ARK Invest CEO Cathie Wood Offers a Master Class in Disruptive Innovation

50 minutes · June 21, 2021

Cathie Wood, CEO and CIO of ARK Invest, unloads wisdom on bitcoin, inflation, and how to succeed in finance. At ARK Invest, Cathie puts her training in economics to the test, allocating capital to disruptive innovations that are reshaping our world. Cathie unpacks the five technologies that drive her investment thesis and pulls back the onion on how Ark works with a small group of analysts to find the “next big thing” in public markets, all while sharing their research with the rest of the world.

Speaker 1 (00:03):

From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.

Josh King (00:46):

There are a few catalyzing moments in history where everything is forever changed. At the turn of the 20th century, Thomas Edison, Alexander Graham Bell, and Henry Ford were reshaping the world as we knew it. Electricity would bring light to the darkest corners, the telephone would connect people at great distances, and the combustion engine would eliminate those distances all together. These three forces changed the course of history ushering in revolution that made people rethink their lives, the economy, and how they understood the world. The parallel to today's worlds are remarkable, but the scale at which they're occurring is at a breakneck pace. They're not happening over generations. Many of them are taking place within our lifetime.

Josh King (01:31):

For example, when I started my career in Washington, D.C., our government computers boasted four big megabytes of RAM. Imagine that. Today, we carry phones in our pocket with six gigabytes of RAM, thousands of times more powerful. It's hard to imagine what the world will look like come fall, let alone in five years. The old maxim that the only thing that is constant is change still rings true, but an important corollary to that rule is that innovation needs financing. Financial markets have helped innovators and disruptors revolutionize the world by connecting them to capital. Innovators like Ford, Bell, and Edison are among those who harnessed the power of capitalism to drive enormous amounts of progress. Their legacies are also still listed here at the New York Stock Exchange.

Josh King (02:22):

From time to time, that intersection between Wall Street and Main Street is overlooked. Seldom do investment managers, the people behind the capital become household names. Peter Lynch made many in my parents' generation a lot of money and his face started showing up on billboards and the covers of books. But for the most part, we tend to focus more on the entrepreneurs driving change. But what if they're both? Money manager and entrepreneurial visionary. Cathie Wood remains true to her training in economics and focuses on allocating capital to its highest and best use by increasing access to technologies that are solving some of the world's most pressing issues. She's leaned into these revolutionary forces with a small team of analysts. Along the way, she's open sourced her research and investment process, opening the world of finance and investing to hundreds of thousands of people across the globe and more importantly, asking them to weigh in. Well, weigh in with our conversation with Cathie Wood right after this.

Speaker 3 (03:29):

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Josh King (04:39):

Our guest today, Cathie Wood, is Chief Executive Officer and Chief Investment Officer of ARK Investment Management, a thematic investment management firm that seeks to deliver long-term growth in the public markets by investing solely in disruptive innovation. Welcome Cathie inside the ICE House.

Cathie Wood (04:58):

Thank you, Josh. I'm really happy to be here. Thank you.

Josh King (05:01):

Let's get this disclosure out of the way right at the top, you invest in Intercontinental Exchange in the ARK Innovation ETF, that's NYSE ARK, symbol ARKK, and in the Fintech Innovation ETF, which is ticker symbol ARKF. While we're not going to be talking about that investment decision specifically, I'd love to hear where this passion for being at the focus of investing in innovation came from.

Cathie Wood (05:28):

Innovation is very exciting. I've always loved learning about the way the world is going to work. And when I started in the business in the late ‘70s, I was in college and I started a capital group on the West Coast and my eyes started opening about how the world was going to change. But back then it was all about Hong Kong 1997, the change over, and this was 1977 and I said, “Wow! They're studying about the world and how it's going to change. This is very exciting.” Asia seemed very exciting to me. And being a student of economics at the time, and I started in the business in economics, just learning how these countries were opening up was very exciting. So I always had a sort of futures oriented excitement about our business.

Cathie Wood (06:23):

But what happened in the years after the tech and telecom bust and then again, after ‘08, ‘09 at an accelerated rate was a shift towards passive and benchmark style investing. What I was doing at my firm at the time was 180 degrees different. In fact, be becoming even more so. And I felt that there was a void, both in terms of research and investing, a void in the public equity markets. And I knew that we would be able to fill it and I knew that it would kick in. I didn't know that the COVID crisis was going to be ... Obviously, I didn't know that was going to be a huge kickstart to innovation generally, but I knew it would kick in and I knew also that most asset managers in the public asset markets were effectively short innovation, and that they would have to, at some point, cover that short.

Josh King (07:33):

Your fund, it's got names from NYSE-listed companies like Teladoc, Square, Shopify, Unity, Spotify, Twilio, each has a great story behind them. Jason Gorevic was a guest on this show not that long ago. What do they have to convince you of before you invest?

Cathie Wood (07:50):

Our investment strategy is focused on technologically enabled innovation that submits to something we call, we don't call it, this is what it is, Wright's Law. Now, Wright's Law is a relative of Moore's Law, Moore's Law in the semiconductor space. But Wright's Law is a function of units, unit growth whereas Moore's Law is a function of time. And it seems that Wright's Law works even better than Moore's Law in even the semiconductor industry. And so it says, “For every cumulative doubling in the number of units produced,” so we're talking about early stage technologies, “that cost decline at a consistent rate.” It's called the learning curve. Our focus is on that cost decline and when it is going to unleash different waves of demand over time as costs and prices go down and access to these new technologies increases.

Cathie Wood (08:55):

And each one of the stocks you mentioned, those are toward the top 10 in our flagship fund. Each is a platform opportunity with a very big scaling opportunities. We think they're on exponential growth trajectories. Just to give you a sense of how quickly things are changing and costs in particular, the cost for AI training, artificial intelligence training is dropping at 50% to 65% rate per year. Think about that. And so there's a land grab by these platform companies using artificial intelligence to collect the largest pools of data, the highest quality data, and to hire the best AI experts to activate that data and really create new business models. Each one of those is doing that.

Josh King (10:00):

My old history teacher, [Wayne Altry 00:10:02] always regaled us with his maxim, a version of Wright's Law, and I will butcher his British accent, “But the last unit is the cheapest to produce.” Is that what drew you to Tesla? I mean, a battery that can propel a car from zero to 60 in two seconds costs a bundle, but a million of those batteries can be had for a bargain.

Cathie Wood (10:23):

Exactly. And what was very interesting about Tesla's approach to the market is Elon was leveraging off the entire consumer electronics industry whereas other auto manufacturers, they were using a different kind of battery. Elon basically used cell phone batteries effectively. In the early days, I remember auto analysts and auto companies making fun of the fact that Elon was putting or lining his car at the bottom of his car with cell phone batteries that at the time were blowing up in airplanes, right? And so there was a lot of disbelief, skepticism, and that attracted us even more to studying what he was doing. And when we learned that he was so far down the cost curve, relative to these other auto manufacturers, we said, “Okay, let's model this out, see how far along.” And it was, at the time, three years. Now, the slope of the cost declines at other auto manufacturers is steeper now, but Elan's costs are much lower and he is innovating the battery, the battery pack system, including silicone in it so that his costs could continue to outpace in terms of their downside, other auto manufacturers.

Cathie Wood (11:56):

In fact, we saw four barriers to entry that Tesla had. Battery was very important, and that's what got us to study it. But there were three others and two of them had to do with artificial intelligence. Just like Apple did, Tesla designed its own chip. Remember when apple designed its own chip for the really smartphone where we'd be able to browse the web on our phones? Nobody even thought of that. Motorola, Nokia, and Ericsson did not have such a chip. They weren't thinking. They were thinking more in terms of consumer fashion at the time. And Apple said, “No, this is a smartphone.” And of course, the rest is history. Today, apple still takes the lion's share of all profits in smartphones in the market globally.

Cathie Wood (12:50):

We think the same thing could happen here with Tesla. Its own chip for autonomous driving is going to get there faster. And here's another example of artificial intelligence. Tesla has the largest pool of data. It has the highest quality data and we believe it has the best AI experts to activate this data. So we believe Tesla will be the first to go to a scaled autonomous service, autonomous taxi network in the United States, certainly, and maybe elsewhere in the world as well.

Josh King (13:25):

If I've got my history right, talking about the rest of the world, you were the firstborn of two Irish immigrant parents. What brought them to the United States and why did you think it was so important for you to, I think you've said in the past, blaze the trail for your family?

Cathie Wood (13:40):

Oh, yes. Well, my mother arrived at the age of 18. She wanted to see the world and both my parents described America as the land of opportunity and they had adventurous spirits, both of them. And so my father, after the Irish army came over to the U.S. and then moved into the American Air Force very quickly while he was drafted for one reason.

Josh King (14:10):

That will make it quick.

Cathie Wood (14:12):

That was quick. And that's where he gained a good part of his education, certainly about the electronic age, which excited him. He became a design engineer for Radar Systems. And his love of innovation and where the world was going with this new electronic age, he wanted to impart to me. In fact, he took me when I was pretty young, 10 or 12, to UCLA and wanted me to learn how to code using Fortran. And so I did that.

Cathie Wood (14:49):

I didn't find that too interesting, to be honest, but he did. He was very excited that I had done this and he was trying to impart how the world was going to change, and really helped me understand it. And I suppose that rubbed off on me in terms of what I'm doing now, but for both of them, you know, Ireland at the time was a very poor country, very poor, not like it is today. Many of the Irish, if they wanted to raise their standard of living and wanted to become a part of something big, had to come to America. So that's what my parents, both of them, did.

Josh King (15:27):

Large military presence in Southern California. You're growing up there, you're attending college out in California, your mentor, one of your professors, Arthur Laffer, the renowned supply sider whose theories on economic policy helped shape President Reagan's thinking made an exception and allowed an undergraduate named Cathie Wood into his graduate-level Econ class at USC. He sometimes fear that undergraduates would get beaten up in that scrum, but what did he see in you?

Cathie Wood (15:55):

I think he saw my intense curiosity about the way the world works and the way it's going to work. I just wanted to understand. And I had taken some economics courses, some had a Keynesian bias, some had a monetarist bias to them. Monetarism was really just a coming of age then with Milton Friedman. And Art, he's a really fun and funny person. I met him through his assistant and we would just go to dinner because we all had night classes. I saw that he poked at me, he took jabs at Keynesian and monetarist as I was trying to understand. And I think because I really wanted to learn and I wanted to learn everything I could from him that he felt I was ready for his class.

Josh King (16:49):

I'm curious how that early education, the mentorship that he gave you, and sometimes these hard, scrabble job experiences that you've described a little bit earlier in the show inform ARK's current investment strategies? You approach investing from this thematic angle, irrespective of geography, market cap, or sector. There are five technologies that are at the center of your thesis on disruptive innovation. Can you walk us through them?

Cathie Wood (17:16):

Sure. The five innovation platforms are DNA sequencing, which will transform not only healthcare, but agriculture as well.

Josh King (17:27):


Cathie Wood (17:27):

Robotics, which just to head off a set of questions, we believe that robotics and most of the technologies we're describing here are going to be net job creators. They will displace some jobs, but they will make for much higher value add jobs. So robotics, we include in that. Energy storage, so think electric vehicles and a new distributed grid, ultimately, we think. Artificial intelligence, and I just gave you the drama happening there with costs declining up to 65% per year to train, and blockchain technology. Blockchain technology, many people think first, Bitcoin, because it is the oldest and most secure of the blockchain networks out there. But Ethereum is we think going to transform financial services, DeFi, decentralized finance. And I think it's happening a lot more quickly than anyone might have expected.

Cathie Wood (18:31):

Just to give you a sense of these five platforms, they are supported or enabled by 14 different technologies. We have never seen this amount of innovation evolving at the same time. You mentioned the early 1900's, three major new platforms, transformative, we have five now and they have 14 technologies supporting them. They are characterized, each of them, in three ways.

Cathie Wood (19:02):

First, they do follow learning curves, costs decline over time because they're technologically enabled. Two, they cut across economic sectors. So many people are surprised to hear that DNA sequencing is going to transform not only healthcare, but also agriculture because of gene editing and being able to isolate mutations and figure out diseases. So we're not just talking about human disease. We're talking about crop diseases as well. And it's not just crops, it's animals and so forth. So the first again is learning curves. Second is they cut across the economic sectors. And third is each of these five platforms serves as a launching pad for more innovation. So DNA sequencing was a launching pad for gene editing, which we think will cure many diseases. So it couldn't happen without DNA sequencing.

Josh King (20:04):

We've covered so many of those topics in our prior 200 and something episodes, and to have it all represented in the ARK family of ETFs made our process for talking to you so fascinating because you go in and look at some of the makeups of the funds on your website, and you see all these names that we've been talking about now for close to three years on this show. You've spoken, Cathie, in past interviews about how your investment research process involves looking at the top-down, meaning understanding how these innovative technologies scale. We've been talking about that, but also understand them from the bottom up by looking specifically at how the companies are using the technologies. I look at that three-dimensional matrix enveloping the globe on your website, skim through the Big Ideas Report for 2021. How does ARK go about sourcing new investment ideas for your portfolios?

Cathie Wood (20:58):

We have, at the end of each week, a brainstorm. This is every week for two hours and it includes not just our analysts and our director of research, Brett Winton, and me, it includes what we call theme developers. These tend to be professors in graduate schools or venture capitalists, entrepreneurs, and other investors as well, who are passionate about innovation, are typically doing their own research and trying to push the frontiers of knowledge forward as fast as possible. We have anywhere between 60 and 80 people on the call on Fridays. The way the meeting is set up is our analysts will come in with the most interesting, provocative, or controversial ideas they've heard all week, or the biggest breakthrough they've had in their own research, and they throw it out there for debate.

Cathie Wood (22:03):

Now, why do we do this? All of the analysts from all of the platforms are in the same meeting. We do it because we're looking for these aha moments. They're typically associated with the convergence between and among these technologies. To give you an example of that, autonomous taxi networks involve the convergence of robotics, autonomous vehicles are robots, energy storage, they will be electric and artificial intelligence, they will be powered by AI. Therefore, in the case of a Tesla, which we discussed earlier, we have three analysts focused on that one stock because there are robotics, energy storage, and artificial intelligence all involved making this autonomous network happen. And so during that meeting, we kind of go crazy places, wherever our brains will take us.

Cathie Wood (23:02):

Just to give you an example of how one idea leads to another. As we were doing our work on autonomous taxi networks, Tasha Keeney, who has evolved our autonomous taxi network model, concluded and brought to the brainstorm that congestion in big cities would increase by threefold because autonomous taxi network costs were going to drop so low, 25 cents per mile ultimately when they're at maturity, that everyone would use them and would take many more trips than otherwise would be the case. So the next question was, okay, how are we going to solve that problem? Then we started doing our drone work, not only our passenger drone work, which involves people, but also our freight drone work, which involves goods, food delivery services, grocery deliveries. Because that is what is going to have to happen to alleviate the congestion in big cities. And the question was, okay, are the battery costs low enough to transport people? And at the time we did the study, they weren't, but they were low enough.

Cathie Wood (24:15):

And we started studying Amazon's drones and learned this was in ... This is when we knew we were onto something. This was in 2014, ‘15, late ‘14, early ‘15. We were able to say back then because of our analysis that Amazon, which was on its ninth generation drone back then would, at that time, be able to deliver a five-pound package over 10 miles for $1 and would be able to do so profitably. What happened because we give all our research away and we are giving it away on social networks because we're trying to engage with the communities we're researching, become a part of those communities. And I think we've been successful, but when we put out that-

Josh King (25:05):

Sort of sharing economy that you've called it.

Cathie Wood (25:07):

It was the sharing economy, yes. First in the asset management industry when it comes to research. And we learned with that report, how successful this was going to be because the incoming questions we got from the tech world about our research were tremendous. It got us engaged with communities at a much faster rate than we ever could have imagined. So it was reinforcing in a couple of ways.

Cathie Wood (25:37):

The brainstorm got us to this drone idea, the drone research then got us more deeply into the communities we really wanted to engage with. So very, very powerful. But all I wanted to illustrate in that story is like one problem, congestion, led to, okay, how do we solve that problem? Innovation solves problems and creates new opportunities. And we learned during the coronavirus, when I went out there on YouTube every Friday for several months, now, I just do it once a month, I was able to share with our clients and anyone how innovation was solving the problems that the coronavirus has created. And of course, in hindsight we know now that it accelerated many innovation platforms, not by months, but by years. And just one easy example of that is online shopping, which obviously was a huge beneficiary. The coronavirus accelerated what had happened in four years, over four years, a hundred basis points of market share gained relative to total retail sales, a hundred basis points per year. It did that in one quarter during the coronavirus.

Josh King (26:53):

So I want to unpack some of these activities that have occupied what Cathie Wood and ARK have been doing during the coronavirus because it is so fascinating to me. First of all, your Friday meeting, how many people did you say are in it?

Cathie Wood (27:07):

Well, it's gotten even better with Zoom now. I will never do it the old-fashioned way. Meaning, every one of us being in a conference. I just want everyone to have the same size box and contribute whatever they'd like. It is set up in a way where, of course, on Zoom, you can chat, and if a person seems to want to become a part of the meeting, we will upgrade that attendee to a panelist. And so half and half effectively are panelists and attendees. So you can earn your way up to panelists to contribute by chat.

Josh King (27:44):

How long does it last?

Cathie Wood (27:46):

Two hours.

Josh King (27:47):

I mean, to the other thing that has been taking up some of your time over the last 15, 16 months, Cathie, you mentioned that your video series, I think it's called In The Know with Cathie Wood, where you dive into some of the macro and micro-economic trends, shaping the investment landscape of the past month and then dissect how your own outlook is going to change as a result. I tuned in to your last one yesterday and except for the Blackboard, the style harkens back to maybe that college economics professor, maybe it's Art Laffer in your chair, but it's you making sense of the complicated. What prompted the series? And as you spent these last months doing it, what have you learned through the process in terms of this almost teaching position that you have?

Cathie Wood (28:33):

That's so interesting, Josh. Thank you. I never thought of it that way, but it's an honor to think of it that way. Well, what I saw during coronavirus crisis was so much fear. In the very early days, I've been around a while now, I've just told you how long, and therefore I have been through at least 10 crises and I've segregated them into recessions or shocks. There were two that were shocks. One was the ‘87, what was called Black Monday when the S&P 500 dropped nearly 25% in one day because portfolio insurance failed. And the other one was 9/11. I learned from those two that if it's just a shock, then the forces in motion before the shock will remain in motion after.

Cathie Wood (29:28):

And the first one, ‘87, we were in a magnificent bull market. And we went through that Black Monday in a few, maybe a week more of turmoil and then we resumed the bull market, actually got back on stride pretty quickly. Same thing with 9/11. We were in a bear market, we were in the tech and telecom bust. And the shock took us down to a level, I think in the markets that might have been associated with a depression across the economy and across the globe. And that was not the right answer. We recovered from that, but we were in the tech and telecom bust. It was a massive rotation from growth toward value. So value stocks did very, very well back then.

Cathie Wood (30:13):

And I thought this was a shock. The coronavirus was a shock, and I wanted to share that with people because I thought it needed to be said. No one was talking about this crisis in that way. My background is economics, I love economics, I'm addicted to the statistics that come out every day and therefore typically have a point of view. Just as we do now as well, now that we've had that V-shaped recovery, which we predicted, we have a point of view about what is happening now. And there is a lot of confusion. It reminds me a lot of 2006 when the bond market started rallying, meaning interest rates started going down as commodity prices started soaring, and it didn't make any sense.

Cathie Wood (30:57):

One of those markets was right and it turned out that the bond market was right. Oil prices went from $60, as I said on that video, to 140 from the end of ‘06 through spring of ‘08. And that was just wrong. That was just wrong. We were entering one of the worst recessions we've ever had and financial crisis we've ever had. And I think the same thing is true today, but I don't think we're going into a crisis. I think quite the opposite. I think everyone thinks we're going into a crisis, and I think we're going to have some big upside surprises during the next few years.

Josh King (31:34):

Cathie Wood loves economics and she previews what we're going to be getting into in the second half of our show, talking about some of the trends and the headlines and the economic indicators that we're seeing right now. And we're going to talk about all of that right after this.

Speaker 3 (31:52):

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Josh King (32:27):

Welcome back. Before the break, Cathie Wood, the Chief Executive Officer and Chief Investment Officer of ARK, and I were discussing her background, her approach to investing, and the disruptive innovation that's shaping our world. I'd like to spend some time on the issues that are making headlines. Cathie, you started talking about, right before the break, one of the things that may make things a little challenging, especially for the companies that have done so well for so long, Cathie. The New York State Legislature is likely going to begin deliberating on antitrust and competition law in the coming weeks and a passage of any laws wouldn't change any federal requirements. It would put New York at the forefront of a growing movement to re-examine the role that technology companies play in our lives. What should we be keeping our eyes peeled for? How does this changing regulation affect some of the disruptive forces that we've been talking about today?

Cathie Wood (33:18):

Well, I actually just saw that the State of New York is going to fine companies up to $100,000,000 for antitrust activity. I think that was just scrolling to today. And so, yes, it wants to be at the vanguard. Just like with cryptocurrency, it wanted to be the gatekeeper more than any other state. And it actually, from a regulatory point of view, is doing that and may have been reinforced because a lot of cryptocurrencies now, one the blessing of New York State in order to legitimize what they do or to give them more access to more traditional commercial activities, such as in the DeFi world, decentralized finance world. So maybe that's why this is happening.

Cathie Wood (34:09):

I have always found that by the time regulators think there's an antitrust problem, especially if technology is involved, there's usually a solution on the way. And just to harken to blockchain technology, many people think that blockchain technology is what's going to give individuals privacy over their data ultimately, and will take the role of the data aggregators like Facebook and Google and Amazon away. And we do know a lot of people are concerned about privacy. A lot of people are not concerned about privacy though, as is evident from the usage of many of these services. So I think over time technology is going to once again, solve the problems that consumers in particular think are out there.

Cathie Wood (35:03):

That's the first point. The second point is even ... Take online retail, it has been from an internet point of view, it along with Google, but in terms of going public, Amazon has been the most successful of the early players. And yes, it's very, very big right now, but guess what? Shopify is now going to enable lots of independent businesses to play ball with Amazon or to compete against Amazon. And there's another thing happening to Amazon and it's called social e-commerce or social commerce. Amazon is not a social platform. Facebook has its Instagram. A lot more sales are going to occur within the Instagram app. And that again will be enabled by Shopify. So I think that technology sows the seeds of disruption always and that this antitrust behavior, sure, it'll change the landscape probably maybe a little faster than otherwise might have been the case, but I think these forces were in motion because the consumer demands them.

Josh King (36:18):

Maybe inflation is another force that will have a big impact. The concerns about inflation, Cathie, have re-emerged this year. You've often spoken about deflationary pressures on the economy and how some are conducive to the disruptive technologies that you invest in. For example, the COVID-19 virus was sequenced in just two days compared to the nearly five months it took to do the same with SARS back in 2003. Can you expand on some of the innovation you're seeing in the space and tell us why these deflationary pressures are so important?

Cathie Wood (36:52):

First, I'd like to illustrate some of the deflationary forces with numbers. So DNA sequencing, and just to give you the background there, in 2003, which is when the SARS epidemic was, to sequence one whole human genome, so not a virus genome, but a human genome, it did take $2.7 billion and 13 years of computing power to sequence that first whole human genome. Today, we're down to nearly $500. Think about that, 2.7 billion to 500 and a few hours of computing power. Now, why is that? Well, the DNA sequencing technology, as volumes increase, the learning curve kicked into gear and cost declined dramatically. For every cumulative doubling in the number of whole human genome sequenced, the cost to do so dropped by 40%. Think about that. And that's with short-read sequencing. With long-read sequencing, which is where I think we're going, that number is 28%.

Cathie Wood (38:03):

If you look at battery technology, for every cumulative doubling in the number of battery pack systems produce, cost decline 28%. So think about that. The total cost of ownership of an electric vehicle today is lower than that of a gas-powered vehicle. So that's why these are taking off. The sticker price will drop below a gas-powered sticker price, like for like, within a year or two. And by 2025, the cost of an electric vehicle comparable to a Toyota Camry will be $18,000 compared to a Toyota Camry, which will still be $25,000 to $26,000 by that time.

Cathie Wood (38:49):

And so that is why the demand will shift so radically to electric vehicles. They're going to be much less expensive. They are better from a performance point of view than most vehicles. And as I mentioned before, artificial intelligence training costs dropping 60% to 65% per year. We know that the companies who do not harness data effectively and bring in the best AI expertise to help them do so are going to lose out to companies like Tesla, as I mentioned earlier, who have invested for years in this technology, whereas most auto manufacturers are hoping to get electric right now.

Josh King (39:39):

Well, Cathie, I mean, two figures and two ideas that have been so much in the news over the past, not just 12 or 15 months, but over the past several years certainly have been Tesla and Elon, but also Cathie Wood and ARK. And Wall Street and popular culture don't always intersect, especially when it comes to awareness about asset managers, but you've become a key figure in the media. You've got more than 900,000 Twitter followers. You've captivated the imagination of professional and retail investors alike. This is maybe not what you signed up for back in 2004, but it has become necessary I think to build the transparency and interchange for all the help that you get, some of the things we've been talking about on these brainstorms, but how do you manage that sort of public stature versus a person who, just an economist by nature?

Cathie Wood (40:35):

Well, first, we didn't know that this research ecosystem, which involves sure, traditional research, but also social media theme developers. Those that we call theme developers who contribute at the brainstorm every Friday, akin to software developers in the open-source software world. We have themed developers in this thematic world. Pulling this together, I thought it would work, but I didn't understand how well it would work. I think it's given us a real competitive advantage because most asset managers in the public world will not let their portfolio managers and analysts say anything about their research or their investing. In the sharing economy, if you don't give, you don't get. So we are giving our research away and we are having thought leaders in the communities come back at us and say, “Well, how are you making those assumptions?” And so forth. And we're learning from them, they're learning from us. Sometimes we're right, sometimes they're right. They're battle-testing our assumptions. So it's worked.

Cathie Wood (41:48):

Now, did I expect the media attention that we're getting? No, I did not. Many would say, “Oh, well, you asked for it. You put a $4,000 target on Tesla when the bears were all over it.” I think maybe Tesla became the reason the media focused us on it so much. But when I back up and think, okay, really what was going on there was our long-term investment time horizon, which is five years compared to the market short term time horizon, which is often one quarter, this quarter's earnings. And I think that's what's captured the attention and the controversy. There's a lot of controversy swirling around what we're doing and how we're doing it. I think if anyone took a look at the autonomous taxi models, the autonomous truck models, the drone models, these are six, seven years old now and evolving. They would understand how much research, the depth of our research is going into these price targets that we are willing to put out there and into the models that we are willing to put out there.

Cathie Wood (43:04):

We put our Tesla model on GitHub so that more people would understand how we got to that 4,000. It is not a finger up in the air looking for whichever way the wind is blowing. It is depth of research, the likes of which you're not going to find out there. I truly believe that. And so I wanted to make sure that our research was showcased. And I also wanted to help explain why the traditional way of looking at Tesla was so incorrect from our point of view. Tesla's not an auto company, it's a tech company, battery company, robot company, AI company, software as a service company. So traditional ways of looking at it were just not the right way to look at it and get the right answer.

Cathie Wood (43:56):

And I think we've won a lot of people over, more in the retail part of the world than the institutional world. But we are now seeing a lot of interest from institutions because guess what? They know they are short innovation. If we are right, if we are even 10% right when we're talking about these platforms and the 14 technologies involved, then they do not own enough of them and they are holding portfolios that are going to be disrupted. The traditional world order will be disrupted much like telephone, electricity, and automobile did in the day. I think the drama here is going to be greater though.

Cathie Wood (44:40):

We wrote a paper, Brett Winton, our director of research wrote a paper called Disruptive Innovation, Why Now? where we illustrated how the productivity uplift and wealth creation associated with these new platforms is going to dwarf those that we saw in the early 1900s. So it's going to be a very exciting time. I think it's important for investors and people generally when they're thinking about their education, their careers that they get on the right side of change because there are going to be a lot of stranded assets and losers in the world if we are right on the amount of innovation that's going to take place and the exponential growth trajectories that they are going to deliver.

Josh King (45:28):

Getting on the right side of change, Cathie, as we wrap up, the research is extraordinary, it's right there in front for everyone to see. But equity research, like so many other areas of finance, has struggled with attracting women. A 2018 survey put the average number of women in equity research departments at about 15%. And scrolling the comments of your Instagram and Twitter, you're seen by many as role model. So I'm just curious, as we finish up our conversation, what advice do you have for women who are looking to follow you and enter this space?

Cathie Wood (46:05):

Well, I think it is one of the most exciting spaces in the world. And my advice, I have a few pieces of advice. First, put your head down and work very, very hard to make your boss look brilliant because guess what? You are coming in with one foot in the new world that your boss who's maybe been in the business 20 or 30 years doesn't have. You actually have more perspective about the way the world's going to work than your bosses do. And then if you do perform and you're able to get into a situation where that performance can be measured in black and white, try and find that. You need good quantitative metrics to measure performance that no one can take away from you. And you'll be able to do that in research and portfolio management for better or worse. You'll never get rid of your bad performance numbers either. So take that risk though. It's worth it.

Cathie Wood (47:11):

And I would also say the third is, if you get married and you marry someone in the business, which often happens, of course, make sure when you have that. It usually happens around the second child. When you have that second, and your husband comes to you and says, “Honey, look, with what you're making, you know, we barely can cover the childcare workers and your wardrobe.” I would stop the conversation right there and I'd say, “Honey, aren't we partners? Aren't we in this together? You know, sure, both of our bonuses have been cut in half and yes, it's a difficult time, but we believe the market's going to keep moving forward. Look at the history. It has appreciated over time. So let's both bet on each other here and sacrifice a little bit. Go out to eat fewer times each week or whatever, and we will get through this.”.

Cathie Wood (48:18):

So those are the three. And to be honest, those are the pieces of advice I'd give to young men as well, right? They're kind of common sense. Maybe the last one is, if you find that you've done a great job and you've made your boss look brilliant, and that boss does not reward you with promotions and opportunities, maybe because you're so good, he doesn't want to lose you, then move on.

Josh King (48:52):

And that is great advice. All those pieces, Cathie Wood, and good advice for men, women, both. And we will absolutely be following in and following what's happening at ARK Invest. And thanks so much for joining us inside the ICE House.

Cathie Wood (49:09):

Thank you, Josh, for having me. I enjoyed it immensely.

Josh King (49:12):

That's our conversation for this week. Our guest was Cathie Wood, Chief Executive Officer and Chief Investment Officer of ARK. If you liked what you've heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us. @ICEHousePodcast. Our show is produced by [Stefan Dupril 00:49:38] with production assistance from Pete Ash and Ian Wolf. I'm Josh King, your host, signing off in the library of the New York Stock Exchange. Thanks for listening and we'll talk to you next.

Speaker 1 (49:48):

The information contained in this podcast was obtained in part from publicly available sources and not independently verified, neither ICE nor his affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of [inaudible 00:50:21] clarity.

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.