Every bull or bear market sees the emergence of an investor incarnating the brand new narrative. Beforehand, we lined Michael Burry, whose profession is now outlined by his “Huge Quick” in 2008. The 2010s bull market may as effectively be remembered as Cathie Wooden’s bull market.
Wooden was within the highlight and one of many main promoters of the foremost inventory tales of the interval. She benefitted handsomely from her absolute religion within the progress know-how shares that got here to dominate the market for the reason that 2008 disaster.
As a result of Ms. Wooden is such a well-known determine, she can be profoundly polarizing. Some traders contemplate her a visionary. Different traders 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 Wooden?
Catherine Duddy Wooden 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 progress was in the course of the dot-com bubble. At its peak, Wooden managed $800M in property at Tulepo Capital Service. She left the corporate in 2001. After Wooden left, by the tip of the yr, the agency was managing solely $200M (possible from each crashing inventory costs and redemptions).
Wooden has specialised in investing in innovation and disruptive know-how. She is a fervent believer in progress and the potential of know-how to ship exponential progress. She can be a powerful proponent of democratizing finance, particularly for ladies.
Cathie Wooden’s Investing Technique
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 achieve and is again to $46.
ARKK was notably closely invested in among the quickest shifting and controversial investments, like Tesla and Bitcoin. General, Wooden’s technique could be very pro-cyclical. She invests in corporations with large progress potential and units very bold value targets. For instance, she predicted that Tesla would attain a worth of $3T and predicted a $1M value for Bitcoin.
Which means when markets are optimistic and booming, Wooden’s holdings are prone to outperform. However when worry of recession or rising charge dampens traders’ enthusiasm, they’re prone to go down.
Contemplating its fall from the 2021 highs, it appears Wooden’s ARKK ETF is on the way in which to replicating the sample of Tulepo in 2001. However, a few of ARKK’s holdings may nonetheless develop and switch into extremely worthwhile companies in the long term.
Wooden’s Opinions on Present Markets
Wooden precisely warned that the US financial 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 mistaken name with the identical prediction on the finish of 2021. Equally, she nonetheless expects deflation to be a a lot greater drawback than inflation in the long term.
General, she believes that radical innovation in mobility, power, IT, and biotech will seriously change the world and usher in a brand new period of secular progress.
Regardless of a rocky first half of 2022, Wooden appears extra assured than ever about her potential to ship excellent monetary returns.
A yr earlier, she’d thought her agency, ARK Make investments, would ship annualized returns of 15 p.c, she acknowledged, establishing what appeared like a mea culpa for her poor efficiency. As an alternative, she doubled down: “Now we expect 50 p.c.”
Cathie Wooden’s Inventory Picks
Cathie Wooden’s high holdings are targeted on disruptive tech, notably electrical automobiles (EVs), biotech, and distant telecommunication/streaming.
Her high 5 holdings are Tesla, Zoom, Roku, Teladoc Well being, and CRISPR Therapeutic.
As a rule of thumb, most of Wooden’s picks have the next attribute:
Targeted on innovation, usually creating completely new markets (EVs, gene modifying, and many others…).Investing massively in progress, miserable present earnings as all money generated is reinvested.Very expensive by metrics like free money movement or P/E.Explosive progress, usually rising income at 20%-50% yearly.Common inventory providing or capital elevating to fund hypergrowth, resulting in some dilution.Excessive volatility, with good possibilities of particular person shares going up and down x3-x10 in a yr.
Relating to sectors or funding concepts, Wooden’s favourite themes are:
Work at home 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 function in the way forward for finance.3D printing, area tech, AI, and robotics will energy cost future GDP progress.
Cathie Wooden’s funding philosophy takes progress investing to an excessive stage. She’s brazenly and unashamedly abandoning worth investing rules and searching for out corporations not for what they’re, however for what they could possibly be.
This is usually a very worthwhile technique, as ARKK proved in 2020, but it surely can be a really dangerous technique, as ARKK proved in 2021 and 2022.
A full dedication to an ARKK-style technique would in all probability be past the danger tolerance of the common investor, however the rules actually have a spot in an expansionary interval.