Cathie Wood Thinks if There is No Blood in Your Street, You Should Move

Baron Rothschild, an 18th-century member of the Rothschild banking family, is credited with saying, “the time to buy is when there’s blood in the streets.” Rothschild made a fortune investing after the battle of Waterloo. Cathie Wood sees “blood” today that should be attracting investment capital in smaller growth companies. Wood said in an interview this week, investors can benefit from investing in the most “massive misallocation of capital in history, or mankind.”

In a CNBC interview with Wood this week, the CEO of ARK Invest said that risk-averse investors and fund managers are putting money in companies and benchmarks based on past successes instead of betting on innovative companies. She was emphatic that investors are making a mistake piling into index funds.

Wood said household name companies are attractive to cautious investors as they’ve prospered before, but they’re often susceptible to being disrupted and their values may be based on index fund inclusion, not potential. She believes many are likely to be overtaken by more innovative rivals. “Benchmarks are where they are, and especially the largest companies and stocks in the benchmarks are where they are, because of past successes. If we’re [Ark analysts] right, those are the companies that are going to be disrupted,” Wood said in the interview.

She defended Ark funds, which have tumbled in value this year, and said her research into disruptive innovation is the best in the financial industry.

“Those benchmarks are where the risk is, not our portfolios.” – Cathie Wood

Wood explained she sees significant potential in innovative companies using blockchain technology and artificial intelligence. She praised the breakthroughs and benefits in AI over the past few years. Wood pointed to Tesla as a company using AI as a competitive advantage, noting it’s the kind of business she prizes. Ms. Wood explained, “AI costs are dropping 60% per year accounting for both hardware and software. When the cost of something is dropping that much, to levels much more accessible, you’re going to have an explosion in creativity.” Wood added, “That is what’s happening.”

“Tesla has been the best case in point and I think we have a lot of Tesla-like stocks in our portfolio.” – Cathie Wood

Wood suggested the telecom bust of the early 2000’s and financial crisis of ’08-’09 still has investors averse to risk and retrenching into indexes. She believes these indexes are far riskier than the innovative investments her firm has embraced. When pressed Wood said she believes certain holdings in her funds will reach and surpass pre-pandemic highs.

Take-Away

Cathie Wood founded Ark Invest with the flagship ARK Innovation ETF (ARKK). It has enjoyed incredible performance which makes her one of the most listened to money managers this decade. In 2020 the fund returned over 150%, however it disappointed in 2021 by dropping 23%. Through mid-February 2022 it is down 30%. Does this represent the kind of investment climate, in the growth and big index stock sectors, that Baron Rothschild was referring to? Should investors seek opportunities on the streets where there is “blood?” Time will tell if companies with past successes, are being valued based on those successes, as Ms. Wood claims.

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