Cathie Wood, the Best Investor You’ve Never Heard Of
Given our idiosyncratic style of investing, we have become accustomed to people giving us a bit of stick for how we think, write and invest. Life simply wouldn’t be as interesting without such criticism. Hence we always perk up when we come across investors elsewhere who also think and invest using methods which are off the beaten path. Here is one such investor who has been profiled by Bloomberg: “Who is Cathie Wood? She’s already in the pantheon of top money handlers over any period in the past five years, and has been the most persuasive — and so far prescient — champion of Tesla Inc. Her actively managed Ark Innovation ETF is the best performer among 584 funds with at least $1 billion of assets in the global equity market, crushing the likes of BlackRock with a return of 165% (income plus appreciation) the past three years, and she beat 99% of them since Ark Investment Management LLC became a registered investment adviser in January 2014…”
One of the things we have noticed is that joining the conventional clique of established investors (and thus wining & dining with them) is a waste of time. Ms Woods too seems to be a non-establishment kind of person: “You won’t find her at the Barron’s Roundtable, which “gathers some of Wall Street’s best minds.” She was included in the Bloomberg 50: The People Who Defined Global Business in 2018.”
Ms Woods’ success highlights something that many people – including us – widely misunderstand – an ETF doesn’t necessarily have to be a passive stockpicker: “Since its inception, Ark has earned almost 2.4 times more than the S&P 500 and 1.7 times the Nasdaq, according to data compiled by Bloomberg. At a point when money management mostly is a passive, index-driven business, Wood is a discerning stock picker with about $11 billion of assets. Her selection of health-care juggernauts Juno Therapeutics Inc., based in Seattle, and Invitae Corp., in San Francisco, returned 286% and 173%, respectively, in the past three years. Choosing Palo Alto-based Tesla and Buenos Aires-based MercadoLibre Inc. among consumer discretionary companies netted 185% and 269% in her fund, according to data compiled by Bloomberg. “We’re all about finding the next big thing,” said Wood…”
Most interestingly, going by the Bloomberg piece, Ms Woods’ success seems to be based on understanding her investee companies more than anyone else does. This seems to be particularly true of her position in Tesla: “In 2016, when Tesla plummeted 11%, and 75% of the analyst recommendations opposed any purchases, Wood almost tripled her Tesla position to 5,072 shares. The following year, after Tesla appreciated 46%, and 68% of the analysts remained bearish, she enlarged her stake more than 13 times to 67,653 shares, according to data compiled by Bloomberg. When Tesla rallied 26% last year amid tepid recommendations from 70% of the analysts, she almost doubled her stake to 471,594 shares. Tesla continued climbing this year — 91%, the best performer in the Nasdaq 100 index and No. 1 among the 500 most highly capitalized U.S. companies. Wood was a consistent seller during the rally — reducing her holding to 292,000 shares — solely to keep her Tesla stake at the designated maximum 10% of her fund.
“If we hadn’t sold, Tesla would probably be well north of 20% in the portfolio,” she said during a phone interview last week. “Last year, we were buying aggressively when analysts were saying Tesla was going to run out of cash and go bankrupt.” Tesla still is “incredibly undervalued,” she said.
That’s an opinion considered absurd by most analysts, who insist nothing justifies Tesla’s valuation at almost $150 billion, or 58% more than the market capitalization of global sales leader Volkswagen AG.
On the contrary, says Wood, Tesla’s share of EV sales increased a percentage point to 18% when the so-called Tesla killers — from BYD Co. Ltd and BAIC Motor Corp. in China to Nissan Motor Co. in Japan and Volkswagen, Bayerische Motoren Werke AG and Daimler AG…”
Wood believes the legacy automakers will lose money on their EVs, while Tesla becomes increasingly profitable and remains years ahead of its rivals in battery and chip technology. The company also has 14 billion miles of real-world driving data. Its closest competitor, Waymo, has data on 20 million miles.”