Investing in 2021 with Cathie Wood & Andrew Ross Sorkin | #𝐒𝐀𝐋𝐓𝐍𝐘

[Music] thank you uh all for sticking around for this final act of the afternoon uh kathy woods is here and we were just talking backstage i haven't seen you since pre-pandemic at least in person and so much has happened yeah to you and to arc during this period it has been a remarkable ride and just to put it in perspective um you started arc in 2014 dare i say you were 57 years old at the time you don't look any older now but uh she had no assets under management today at age 65 she's at the peak i would argue of your career but i hope there's more to come uh and you're managing something on the order of 85 billion which is a pretty remarkable a pretty remarkable thing um she has been called on social media and i hope this isn't considered uh sexist or something else mama kathy they call you aunt kathy and then in south korea they call you money tree which i love and this is what art laffer who used to work with said about you the thing that's amazing about kathy even back then when you were working when he was working with you her horizon is forever she wasn't in it for next week or next month or next year she was in it for the long haul yes and so i want to start with this before we even get into what's going on the markets today this is just an investment sort of horizon thesis question when you think about the quote-unquote horizon for your fund and the way that investors who invest in your fund should also think about that horizon what is it well in terms of our investment time horizon five years so we have to believe that one of the technologies the 14 technologies around which we have based all of our research is going to inflect within five years or at least be discounted in the mar start to be discounted in the market as though it is about to inflect so five year investment time horizon our minimum hurdle rate of return uh is 15 at a compound annual rate over five years and so i think that uh that combination of five years plus exponential growth trajectories is what is finally starting to get into the market i've been waiting for years i know you've been waiting for years so to put this in perspective the fund um over the last two years is up about 164 give or take year-to-date it's down a little over three percent at a time we all know the s p 500 so far is up a little over 18 this year thus far so put it in perspective where are we in this market given your five-year horizon uh i i believe we are seeing is going to be incredibly confusing i think to people just look at what's happened to the bond market this year you know against all expectations yields have dropped from uh i think it was 1.75 at the peak in march down to 1 3 as inflation expectations are exploding right we believe the reason for that is that we're probably when all is said and done and the dust clears from the supply chain problems and everything we're probably in a highly deflationary world and we see three sources of deflation uh one is very good it's it's called technologically enabled innovation artificial intelligence training costs are dropping 68 per year right when something when the cost drops that much the demand for it picks up and artificial intelligence is probably the biggest reason we're seeing the convergences between and among technologies so we've got one s-curve feeding another feeding another explosive energy incredible deflation that's the first deflation while the rest of the world thinks i mean if you were here for part of the day everybody's talking about inflation oh and that's what i love you know if it's if if if the whole world thinks that's going to happen and and a portfolio manager and analyst team thinks that's going to happen well if we're wrong it's not going to matter that much right because nobody's expecting it it's not in the market but if we're right the returns are enormous and i think that's that's what's going on with uh the technologically enabled innovation that we see especially in healthcare by the way but there are two other sources of deflation uh disruptive innovation there's another side to it it's called creative destruction and i think we're going to see uh more creative destruction than we have in all history during the next five to ten years now you can say you're just talking your book we have rights law teaching us about learning curves and cost declines that suggest we are going to see incredible booms out there in parts of the world but it's going to mean tremendous destruction in others so when i say confusing i mean that and then the third source of deflation i think will be cyclical deflation most people are fighting us on this one it's hard to fight us given our research on those other two but this this cyclical deflation it started with lumber uh seventeen hundred and eleven dollars in may now we're at five hundred dollars copper 490 i think now we're at 425. uh used car prices are surprisingly good and i know i'm getting we're getting pushed back on this one too uh they shot up 60 as everybody decided to avoid mass transit last year right and uh and now we find ourselves supposedly in a chip shortage i don't believe i do believe in the chip shortage that because i believe there's a chip shorted i do believe there's a chip shortage because the world's going digital but i i believe wouldn't that be inflationary uh well i believe chips are the new commodities that's the point i'm making here so uh chips are going to be what uh dr copper has been in the industrial world this is dr uh this is dr digital i don't know uh in the form of chips but you hear the auto industry screaming you know auto sales have dropped from 18 and a half million units in april to 13 million now these are annualized rates in august that's more than a chip shortage what happened last year is people bought the cars they're in their driveways garages didn't want to take tra to mass transit and now there's a decision what do i want to buy a gas powered car or an electric vehicle well that's where the short supply is and i think the excess supply is going to be in the gas powered side so this is a really important test case of of why i formed the firm when when when we did uh i think i think the disruption is happening to the auto industry now um i want to get into tesla obviously and a number of your picks in just a moment but i do want to just note morgan stanley citigroup deutsche bank bank of america these are all firms that have published notes within the past month uh effectively saying the opposite most of them believe that we are expecting to have inflation and i think across the board either pullbacks or much flatter returns right you just think they're off you think they're wrong i i think as i said if you're looking at the traditional benchmarks they may very well be right all i know is when we are looking at the the transformative growth that's going to take place in our space and we're completely devoted to nothing else but disruptive innovation we see explosive growth i think one of the reasons they will look right in terms of gdp is uh if the other side of crea of disruptive innovation is creative destruction well what's happening it's the industrial world evolving into the digital world as more of the physical world goes digital transportation importantly right and so the traditional benchmarks gdp the statistics that we look like are are probably going to look pretty lousy at times i would say certainly sector bisectors these transformations take place what do you think the role of millennials and the next generation will be and i i ask this because i've seen you make comments about demographics both in terms of the role that millennials play in terms of the actual economy but also the role that they may play in the markets themselves because a lot of people look at what's happened over the last 18 months in this new generation that's now in retail often in your fund on robinhood on reddit and think something has changed some people think it's tulips other people think it's forever um well i we just learned from uh jolene caruso that millennials are 70 million strong in our economy and now bigger than the baby boomers uh as a a demographic and um i'm going to hearken back to stan salviksen most of you won't remember who he was uh he made one very important call in the early 80s he said baby boomers are going to be the reason that the equity market goes up for the next 20 years it was a brilliant call he's no longer with us we're in the echo now and i do believe that both crypto and uh the equity markets are going to be powered by millennials in fact um tom lee it from yeah he he has done the arithmetic the way that stan did and i think he says this bull market will not end at least until 2026 and maybe not until 2038 when the number of millennials peaks out there well i went through it in the 80s and 90s and you know nobody believed him thought it was a ridiculously simple call but when you look back in history it was a pretty good call okay i want to get into meme stocks and that whole phenomenon in just a minute but i want to i want to touch on a couple of your big investments and also touch on one other theme which is china because it's in the news you have been uh thinking about that space or that that region in a big way or that country i should say in a big way um and i know you've reduced some positions but what what's your overall thesis at this point on china and what we're seeing in terms of this regulatory crackdown which seems to be worse every single day yeah um i i think there's something going on there socially that the government is very worried about many of the same things that the rest of the world is worried about where there's the divide between the rich and the poor i saw today ever grand there are there are protests around the evergrand offices because the wealth management products that weren't highly regulated are are not paying interest or not paying back and so forth so i think there's social unrest taking place there and that's why common prosperity has become the rallying cry and hostage to capital has also become a a rallying cry so i don't think it's a a very friendly place for capital now however focused only on innovation china uh has in its various five-year plans made innovation a an incredibly important uh plank right and uh so we don't want to avoid it but what we do want to avoid is very high margin companies so you look at jd logistics or jd.com some some of the companies that are pushing um innovation and access into tier two and tier three cities will play with that so what we did in the series of moves recently around china we have taken our position down significantly but stayed with a few of them we're going to take more returns invest more what would you need to see what would i need to see uh i i think it would be xi ji ping uh saying you know whoops we made a mistake we're open for business i don't think he'll do that so i don't think we'll be hugely involved with china the other thing that i think is and we've seen this in the crypto space uh by shutting open source movements down which is what they're doing right opens for all open source movements no um i think this is going to give the u.s a competitive advantage so we have allocated more of our innovation assets here in the u.s because of what's happened china was going to be one of our biggest competitors we saw them in the ai space making the league tables and ships i'm not so sure i think they have to do some um house cleaning right now that we probably do not understand all the causes but i think there's social unrest that would be my guess and you think let me ask this do you think that the regulatory environment there is either going to open up opportunity in the u.s or will it give and embolden regulators in the u.s to shut it out to shut down what's happening here because it used to be that the big tech companies in the united states would say well no no no you can't you can't shut us down because look over there in china those companies are so big we need to compete with them but if they're being shut down or cracked down upon yeah will it just embolden washington here it's a good point but i uh i think this is much more than china um as rupal on the last uh panel said uh you know france is becoming very innovative you know and southeast asia has stolen the march from china so companies like sea it's a social media social commerce gaming company it's it's exploding throughout the world and and and capital is shifting towards that kind of name uh because there are big populations in southeast asia and latin america as well okay can we talk about our favorite topic tesla yeah let's talk about it um and we have sparred over the years i love tesla i've never loved the valuation of tesla and you have loved tesla and the valuation of tesla and you've liked the valuation even at much higher levels and i have always thought as you know that that's crazy and you have been right so here we are um you still believe that this is a company still believe uh that the valuation long term is three thousand dollars that's your price that's our base case now that's your base case yeah that's not even our bold case but let's just stick with the base case from seven hundred dollars three thousand by when five years always five always five years you recently sold some last week right yeah about 100 but 180 million dollars i i read that it was 130 million okay i'm sorry 180 000 shares at 130 million dollars right why'd you do that so tesla is still the largest physician in our portfolios on that particular day and i can tell you this because we disclose our holdings every day and we publish our trades every day on that i'm always looking for cash in especially the flagship fund which is very concentrated and and involves all of our technologies so a company in the automation space space uipath was down 11 that day on its earnings release and tesla had just gone up 30 so it was really a tactical move so just to give you a sense tesla is a 10 point i believe it's 10.5 position in the flagship fund the next highest uh position is i think 5.9 so the conviction this was i will take a trade up 30 down 10 percent that's like a 40 difference that's all that was but this is not a stock i mean at least recently that has been on the move higher in fact it's been flat to down no it's actually if you look at it it has been it has been levitating it has we got into the 500s they got it got well below 500 i believe in the uh but i assume therefore but it must have crossed 10 percent a while ago meaning meaning you must have been much higher so when a stock moves from 10 we can no longer buy and thank you i want to address this because we keep getting questions about it we cannot buy a stock if it is 10 or higher in the portfolio we can sell of course we do not have to sell what we usually do this is not science uh very unpredictable so you know this is you can't replicate this in terms of trying to figure out what we're going to do but when a stock gets to 11 or 12 percent in the portfolio it means that or 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 again need the cash largest position above ten percent okay let me ask you does that make that no no it makes sense i know there will be there'll be bulls and bears on this uh let me ask you a different question though and it's really about how to assess and think about some of the comments projections and other things that elon musk makes about the company and how how you interpret them and how the public interprets them and frankly how bears interpret them which is to say that there's a lot of times where elon will come out and say something whether it be about robo taxis or when there'll be full autonomous driving or all sorts of things that i imagine at some point because we've had these conversations in the past do get baked in or should be getting baked in to some kind of assessment of the stock and as optimistic as you can very well be about all of those things they haven't come true and so how do you grapple with that uh this is one of the hardest problems uh that we are going to solve technologically so actually in the last uh three months we have increased our projection for autonomous taxi networks now in the three thousand dollar base case uh we assign a 50 probability to autonomous so it's a really hard problem but if anyone is going to solve it our confidence that tesla is that company has gone up dramatically as well but i guess when i ask you when elon says that robot taxes by the end of 2020 when you project what what numbers would you therefore have put in in 2000 i think 19 when he said that or 18 when he was saying that again five year old i know our probability last year when when or whenever we said that was lower i think we had a 25 percent problem okay so do you do you discount what he says by what what by what number that's what he he is elon if you really look at what he's doing at spacex and at tesla he's changing our world oh right you're not going to get me to just hear that i think it's simply about the valuation and how investors should think about that he was the first person when i when we were talking about autonomous net net uh taxi networks he said the last mile is going to be so hard i'm not sure it can be done this was about five years ago maybe maybe longer uh the resources that he's putting into this program and the talent that he's attracting and the advancements that he's making uh and that are possible now that artificial intelligence training costs are dropping by 68 per year uh we think the probability of autonomous is going up i don't disagree but does it frustrate you no he's a he's a visionary and you know he want he he sees the future so clearly the fact that he changed from saying last mile i don't think that's good there'll have to be some combination system he changed from that with his partner andre carpathi who is one of the most brilliant artificial intelligence engineers uh i i think this is going to happen in the next few years he is always a year or two or three too early we adjust for that in our forecast what do you think about the prospect that one oh and by the way man wait saying one other thing one of the reasons elon does that is he wants to get the supply chain in motion and when the supply chain does not cooperate he brings it in he's becoming much more vertically integrated so auto suppliers and technology companies know that if they don't march to his drum right and at his cadence instead of these four to five year design cycles they're not they're going to lose the business a lot of short sellers have lost a lot of money betting against elon as you know and one of the things that a lot of short sellers will tell you that they missed was not actually the technology or anything else per se but was the scale and ability to go back to the market over and over again to get more and more capital that that the scale of the capital unto itself that could become almost a self-fulfilling prophecy if if there were people out there willing to impart their capital to you over and over again how much of that is in your thesis uh well what the way we would frame that is we we believed that tesla had four barriers to entry and all but one have increased in in the last few years so they have they have the artificial intelligence chip they have the best battery technology costs lower and will be lower for the next three to five years they have most data to do the training and find corner cases and then the last one which i would have thought they would have lost already uh is over-the-air software updates i haven't had to take my model 3 in since 2018. they have the best cars on the road so your base case is 3 000 what's your best case scenario the the best case is about 4 000 because we will never go to uh we won't go to a hundred percent in that autonomous but let me give you the dynamics there uh if you had asked me last year i would have told you that the autonomous taxi network opportunity uh in the year 2030 would be a six to seven trillion dollar revenue opportunity uh we have in the last year raised that to 10 to 12 trillion and it is because before we had been modeling as though the cost would drop to where where they should given competition which is 25 cents per mile right now it costs us 70 cents per mile to drive our own cars uh we are learning and it's through uber and ride sharing services that convenience matters a lot and not having to drive matters a lot and so our price for the robo taxi service has gone up from 25 i think we're up to it's either 50 or or a dollar per mile okay new topic our other favorite topic you know it's going to be bitcoin bitcoin five years from now what's it worth if if we're right and companies continue divers to diversify their cash into something like bitcoin and uh institutions institutional investors start allocating five percent of their funds towards uh uh i'll just say bitcoin for right now because we did that we framed it for bitcoin could be for other cryptos as well um we believe that the the price will be tenfold of where it is today so instead of 45 000 over 500 000 if you could own bitcoin ethereum or some other crypto uh currency you can only own one which would be uh that is becoming a harder and harder uh question to answer i think i'd default still to to to bitcoin because countries are now deeming it legal tender and we haven't even put that into our uh thinking ether however is seeing an explosion in developer activity thanks to nfts and d5 i'm fascinated with what's going on in d5 which is collapsing the cost of the infrastructure for financial services in a way that i know that the traditional financial industry does not appreciate right now so it does have to move from proof of work to proof of stake that transition is underway and seems to be taking hold so our here's how i'll answer that question our confidence in ether has gone up dramatically as we've seen the beginning of this trans transition from proof of work to proof of stake would still probably do 60 percent uh bitcoin 40 either for all of that to happen do regulators especially u.s regulators need to buy into this in a major way i would also say that we just saw in the last week uh brian armstrong runs coinbase you have sticky coin base has now gotten into a somewhat bitter feud with the sec over how uh the ability to offer effectively a yield product uh on some of these cryptocurrencies specifically bitcoin will work yes uh i i think regulators our working assumption from the beginning um was that and and this was based on meeting with them meeting regulators both state and local and federal was that no regulator wanted to be blamed from preventing the next big technology breakthrough to happen in the u.s and that has proven true now we've got chairman uh gary gensler i'm really happy he understands crypto and understands the merits of bitcoin in particular uh he is a regulator though and he's a hardcore regulator what coinbase did i mean i was shocked when i saw wells notice are you kidding they haven't even released the product like what is this and i think what that wells notice is doing it's it's a call out by regulators saying we gotta discuss this stuff because this is happening very quickly and i think we are going to bring courts into the system this happened in canada a company called three iq sued the regulator there and one in court so they were able to issue bitcoin etfs and and closed end funds and ether as well so i am beginning to think that coinbase doesn't mind this at all and if you saw the stock reaction it hardly budged right um we're gonna have to wrap up in just a minute but i do want to talk to you a little bit about the social media enabled phenomenon that is happening uh about it and it's impacted your fund and it's impacted the interest in all this diamond hands and the like what do you make of that and also how do you think about your own responsibility in the context of one of the things you do which is so interesting is you are transparent in terms of what you're doing every single day people see what you're doing there's also people that are there therefore trading off of what you're doing and how you think about that i'll start with the the later one was the first one about meme stocks or was it wasn't really a question but it was in the context of just thinking about what's happening here and and all of the whole sort of new generation that seems to be talking about these stocks um some saying things that are factual some saying things that are not factual some saying that they uh want to have less regulations so that they can do more uh it's it's a it's a very different world than it was post-financial crisis where everybody said that the job of the financial industry was to protect if you will the little guy the little investor and now i think the little guy is saying don't protect me and in fact by protecting me you're not protecting me at all because what you're really doing is protecting the suit the big guy i i think it was on your show this morning wasn't it that uh robin hood's uh legal counsel said something like that it's really insulting to these people that you are going to protect them right okay that was that was pretty interesting and um so i'll first talk about the trading around what we do um i have been managing money since 1990 so for 31 years and i've always had um other other investors or speculators shooting against us because guess what even when i was managing separately managed accounts for wire houses i would be posting models that word would get out there what we were doing when we posted our models out there it would get out and lo and behold these stocks would take off so i've been i've been managing with that in mind for years and years and so we don't have to buy a stock if someone wants to take it up 20 the day after we buy and we haven't finished our buy i'll finish it another time because i know disruptive innovation is inherently controversial and we'll get another shot in terms of what's going on now i mean i so admire the millennial generation yeah as you say i'm sure there are people trading just because their friends are trading but the the hunger for knowledge that they have and the gratitude to us for the kind of research that we put out the depth of our research uh you know our tweets our analysts are all tweeting um we have to be we we're on the right side of regulation we know what we're doing there we have someone from the sec who who became our cco um so their hunger for intermittent for information and their gratitude it has been extremely humbling in a way you know we get a lot of people coming up to us and and thanking us for that because we've opened their eyes to a new world let me give you give you a bit of a difference when my children were in high school or uh and college i was trying to teach them about the stock market i was trying to get their interest nada you know it's almost like crypto had to happen that got them interested and to the extent they were looking at our research around crypto and others that they're they're educating themselves and they love education that's one of our mission of values so uh you know we meant to do that not because we knew this was going to happen but because we want parents and grandparents to under and and the children themselves to understand how rapidly the world is about to change and to get your children grandchildren yourselves on the right side of change whether it's investing or your education or your career okay couple quickies do you own any nfts i do not but i gave one as a birthday present to uh sig segales uh chief investment officer at um at jenison associates he turned to 88 and he thinks it's the best president he's ever gotten angie dalton i don't know if you know her from sigmund capital growth and i did we split it and his grandchildren now uh get to do layers of art on top of his digital art do you think there's a bubble in nfcs i i well you know when i saw this original 69 million dollar piece i thought okay this has gone too far too fast you know we're now talking about the creative world and when i heard about async art i don't know if you've heard of that company async art has developed a digital ecosystem where artists can uh put out their digital art and then and then anyone can buy pieces pixels right and change it and so you can do layers and the original artist gets paid i was walking when i heard the ceo tell his story and my smile went ear to ear because i said oh man this is going to be so explosive this is how i felt when the internet first came about like oh man this could be really big remember when everybody said what's the internet you know i had the same feeling here because you know creators you know they don't get paid for you know every iteration so robinhood you own a mistake you also do it's a one percent position yeah what do you think long term uh again we're into the millennial generation pay uh hey payment for waterflow payment for order flow i'd be shocked if it goes away i agree with the general counsel because it has been so good for zero commission trading and so forth and and you can look at the spreads and you can analyze exactly who's taking water how big the pie is and i i honestly don't think i'm i'm glad it's a discussion because it keeps coming up let's get some uh regulators uh making the final decision we're out of time oh kathy wood everybody thank you andrew thank you

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Keywords: cathie wood, cathie wood bitcoin, ark invest, andrew roos sorkin, cnbc, cathie wood tesla, cathie wood interview, investing in 2021, SALT, SALTNY, SALT NY, Investing, Finance, Politics, Tech, Technology, Business, Crypto, Bitcoin, btc, Cryptocurrency, NFT, blockchain, Financial Education, Venture Capital, VC, Leaders, Leadership, SALT Conference, SALT 2021, SALT Talks, SkyBridge, Scaramucci, Anthony Scaramucci

Id: Y8WNrVXa68g

Length: 35min 12sec (2112 seconds)

Published: Mon Oct 04 2021