How Cathie Wood Became the Queen of Retail Investors

at age 54 kathy wood is forced to leave her lucrative position as portfolio manager she now must start again now i had three children two dogs and a nanny and it was complete silence because they were going to all be away for two weeks i wasn't happy but i wasn't sad it was just like whoa this hasn't happened to me before 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 [Music] in a world dominated by men kathy wood became the symbol for a new generation of investors they challenge the establishment by forging their own path [Music] philia los angeles is on the rise to become the second biggest city in america people are moving to l.a at a rate of 3 000 a month kathy woods parents are one of them they immigrated to la during the booming 50s from ireland [Music] wood's father serves in the u.s air force as a radar engineer i think from an early age kathy really admires her father who pushes her to think like engineer due to the constant change of deployment locations kathy's family regularly moves around the united states this really exposes her to different ideas different people and also makes it very adaptive to change kathy wood graduated top of her high school and was accepted by the university of california having been born the child of immigrants in the united states i was very fearful as i went into college that you know i was the oldest and i had to carry the mantle for the family and so i approached it with a great bit of trepidation like most of the middle-class families in the rough 70s woods family struggled financially a statewide jobless rate of 9.3 percent has jammed local unemployment officers in terms of people some 920 000 californians are now out of work she has to work part-time to pay for her tuition and like her father kathy aspires to pursue a career in science or technology but he advised against it as he believes that his daughter will be better off being a business woman then wood decides to pursue economics and finance hoping one day to provide her family with more financial support even as a young woman she realizes that it will be her responsibility to take care of a family one day because she is the oldest child and also a devout christian in college she studied under the acclaimed economist arthur laffer laffer was famous for his theory on maximizing tax revenue there are two tax rates to give the same amount of revenue there's a high tax rate and a low tax rate no country should ever want to be in that high tax rate range i mean why would you ever want a tax at this point where if you lowered tax rates you collected more money and you have more output employment and production so this is the laffer curve which really brings together the debate about taxes he was my mentor at usc university of southern california and he's a very well-known economist austrian school um you know he's been a wonderful mentor leffer's teaching left a big impact on her which is why to this day she's a big proponent that tax cuts will benefit innovation which in turn will create economic growth intelligent and hard working kathy wood becomes the top student in her school laffer sees the immense potential in this unassuming girl and finds her a lucrative job after graduation kathy became the assistant economist for capital group one of the largest investment companies in the early 1980s with assets over tens of billions of dollars kathy wood's career is taking off but then after three years she is scooped up by another investment company in new york as chief economist she is just barely 25. jennison associates was a young investment company at the time as their chief economist kathy wood is facing the us economy at a tipping point i have directed secretary connelly to suspend temporarily the convertibility of the dollar into gold or other reserve assets except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the united states the 70s were among the worst decades for the us economy and by the time the 70s ended it was a total mess prices went up infamously during the carter presidency inflation was increasing and unemployment was increasing at the same time that wasn't supposed to happen inflation hits everybody unemployment even at its worst hits only about 10 percent of the population at any one time and so the public shifted its concern from unemployment to inflation in a massive way by 1980 all of that was about to change i want to work in washington to roll back the crushing burden of taxation that limits investment production and the generation of real wealth for our people a job and savings and hope for our children is part of that dream at that time reagan's economic policy wasn't really tested and the market was very wary of it and many people believe that rigging will collapse the economy for good but kathy wood thinks otherwise as an investment firm jennyson regularly invites economists to lecture their employees about inflation and interest rates we must put into place rules for financial behavior for private sector nicknamed dr doom henry kaufman was the chief economist at solomon brothers critical of the reagan administration henry kaufman warned in 1981 that the president's economic policies would drive interest rates and the dollar sky high do we economists know anything and it was a very legitimate question because if you don't know enough to capture the most extraordinary event economic event in all of our lifetimes what in the world do we really know for the first few years reagan's economic policy didn't seem to work and it was very popular to criticize him and someone even tried to kill him so a lot of people supported kaufman's claims except kathy wood after a thorough analysis of her data she finds evidence contradicting kaufman's claim doctors doom and gloom no doctor's 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 wood challenges him by arguing that interest rates have peaked and may even go down but being a young woman in finance in the early 80s she was easily dismissed it's obvious that kathy wood was a constant underdog even from the very beginning [Music] by october 1982 inflation has fallen to five percent and long-run interest rates began to decline the fed allowed the federal funds rate to fall back to nine percent we've been really really busy we were swamped the beginning of the week and it's just business has been great all the way along as america rises from the 70s economic slump kathy wood's career is reaching a new height she rises through the ranks soon becoming the managing director for jennison by 1998 after 18 years at jennison kathy wood has built a career that others can only dream of [Music] she accomplishes that while also raising three children it was the height of the dotcom bubble kathy had witnessed the incredible rise of many tech companies and there's a sense that she wants to strike out on her own in the 1990s the booming economy led to the rise of a new type of investment funds the hedge funds due to their unique setup hedge funds allowed their managers to make billions of personal fortune i would argue that probably most of them do not make money but a handful of them make a tremendous amount of money and they have made the founders of the hedge funds extremely wealthy and partly this is because they charge very hefty fees much higher fees than you would pay to vanguard or you know any of your mutual fund companies while kathy is contemplating her next moves one of her colleagues is already thinking of starting her own hedge fund lulu wang is a highly profitable hedge fund manager that no one knows about she is quite mysterious no one knows her fund's performance but she regularly makes 50 million donations and she's on the board of many big companies like metlife so one can assume that her phone's doing pretty well but lulu wang started from a modest place after college wang became a housewife but she quickly became tired of it and decided to pursue an mba from colombia similar to wood wang climbed through the ranks of jenison associates and became their executive vice president managing over 4 billion dollars of assets but that is not enough by 1998 after witnessing the rise of hedge funds and the unthinkable fortunes they amassed wang wanted to start her own fund to do that she needs to find a partner who is just as capable as her kathy wood by 1998 kathy wood and wang started their own hedge fund tupelo capital management well on their way to making a killing in the market it was right before the dot-com bubble as the new year begins an estimated two and a half million computers will be on the network serving as many as 20 million people during a bulk market capital is much easier to acquire by 2000 her fund garnered 800 million dollars of assets the largest female-led hedge fund at the time but it soon became obvious to kathy a hedge fund was not her true calling and sure hedge funds have been so lucrative for asset managers but if you see everyone moving into hedge funds and private and you look at a new rapper that's actually a good deal for the end investor and you go with low cost and public using the private market valuations as an umbrella maybe just maybe you'll be on to something big her passion is at picking stocks of companies with world-changing potential ones that are undervalued by wall street [Music] by the 1990s the tech revolution is ushering america into a new age interest rates declined providing the necessary capital for innovative companies [Music] at the same time clinton's administration lowered the marginal capital gains tax creating an unprecedented flow of money to the stock market and because those interest rates are down business investment and equipment is growing at seven times the rate of the previous four years auto sales are way up home sales at a record high millions of americans have refinanced their homes and our economy has produced 1.6 million private sector jobs in 1993 more than were created in the previous four years combined between 1995 and its peak in march 2000 the nasdaq composite stock market index rose 400 percent kathy wood joined wall street in 1980 in 20 years she built an enviable career in finance making her a highly sought after money manager but just three years after starting her own hedge fund kathy wood quit and joined a mutual fund company alliance bernstein after the dot-com crisis she sees a disconnect with the vc funding versus the public funding i felt that it was a huge unmet need in the market because after the tekken telecom bust and then 0809 so over those 10 years and and even longer we saw risk aversion rise in the market and what did that mean it meant to move towards indexed or passive strategies we saw a companies in the private markets trading for 10 or 20 or 30 times the valuations at this point kathy wood started developing her thesis on the exponential growth of innovative companies at bernstein wood was given 5 billion dollars to manage she looks at places no one sees investing with strong conviction in high-growth smaller cap stocks before 2006 woods fund outperformed the indexes virtually every year but her portfolio is volatile for her investors to stomach i did manage five billion dollars at alliance bernstein uh prior to launching arc and we were very thematic in our orientation we were a bit of an odd duck within that organization a portfolio occurs extremely volatile during a liquidity crisis although it is rare it still happens bear stearns was forced to take an emergency loan funded by all of us taxpayer bailout prompted investors to dump bear stearns stock the housing crisis of 2008 was one of the most severe liquidity crises as companies come under pressure as they lose their short-term funding they begin to dump assets and that in turn created pressure on the stock market which dropped very sharply and other asset prices came down as banks and trust companies trying to raise liquidity were dumping assets on the market because her investments are in smaller growth stocks their price tends to be more volatile and during a liquidity squeeze they tend to fall harder than others due to the smaller number of buyers in the market as a result kathy woods fund fell harder than the s p 500 in 2008. people do they react too much to short-term things in in the stock market whereas they behave quite rashly when they get into other investments if you've got a farm that's producing for you if you've got an apartment houses fully occupied why in the world would you sell it today because of what's happening in ukraine kathy wood believes her stocks will eventually recover but it does little to promote the confidence of her investors and some start withdrawing money she managed a mutual fund which is unlike a public company investors can actually withdraw their money from the fund worrying about losing clients executives at bernstein asked kathy to buy some index funds in her portfolio because portfolio managers and analysts they run back to what they think is safety they tend to run back diversify their portfolios get them closer to benchmarks our stocks are disproportionately punished in the early early stages of a correction owning index funds reduces the volatility of her fund but also her performance by 2014 it becomes more inevitable that she has to go at 54 kathy wood has made more money than 99.9 of americans enough to retire for life all the 20 year olds are jumping into this game and meanwhile all the 40 year olds and 50 year olds are more likely to win it because they have context a woman of deep faith wood realizes that she must continue to serve god by bringing about the future that god wanted this time she is determined to answer to no one except god himself 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 [Music] kathy wood dreams about building a new type of etfs that don't yet exist in the market cathy wood is definitely an idealistic woman whose confidence is very contagious if you think about it what's a stock price if it's not a symbol of confidence she has this confidence because she believes that she is divinely inspired while it is inspiring to dream kathy's faith is about to be tested many other people thought we were going to fail 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 while kathy wood has done thorough research on her investment ideas her fund sees virtually no tractions after two and a half years of no traction effectively i began to say wow was that a bad was that a bad move without enough capital she struggles to bring her dream into reality that changes when an unexpected investor comes calling bill huang flew a little too close to the sun by taking on an insatiable amount of risk before his catastrophic blow up huang was at the top of the hedge fund game huang was the protege to the famous investor julian robertson who gave huang 25 million dollars to start his hedge fund in 2000 in less than 20 years huang built his hedge fund to have 30 billion dollars of assets you know we see what god is how god is leading the whole world you know and and human race to through these companies as a devout christian himself huang sees kathy wood to be someone he can lift up and also as someone that will make him even wealthier he decides to provide the seed money to all of her etfs [Music] huang's funding gave kathy wood a boost of confidence but to actually succeed she will need to find a way to stand out after the housing crisis of 2008 people's confidence in active management has nearly vanished as you know indexing has continued to perform really well against the broad base of active managers what i would say is high cost active management is essentially debt as a practice by 2019 index funds have more assets than all the active funds but imagine a world where everyone is putting money passively in everything how will our financial system even function kathy wood thinks she can do better [Music] so our analysts they have domain expertise for the most part in the new new world one foot in the new world why because they've just been educated uh in crisper gene editing and have experimented it with it themselves or they've worked in the industry not only that wood capitalizes on the rise of social media like twitter and reddit wood realizes she could do what github did to software by making her research openly available in the investment world a lot of font managers like to pretend to be sophisticated often hiding their so-called proprietary research it's because they don't want you to see through them by 2018 she was still rather unknown in the investment world but that is about to change gotta start with tesla because for months now you have said this is a four thousand dollar stock given all the drama over the last few weeks do you still think that yes that is a one thousand one hundred percent increase from its price at the time at the time tesla struggled to produce enough model threes tesla's ceo elon musk even sleeps in the factory trying to solve the production issue kathy wood's optimistic forecast of tesla's future is widely ridiculed by 2021 tesla has surpassed her price target two years ahead of her forecast while she was dismissed by the establishment in 2019 there is one group of investors taking notice of kathy wood the apes by 2019 there are nearly 5 billion people online on reddit alone there are 430 million users since the financial crisis people have grown more and more distrustful of wall street it's just that the investment banking provision will sell as long as it can be sold on reddit many retail investors start gathering to share research and make investments countering that of wall street by 2019 the movement is still small lacking funds and momentum but a historical event will forever change that [Music] we saw our third trading halt in just six sessions right at the open a 15-minute halt with the s p down seven percent as president trump said coronavirus may be an issue through july or august [Music] a quorum is present the motion is adopted [Applause] covert 19 was a pivotal moment in the american economy all of a sudden you have trillions of newly printed cash injected into the system many trading platforms immediately capitalized on this change we're focused on building an awesome user experience onboarding something like 150 000 customers in such a short period of time is pretty much unprecedented in the brokerage industry a few thousand dollars wealthier the apes of the reddit community finally have the resources to take on wall street you're witnessing the french revolution of finance where the proletariat is rising up to change the order structure in finance and they're able to do that because they have costless data they have costless trading as a woman who is often underestimated by wall street kathy wood becomes the icon of the retail investors the world is changing since 2008 america has enjoyed over 10 years of a bull market driven by innovation the finance industry is undergoing a drastic shift kathy wood is the face of this change driven by relentless passion kathy wood turned a middle-class upbringing into her own empire for the past three years many of her predictions have come true or are coming true but her strategy is still volatile and the market remains to be unforgiving as arc investors are about to find out it's a new piece from barron's highlighting that investors have pulled a net 2.7 billion dollars from the funds since the end of june by the beginning of 2021 arc had a 14 drop to date a 14 drop in market value is not something that a index fund investor can tolerate but not the disciples of kathy wood 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 it took a lot to get people's attention because they thought we were too risky too crazy and i see now it's coming full circle because i hear that again but um it's much less risky than we believe the benchmarks are the benchmarks are filling up with value traps because the innovation platforms there are five of them and they involve 14 different technologies that are all taking off right now they are going to disrupt and disintermediate the traditional world order so i think the big risk is in the benchmarks not what we're doing but it is a mistake to dismiss her as some lucky stock picker for one she has that quality of a disciplined portfolio manager although kathy wood has strong faith in tesla she doesn't allow it to be more than 10 of her portfolio but when a stock gets to 11 or 12 in the portfolio it means that that means it has appreciated by 10 to 20 relative to the other positions in the portfolio and usually what we're doing is being opportunistic and taking advantage of a a drop in a stock kathy is not hesitant to exit a position when the fundamentals of the business change today kathy what remains to be a controversial figure unlike her days at bernstein kathy wood may have finally found a business model that works for her and a group of extremely loyal followers that will stick with her for the long am you

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Length: 30min 13sec (1813 seconds)

Published: Sat Nov 20 2021