nInterviewWithCathieWood
ounder,ARKInvestment
anagement
HowTesla,
BitcoinAre
Changing
nvesting
yLeslieP.Norton
THERINE WOOD FOUNDED ARK INVESTMENT
anagement in 2014 to focus solely on disrup-
e innovation. The name itself—an acronym
r Active Research Knowledge—signaled that
ood would be early to disruptive investments
ch as Bitcoin and Tesla. Today, the firm
anages $8.4 billion in assets, including
9 billion in exchange-traded funds.
Before founding ARK, Wood was a hedge-
nd manager, chief investment officer of
obal thematic strategies at Alliance-
rnstein, and an economist at Jennison Asso-
ates, which was founded by superinvestor
d mentor Sig Segalas. Another mentor, from
ood’s undergraduate days at the University
Southern California, was economist Arthur
affer. Last year, Wood was named to the
oomberg 50 list of key figures in business,
tertainment, finance, politics, technology,
d science. Wood chatted with Barron’s about
r outlook for growth, Bitcoin, and Tesla. An
ited transcript follows.
rron’s : The yield curve is inverted, which
eans that investors have bid up long-term
nds to the point that their yields are below
ose of shorter-term bonds. This usually sig-
ls that investors are bracing for a recession.
t you expect more growth. Why?
ood: The period we’re in right now is like
e 50 years ended in 1929, when telephone,
ectricity, and the internal combustion engine
ere all invented. they caused incredible
owth opportunities, incredible productivity,
credible wealth generation. It’s hard to get
e data on the yield curve back then, but we
combustion engine. It will be a no-brainer to
shift. Our bear case for Tesla in five years is
$600, if it loses two-thirds of its global marke
share, which is 17% right now of the electric-
vehicle, or EV, market. Our bull case on elec-
tric vehicles get us to $1,400 per share [witho
counting the boom in autonomous vehicles].”
Once you go into autonomous, the number
move up dramatically because unlike the EV
space, where gross margins are 25% to 30%,
you’re talking about a software-as-a-service
model: The cars will be networked and pow-
ered by artificial intelligence, and margins wi
be closer to 80%. So the blended margin that
Tesla will enjoy in the bull case will be north
50% to 60%. Nobody else has margins any-
where near that, because they don’t believe in
autonomous.
What else do you like?
We have three gene-editing companies in the
top 10 of the flagship fund: Intellia Therape
tics [NTLA], Crispr Therapeutics [CRSP],
and Editas Medicine [EDIT]. If I had told
you during the tech and telecom bubble that
there would be new technologies and therapi
evolving thanks to DNA sequencing, CRISPR
gene editing, and CAR T-cell technology that
would cure cancer, blindness, lots of diseases
and that there were three companies with
foundational patents—the market might have
taken these stocks into the $300 billion mar-
ket-cap territory, but the three can’t even get
to $5 billion combined [because] we’re on the
flip side of the tech and telecom bubble. Ther
is so much skepticism.
Every health-care analyst is going to have
to be extremely comfortable with technology.
The foundational stock in the genomic portfo
is Illumina [ILMN], whose machines are re-
sponsible for 95% of all the base pairs of DN
sequenced in the world today. Our minimum
hurdle is 15% compound annual return a year
averaged over a five-year period.
What’s the thesis for Square [SQ]?
It’s going to disintermediate the banking sys
tem with its Cash app and its superior data o
customers and users. You can buy and sell Bi
coin without paying a fee in the Cash app. It
will enable microfinance everywhere around
the world. Square’s Cash app users are grow
ing more than 100% year over year, while
Venmo’s are growing more than 50%. As of
now JPMorgan is the only bank with more
users than Venmo on the digital side.
What’s the biggest risk to your investing style
From a short-term perspective, if value came
back into favor and there were reversion to
the mean. However, over a five-year period,
these innovation platforms will win out.
finally found a chart that goes back into the
1860s. The yield curve was inverted during
that 50-year period more than 50% of the time,
particularly during periods of the most rapid
growth. When technological innovation is
exploding, real growth is very strong.
How does technological innovation show up in
the yield curve?
Short rates are influenced mostly by the rate
of economic growth and go up quite a bit.
Long rates don’t go up that much. The yield
curve tends to invert because technologically
enabled innovation is deflationary. This is good
deflation, not bad deflation. During that 50-
year period, short rates averaged 4.88% and
long rates averaged 3.88%. It was an inverted
yield curve, but the actual level of interest
rates was higher than it is today. If we’re right
today, imagine how much growth there is go-
ing to be out there. The whole yield curve will
move up. It’s just that short rates will move up
more than long rates.
How much inversion could we see?
The inversion today is close to 20 basis points
[0.2%]; we could go at least another 80 basis
points. Back then, there were three innovation
platforms, as I said. Today, there are five:
DNA sequencing; robotics with collaborative
robots, or cobots; energy storage, and Tesla is
pushing the envelope there; artificial intelli-
gence, which has an even bigger impact than
the internet; and blockchain technology. All of
these are inherently deflationary and will stim-
ulate unit growth. So we’re pretty excited, and
we think that inversion could easily, on aver-
age, be bigger this time around than it was
last time.
What are the market implications?
Since the tech and telecom bust, and then the
2008-09 [financial crisis], the move toward in-
dex investing accelerated because of risk aver-
sion. The irony is that indexes are going to be
disadvantaged in that new world because they
contain value traps, which are created by these
five innovation platforms. There will be a lot of
disruption, a lot of disintermediation, and the
indexes will underperform any innovation-
based strategy that is on the right side of
change. We’re talking about exponential
growth.
For example, the number of electric-vehicle
sales will jump from 1.45 million last year glob-
ally to 26 million in 2023. That’s almost a 20-
fold increase in five years. Our confidence in
that forecast has increased because China is
starting to subsidize. Artificial intelligence will
power every line item of the income statement,
and blockchain technology, as well. That’s flip-
ping the world upside down from the past 20
years The irony is that the internet bubble
too much capital chasing too few opportunities.
Tech is a major part of the indexes—so won’t
we see gains for those companies, too?
I don’t know. Some innovations will disadvan-
tage technologies that people feel pretty safe
with right now. In the old days, you never got
fired for owning IBM. Today, yes, you can be
fired. That’s going to happen more broadly.
Financial services are being disrupted left,
right, and center. Mobile payments in China
have gone from $1 trillion to $26 trillion in four
years. It’s going to make banks pure commodi-
ties, so we don’t own any banks. Or energy
stocks—we’re going to see autonomous taxis,
with utilization that’s much higher than that of
our personal cars. You and I use our cars
roughly 4% to 5% a day; for autonomous vehi-
cles, that number will be north of 50%. Com-
modity prices are determined at the margin,
and at the margin, we see the destruction of
oil demand, which will impact oil stocks, start-
ing in the next few years. Gas-powered autos
are in real trouble. Auto companies have to
insinuate themselves into some autonomous-
taxi network platform. Otherwise, most will fail
or be consolidated out of existence.
You’re best known for your bullishness on
Bitcoin and Tesla. Let’s start with the first.
Give me a decent time horizon, like five years,
and my confidence on Bitcoin has increased
substantially, for a couple of reasons. Its share
of the cryptoasset ecosystem network value
has gone from the low 30% range to the high
50s. It has proved that it’s the reserve cur-
rency of the cryptoasset ecosystem, like the
dollar in the world today. We did our first
white paper on Bitcoin in 2015. I remember
asking Art Laffer how big this could be. The
network value, or market cap, of Bitcoin was
something like $5 billion. He said, “How big is
the U.S. monetary base? There’s your answer.”
At that time, it was $4.5 trillion. I’m not going
to tell you we’ll get there in the next five
years, but we could get halfway there, from a
networked value of $175 billion today to
$2 trillion.
Your new price target for Tesla [ticker: TSLA] is
$6,000, up from $4,000, even though it’s having
a terrible year. It’s now about $240.
We don’t talk about it much because people
don’t even believe $4,000. Our most important
assumption is [demand for] electric vehicles,
given the battery-cost declines and the new
chemistries coming out of Tesla. We believe the
average electric-vehicle price will drop below
the average auto price in the next two years.
In five years, a Toyota Camry will still be
around $25,000, but a 200-mile-range electric
vehicle will probably be $15,000. They will be
cheaper and they’re better vehicles with a
“Infiveyears,
aToyota
Camrywill
stillbearound
$25,000,buta
200-mile-
rangeelectric
vehiclewill
probablybe
$15,000.”
Wood’sPicks
Tesla/
TSLA
RecentPrice:
$233.85
Intellia
Therapeutics/
NTLA
RecentPrice:
$18.09
Crispr
Therapeutics/
CRSP
RecentPrice:
$52.56
EditasMedicine/
EDIT
RecentPrice:
$25.78
Illumina/
ILMN
RecentPrice:
$301.66
Square/
SQ
RecentPrice:
$80.98
Source: Bloomberg