-term play when it comes to something like cryptocurrencies in bitcoin so bitcoin specifically um we we got involved when it was a six billion dollar market cap and here's art laffer again in in my life and in ark's life um it was a six billion dollar cap then now it's over a trillion which is but we were asking the question this was 2015. could bitcoin serve the three rolls of money and we came to the conclusion that it was possible art laffer collaborated he tore our original paper up and as we were going through it he said this is the first this is the rules-based modest monetary system i've been waiting for since uh we left the gold exchange standard 71 1971 right and i said to him oh how big could this be and he said well how big is the u.s monetary base and back then remember this is six billion dollar cap back then it was a four and a half trillion dollar monetary base today we're at eight and a half trillion uh and and bitcoins at one trillion and that's uh that's just one of its roles one of its roles i think the most fascinating thing that's happening is in el salvador have you heard they deemed bitcoin the president who tweets every day deemed bitcoin legal tender and there's a bloomberg quiz question okay i do it every week okay and sent a chivo wallet uh to every everyone uh in the population eligible so four million three million it had 30 dollars worth of bitcoin in it three million have to have downloaded it only 1.2 million in that country uh have a banking relationship so this is the new bank digital wallets and it's going to be true in this country it's going to be true around the world so all in all in china you've been in you've been out and sometimes we're trying to understand yes so so how are we supposed to look at china right now and the clampdowns that we've seen in the government certainly on different sectors that have just decimated those sectors in terms of the value of them yeah so what is what is what do you expect kind of to be your involvement yes an investment plan our first move away from china was when china was you know had a very strong move and what you know the innovation there was being deeply appreciated while ours was not so that was that kind of move um the second time we moved in or then we moved in why we saw the reaction to covid and we got more interested because it was the most disciplined country in terms of both monetary and fiscal policy uh during the crisis and i thought that china had the possibility of uh becoming the germany and switzerland uh of the world you know in terms of discipline monetary fiscal um as soon as jack ma was banished effectively last november we started pulling back because what we're doing and especially during february through may where our strategy just to give you a sense how volatile that is our strategy from mid-february through mid-may most people wouldn't admit this maybe but this is this is is how volatile yeah yeah transparency uh was down 37 peak to trough uh so we have come back but um uh during that period what we do as we always do we concentrated our portfolio towards our highest conviction names china was moving away because almost every week and month there was a new regulatory move crackdown and uh so so it was easy to do that it was great because i'm always scrambling looking for cash during a correction okay where's the confidence lower where where where you know let's buy into somebody who's our favorites here now common prosperity so what have we done no china in our flagship uh we do own some china in um a few of our portfolios the ones uh focused on auto autonomous uh uh technology and robotics uh but we're very particular very low margin companies because margin is clearly not appreciated by the government anymore common prosperity right uh and uh and very beneficial beneficial to tier three tier four cities common prosperity so jd logistics jd.com pinduo does it stay this way do you think in china for a while well i mean it's hard to say yes but china is certainly a country when they make a decision it's long longer term it's longer term planning right and president g certainly seems to be on this mission and i think he is very unsettled that the three child policy is not working yeah and uh so there's a big social engineering um and by the way this was all very forecastable right i mean demographics he knew they knew 50 years ago what was going to happen right so i think that's part of it and uh you know there there is there is there are the haves and have-nots in china like there are like there is around the world uh i think china's taking it more seriously because there's probably more social unrest than we now appreciate what i don't understand is they're going after real estate which is 75 percent of the consumer savings in china individually now in china and if if yes individual saving if if the the prices are going down which they have been um i think that could really hurt uh consumer confidence i think it already is and then last weekend the weekend before uh the government the national government went after the regulators regulators who had focused on the financial industry as well as the financial institutions i'm just saying wow they're playing with fire they're moving yeah and talk about a cyclical risk out there think about that if we lose china at the margin china has been responsible for a tremendous amount of cyclical growth right and commodity price inflation did an m a panel here and you know one of the risks that they one of the bankers brought up is that china's specifically geopol geopolitical even though in terms of military tension so why everybody's watching so the future yeah it's in florida oh yes how come [Laughter] uh well uh most people would tell you there are tax considerations and so forth of course that well that's part of it of course however we were looking for a city uh that uh might be able to evolve into something like austin has and do you think it can yes i absolutely do if you have not been to st pete you must go i've now become saint pete's official ambassador so who's been to saint pete saint pete all right fair amount how it is i mean i all my life i've said i will never live in florida and here i am i went to saint pete it is a young vibrant uh town focused on culture arts music uh a lot of tourism uh very clean very lovely very friendly people from all over the place and i do think we could have something like a south by southwest in the saint pete tampa region i think tampa is very exciting as well jeff vinnick and the bill and melinda gates foundation have have really brought tampa alive do you keep your analysts at in new york at home where they want to be those who are interested in pursuing a portfolio management track will have to be in saint pete but for the we have a hybrid working cell our director of research has always worked in uh la uh we have uh analysts and other analysts in california chicago so it's it's worked for us it's worked for us but as i said before we were together and i think going through this downturn in the market yeah probably being together uh would have been better uh but it made us work harder at overcoming the lack of uh the lack of closeness one of the things i do love talking about you is just kind of where your mind is going and investments and you do look for innovative disruptive companies but you've been buying something like a pfizer i don't think of pfizer yes the old big pharma yeah uh with the infrastructure and the legacy of it but but it is a company that you found interesting so we are uh we think one of the most interesting opportunities out there that is in the value space uh is biotech and maybe some pharma those companies that we see embracing the convergence between and among dna sequencing artificial intelligence and crispr gene editing gene therapies generally were very interested in because the returns on their r d investment in the last 20 years have dropped this is on average for the industry from 20 to 7 percent we believe with especially artificial intelligence trial failures will uh reduce there will be a reduction by at least 25 could be a lot more uh the time to market could be 25 less and so we could go back to the golden age now not every not every company is embracing these but those who are and pfizer uh with some of its move into moves into base editing uh where has is intriguing us here as is regeneron and vertex so what's the moon shot we should be thinking about i did an interesting panel here about longevity and technology and just talking about different types of um you know technologies that are out there what is what is the tesla tomorrow what is the apple of tomorrow i mean obviously we don't know but what is it in terms of the general technologies you guys do the research that we should be thinking about well i i do think the genomic space uh because of how our industry is set up where you have health care analysts who historically have not liked technology and technology analysts who historically have not liked to get involved with healthcare to regulate it too slow we've got this major convergence taking place and i don't think the traditional asset management world from a research point of view is set up correctly to capitalize on it we have set up our team uh by technologies uh and we have three genome analysts so we've got them very specialized on the technologies and they are looking at how these technologies are going to cut across sectors uh the uh the the the gdp the cost savings and the gdp creation out of healthcare we think is going to be phenomenal and it does feel like one space that's been very stagnant it does and there's one other thing i'll just throw out a number it's fresh and it's subject to revision but we were assuming that in the next 10 years artificial intelligence would would deliver in the enterprise software space would deliver a a a market cap opportunity of 30 trillion dollars okay from from tens of billions today our new number is 80 trillion uh and from tens of billions today so we think that is the the the big new frontier but it's going to be in transportation autonomous taxi technology autonomous trucks drones and so forth it is in genomics and so it's going to make the make these uh platforms come alive and evolve much faster than even we thought was possible right i mean this 30 trillion was a two year ago number now we're about to say that's double now we're almost tripled so last question unlikely celebrity fund manager what do you make of the copycats because it just seems like every day on bloomberg there are your traditional wall street firms and your index fund managers you know who they are and they've got an innovative disruptive strategy so what do you does that give you vindication or do you say i don't really want the competition or no great because it just means more innovation well i don't know how we welcome we we definitely welcome the competition because again i still think there's a massive misallocation of capital to the past and the more to the future the more the u.s keeps its competitive advantage and the world the world solves problems right and and the world becomes a better place if they have not set up reorganized their research departments in the way i just described uh then i i don't think they're really competing with us uh the way we're doing it because you do it differently we do we do it differently and and so and there are more ways to to to do this than just the way we're doing it but i i think the depth to which our analysts uh go into these technologies uh has never been done on wall street before um and that's again because we set up the firm to do that so disruption disruption gonna leave it on that note thank you thank you thank you thank you you

Channel: Bloomberg Television

Views: 587,621

Keywords: Bloomberg

Id: P9zOwrZNnfo

Length: 37min 53sec (2273 seconds)

Published: Wed Oct 20 2021