Confronting Cathie Wood About Her Fund’s 70% Decline
Audio Brief
Show transcript
This episode features Cathie Wood, discussing her career path, ARK Invest's recent performance challenges, and her vision for the future of artificial intelligence, particularly with Tesla.
There are four key takeaways from this conversation. First, proactive career growth stems from adding unique value beyond job descriptions. Second, historical economic shifts provide context for understanding new assets like Bitcoin. Third, investment models are vulnerable to unforeseen external factors, as seen with supply chain disruptions. Finally, the next frontier of AI is embodied intelligence, with real-world data collection as a critical advantage.
Wood's early career success came from actively introducing new technologies and perspectives, becoming a "force multiplier" that enhanced her superiors' and team's effectiveness. This approach prioritizes innovation and value creation over merely fulfilling assigned tasks.
Her mentor, Art Laffer, saw Bitcoin as a potential global rules-based monetary system, reminiscent of a solution needed since the US abandoned the gold standard in 1971. This perspective highlights how foundational economic principles can illuminate the validation and role of modern technological innovations.
ARK Invest's recent underperformance is attributed to the unprecedented post-COVID supply chain crisis, which broke their "unit growth" driven models. Wood acknowledged not meeting their five-year return goals, emphasizing the importance of identifying core assumptions and external factors that can disrupt investment strategies.
Wood posits that the largest and most significant AI project today is Tesla. Its vast real-world data collected from autonomous driving is uniquely positioned to drive the future of embodied AI, particularly in the multi-trillion dollar market for humanoid robots.
This discussion underscores the importance of adaptive thinking in investing and career development, driven by historical context and a keen eye on disruptive technologies like embodied AI.
Episode Overview
- Cathie Wood discusses her career journey, from her first job at McDonald's to being mentored by economist Art Laffer, who later validated her interest in Bitcoin.
- She shares her early career philosophy of proactively adding value by introducing new technologies and making her superiors more effective, rather than just fulfilling a job description.
- Wood directly addresses ARK Invest's recent underperformance, explaining how the post-COVID supply chain crisis broke their "unit growth" models, leading to a significant downturn after a 150% gain in 2020.
- Looking forward, she identifies Tesla as the world's largest and most important AI project, citing its massive real-world data advantage for both autonomous driving and the multi-trillion dollar opportunity in humanoid robots.
Key Concepts
- Humble Beginnings and Mentorship: Wood's career started with jobs at McDonald's and was launched by a pivotal mentorship with famed economist Art Laffer, who became a key influence on her thinking.
- Proactive Career Mindset: Early success is achieved not just by working hard, but by proactively bringing new technology and unique value to make your entire team more effective.
- Connecting Economic History to Modern Assets: The conversation links the 1971 abandonment of the gold standard to the rise of Bitcoin, which some view as a modern, global, rules-based monetary system.
- Performance and Accountability: Wood acknowledges that ARK has not met its five-year goal of a 15% compound annual return, attributing the volatility to the unprecedented COVID boom-bust cycle.
- Unit Growth as a Core Metric: ARK's investment models are fundamentally driven by unit growth projections, a key vulnerability that was exposed by unforeseen global supply chain bottlenecks.
- The Future is Embodied AI: Wood makes a strong case that the next frontier of AI is in the physical world, positioning Tesla as the leader due to its vast real-world data collection for autonomous vehicles and humanoid robots.
Quotes
- At 2:55 - "This is what I've been waiting for since the US closed the gold window in 1971, a global rules-based monetary system." - Cathie Wood recounting Art Laffer's enthusiastic reaction after her team introduced him to Bitcoin in 2015.
- At 5:51 - "My objective was to bring new technology into the firm." - Cathie Wood describing her mindset early in her career, focusing on adding unique value rather than just completing assigned tasks.
- At 16:52 - "You are absolutely right. We have not done that." - Wood directly acknowledging that ARK's recent five-year performance has not met their stated objective of a 15% compound annual return.
- At 20:36 - "The problem was supply chain bottlenecks. Our models are driven by unit growth." - Identifying the primary reason for the subsequent downturn and a key lesson learned about their modeling assumptions.
- At 31:58 - "Tesla is the largest AI project on earth." - Answering the question of the single best stock to own for the AI wave, pointing to its physical, real-world data collection.
Takeaways
- To stand out early in your career, focus on becoming a "force multiplier" by introducing new tools and perspectives that make your boss and team more successful.
- Foundational economic principles from the past can provide a valuable lens for understanding and validating modern technological innovations like cryptocurrencies.
- It is crucial to understand the core assumptions and drivers of any investment strategy and to identify the external factors that could potentially break the model.
- The next major wave of AI innovation may be in "embodied AI," where companies with massive real-world data sets for physical applications like autonomous driving and robotics hold a critical advantage.
