Cathie Wood lays out her views on what she believes to be the greatest misallocation of capital in a recent interview.
Cathie Wood believes over 40 years of passive investing has led to a massive misallocation of capital, which will create opportunities for active investors.
“When I started in the business in the late 70s and early 80s fund managers were all active,” she said.
Cathie Wood noted that fund managers would do macro analysis, study economic data and micro analysis, company by company.
“Then, in the 2000s, with the tech and telecom bust, there was a shift to benchmark investing.
Even more so in 2008 and 2009, the financial meltdown, we had an accelerated move to passive investing,” she said.
“When I started in the business in the late 70s and early 80s fund managers were all active”
CATHIE WOOD
Passive investing, a long-term strategy that entailed buying securities which mirrored the indices, became a self-fulling prophecy as more investing.
“North of 50% of assets under management are passive style mimicking the benchmark,” she said.
“I believe this is simply the most massive misallocation of capital in history.
The ETF world is mostly passive, all they care about is how closely the fund tracks the S&P and NASDAQ,” she added.
Cathie Wood lays out her views on inflation woes and believes the real issue is deflation
“Technology is a deflationary force leading to a productivity boom,” she said. But it also has widened the wealth gap, bearing in mind technology is owned by tech monopolies, the “Magnificent Seven.”
Cathie Wood sees super-exponential growth with the convergence of technologies.
“We think in the next 5 to 10 years you will not recognise the world as it is today,” she said.
“North of 50% of assets under management are passive style mimicking the benchmark”
CATHIE WOOD
Cathie Wood lays out her views on the future of school education
Ark Research has been made age-appropriate for 6th graders so that Ark Research is the science curriculum for all science throughout soon-to-be Middle School.
She thinks the next generation of digital technology will be a leveller and believes school children need one foot in it to catch the innovative wave.
“The future of investing is investing in the future” – Cathie Wood
Autonomous mobility; Cathie Wood lays out her views
Sees autonomous mobility, and transportation as the biggest revenue. 20% of all the parking spaces is all we will need.
She sees more congestion but we will take to the skies that started our air taxi move.
She believes that electric autonomous cars will be a third cheaper than car ownership when factoring in insurance depreciation maintenance.
Safety will push autonomous vehicles, she argues.
“The number of miles between accidents for the average car on the road on a surface street, dirt street driving not highway is 190K miles on average. In a Tesla without FSD, that number is approximately 600K miles. In a Tesla with FSD it is 3.2 million miles,” said Cathie Wood.
“This is how Volvo made its brand and name through safety,” she added,
She thinks sanctions placed on China will encourage them to become much more creative and innovative
Slapping tariffs on Japanese cars in the 80s in the US, encouraged Japan to improve quality and innovation.
Cathie Wood lays out her views on AI, which passed the Turing test a few years ago
“In 2019, futurists said Artificial General Intelligence AGI was 80 years away. Today, they say eight years away.
If they continued to make the same forecasting error, it could be 3 to 4 years away,” she said.
She believes AI is not a bubble. “There could be too much capital chasing the same thing.
We have been pulling away from Nvidia mostly because we see how well-understood that story is. The companies in our portfolio which are hugely undervalued and do not understand what AI will enable are those with deep domain, AI expertise especially, good distribution, either alone or with partners and most importantly harnessing that proprietary data,” she said.
ARKW ETF fund is the most AI-focused fund.
She noted that AI driven drug discovery companies reduce the cost of new drugs.
95% of trials fail, which will drop by 75%, and that will be a huge unlock of resources.
Wood’s fund owns all the CRISPR stocks. “The future of investing is investing in the future,” and she added
“These benchmarks are all about the past.
She thinks that people who understand economics from the Austrian school are making sense of all this.
The best way to become a billionaire is to help a billion people.
She thinks regulations and government policy are typically in the way.
“Long holders are unlikely to sell if the big institutions have not moved into the new asset and have to consider it” – Cathie Wood
Cathie Wood lays out her views on Bitcoin
“Morgan Stanley, UBS, Merrill Lynch, Wells Fargo, not one of them has approved Bitcoin on its platform.
That has not even happened yet, and those are our primary clients.
When that happens, wait until you see. It is not just technology but a new asset class,” she said.
“It is the first global, private, rule-based, no-government oversight, digital, decentralized monetary system in the history of humanity.
It is a big idea,” she added.
Indeed, it is so big countries like El Salvador decided to store a chunk of their foreign reserves in Bitcoin. During the last bear market, endless stories were ridiculing El Salvador.
He who laughs last, laughs best.
With a fixed number of Bitcoin tokens in circulation, if these institutions want to own it the potential of it going higher is real.
“Long holders are unlikely to sell if the big institutions have not moved into the new asset and have to consider it,” she said.
Moreover, what happens if El Salvador, the once laughing stock of holding reserves in Bitcoin, becomes the norm?
