Cathie Wood's ARK Does Not Represent Innovation

In episode 224 we discuss Cathie Wood's latest interview and her assertion that she represents innovation.

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[JosephCarlsonShow]

I want to be clear with something on this video:

Cathie Wood seems like a wonderful person. Nothing I commentate on here is about her character or person.

I will however comment on her as a business because she's making decisions with her funds that affects peoples hard earned money. This video examines her fundamental claim that she represents innovation in America and that the legacy tech companies will be disrupted and disintermediated by companies in her fund.

[venomspeed]

As a software engineer i cant wrap my head around the fact that she sold PLTR to buy ROKU and says she likes innovation

[codingfury]

I really appreciate your commentry on ARK invest.

As a new investor (about 1.5 years), I was impressed by the research ARK was doing, I read "Big Ideas", and I liked what I saw. I work in the Tech industry, so the Cathie Wood sales narritive resonated with me.

I'd analysed the holdings in the ARK ETFs before I buying a small amount of each one around the start of 2021 (worst time!). To be fair, I should have known it wasn't going to work out. The analysis tools I used on her portfolios suggested that most of the companies were questionable - high PE coupled with low profitability. But I figured she was more likely than me to pick good growth stocks in the innovation space than a new investor like me, so I carved off a slice of my portfolio and bought in to see how it would fair.

As time went on, and the portfolios weren't doing so well and I looked into the companies in each ARK portfolio in more depth, and I started questioning some of her plays, particularly Zoom and Roku. I've been wondering for a while if I was missing something on these fronts (some big innovation that her research team had discovered, but that I'd missed?) it's great to hear that you've come to the same conclusions as me - there's no real innovation there.

I'm now fully out of ARK funds, although I do find it helpful to read their research.

I started off investing with 4 different strategies. Now I'm down to 3, but as time goes on, my style of investing seems to converging on something very similar to yours. Loving the channel. Keep up the good work.

P.S. My first ever YouTube comment!

[JackDuffley]

When ARK gets pricey: "value investing is dead"

When ARK falls: "this is deep value"

[wcgcapone]

Cathie Wood is the definition of mistaking a bull market for brains.

[nikolasbarkow]

Hey Joseph, great video as always! You always have to question other opinions and Cathie surely is not right about everything. But I want to point out one thing about Roku, which a lot of people just don’t get: Roku doesn’t depend on the Roku stick, but on the Roku OS itself. The software is pre installed on more than 30% of all smart TVs in the States and Canada - and this number is even improving I guess. So 30% of all households already contribute to Rokus success. They make money with suspicions of any streaming service though their OS and are growing their add businesses dramatically as well. And advertisment in the streaming TV business is just getting started. And Roku is more or less the shovel company in this business right now.

[japin]

I'd love to see Joseph do a video on Chamaths SPACs 😆 🤣 😂

[AnishSana]

I almost always find you to be impartial, but I think you kinda molded this one to drive home your points -

1. Cathie never said that Amazon or Google are not innovative companies. She actually speaks highly of the FAANGs but thinks that they're very well understood by the market. Ark actually holds both, Amazon and Google. What she meant by there's "risk in the indexes" is that index investing by nature is investing in companies because they exist in an index, not because you understand what that company does or if there's a future for it. There are so many companies in the S&P500 that get investor dollars simply because they're in the index. This is a highly studied but controversial topic. Also, she meant that there are companies in indexes that will run out of business due to disruptive innovation. So, over the long term, holding only the index will result in poorer returns compared to picking the winners out from the index. Even Peter Lynch agrees with the same.

2. You really cherry picked her holdings when going through the list where you jumped from Zoom to straight Draft Kings and RobinHood. Just after Zoom, there's Coinbase - largest crypto exchange platform, Exact Sciences - early-stage cancer detection, Unity - tool set for building the Metaverse, UiPath - Robotic Process Automation, Intellia - CRISPR genome editing, etc.

[NickPeitsch]

Love this video Joseph, thanks! I think Tesla is incredibly innovative - and is one of my largest holdings. But many other companies like Roku are garbage.

[jgledhil]

If she hadn’t got lucky with Tesla, would we have even heard of Cathie Wood?

[nthomp]

Joseph Carlson: Valuations are extremely important in investing
Joseph Carlson After Hours: Nobody cares about valuations 😎

[ARFFWorld]

How can you be on a five year horizon, but sell $Palantir and others every week.

[tmloc]

She also predicted no inflation last year. She believes it is short term until fed removed the word transitory.

[davidwilson]

Warren Buffett has seen his portfolio go down 50% 3 times in his career. In the end holding for the long term wins.

[timminore]

Good video. I kind of agree with both of you. I think she is right that you have to give them 5 years, and that you shouldn't bet against innovation. But I agree with you that her mix of innovative companies is perhaps not ideal. I would rather have a hybrid portfolio or a "barbell" portfolio with the top stocks in the QQQ (FAANNG), combined with smaller companies like OPEN PLTR UPST that are more risky but have a lot of potential.

[lukesullivan]

i’m a young age and a lot of my buddies put a lot of money into ark k when it was starting to run up and i instead just bought SCHD. i am definitely happy in my choice

[gllruk]

Well I have never heard Cathie Wood argue that current big techs are not innovative. My understanding of her thesis is that you would receive much bigger return in long term horizon when you bet on more disruptive companies. Of course these small cap companies would go through crazy drops as we all witnessed with Tesla. I do agree with you that not all companies that she holds are as innovative as she argues, but at the end if she made a right choice on a few of them as she did with Tesla, I think she can win at the end.

[Word]

I'm not invested. But I like how transparent the fund is by always sharing their buys and sells
This should be a market standard

[NickPeitsch]

I will admit I do like the Shopify holding. Shopify seems to be very good value now!

[romanz]

Great video Joseph! thanks. Totally agree with you.
In my opinion, Apple, Amazon, Google are much more innovative than 90% of ARKK ETF. In addition, they are like 10 times more stable and proven and often valued much cheaper.