Each bull or bear market sees the emergence of an investor incarnating the brand new narrative. Previously, we coated Michael Burry, whose profession is now outlined by his “Big Short” in 2008. The 2010s bull market may as effectively be remembered as Cathie Wood’s bull market.
Wood was within the highlight and one of many main promoters of the main inventory tales of the interval. She benefitted handsomely from her absolute religion within the development expertise shares that got here to dominate the market for the reason that 2008 disaster.
Because Ms. Wood is such a well-known determine, she can be profoundly polarizing. Some buyers take into account her a visionary. Other buyers see her as a rip-off artist doomed to fall when the bubble popped.
A historical past of drastic outperformance AND underperformance, relying on the interval, contributes to each narratives.
Who Is Cathie Wood?
Catherine Duddy Wood was born in 1955 and began to work in finance within the late Nineteen Seventies. She labored in a number of monetary companies over time and is now best-known for the ARK ETFs she based in 2014.
Her first brush with explosive development was throughout the dot-com bubble. At its peak, Wood managed $800M in property at Tulepo Capital Service. She left the corporate in 2001. After Wood left, by the tip of the yr, the agency was managing solely $200M (doubtless from each crashing inventory costs and redemptions).
Wood has specialised in investing in innovation and disruptive expertise. She is a fervent believer in progress and the potential of expertise to ship exponential development. She can be a robust proponent of democratizing finance, particularly for girls.
Cathie Wood’s Investing Strategy
Since 2014, ARKK, the flagship of the ARK ETFs, has carried out effectively, however with very excessive volatility. It rose in a short time within the pandemic interval, peaking at $152/share. It has now misplaced all its pandemic acquire and is again to $46.
ARKK was notably closely invested in among the quickest shifting and controversial investments, like Tesla and Bitcoin. Overall, Wood’s technique could be very pro-cyclical. She invests in firms with large development potential and units very bold value targets. For instance, she predicted that Tesla would attain a price of $3T and predicted a $1M value for Bitcoin.
This implies that when markets are optimistic and booming, Wood’s holdings are prone to outperform. But when worry of recession or rising charge dampens buyers’ enthusiasm, they’re prone to go down.
Considering its fall from the 2021 highs, it appears Wood’s ARKK ETF is on the way in which to replicating the sample of Tulepo in 2001. Nevertheless, a few of ARKK’s holdings may nonetheless develop and switch into extremely worthwhile companies in the long term.
Wood’s Opinions on Current Markets
Wood precisely warned that the US economic system was already in a recession on the finish of June. She can be anticipating oil costs to crash, regardless of admitting to having made a improper name with the identical prediction on the finish of 2021. Similarly, she nonetheless expects deflation to be a a lot greater drawback than inflation in the long term.
Overall, she believes that radical innovation in mobility, vitality, IT, and biotech will seriously change the world and usher in a brand new period of secular development.
Despite a rocky first half of 2022, Wood appears extra assured than ever about her skill to ship excellent monetary returns.
A yr earlier, she’d thought her agency, ARK Invest, would ship annualized returns of 15 %, she acknowledged, organising what appeared like a mea culpa for her poor efficiency. Instead, she doubled down: “Now we think 50 percent.”
Cathie Wood’s Stock Picks
Cathie Wood’s prime holdings are targeted on disruptive tech, notably electrical autos (EVs), biotech, and distant telecommunication/streaming.
Her prime 5 holdings are Tesla, Zoom, Roku, Teladoc Health, and CRISPR Therapeutic.
As a rule of thumb, most of Wood’s picks have the next attribute:
- Focused on innovation, typically creating totally new markets (EVs, gene modifying, and many others…).
- Investing massively in development, miserable present earnings as all money generated is reinvested.
- Very expensive by metrics like free money circulate or P/E.
- Explosive development, typically rising income at 20%-50% yearly.
- Regular inventory providing or capital elevating to fund hypergrowth, resulting in some dilution.
- High volatility, with good probabilities of particular person shares going up and down x3-x10 in a yr.
Regarding sectors or funding concepts, Wood’s favourite themes are:
- Work from residence is right here to remain and can change the way in which we work completely.
- Healthcare and biotech shall be revolutionized by innovation genomics.
- FinTech is posed to disrupt conventional banking.
- DeFi (Decentralized Finance, together with Bitcoin and Ethereum) reduces wealth confiscation dangers and can play a giant position in the way forward for finance.
- 3D printing, area tech, AI, and robotics will energy cost future GDP development.
Cathie Wood’s funding philosophy takes development investing to an excessive degree. She’s brazenly and unashamedly abandoning worth investing rules and searching for out firms not for what they’re, however for what they could possibly be.
This could be a very worthwhile technique, as ARKK proved in 2020, nevertheless it may also be a really dangerous technique, as ARKK proved in 2021 and 2022.
A full dedication to an ARKK-style technique would most likely be past the chance tolerance of the common investor, however the rules definitely have a spot in an expansionary interval.