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Cathie Wood on AI, crypto, inflation and investment strategy

Cathie Wood commands a large and loyal following in the investment and tech world due to her unabashed belief in disruptive innovation and unique insights into the financial markets.

Wood’s distinctive views were on full display during Thursday’s poweredUp Tampa Bay Tech Festival at the Mahaffey Theater when the ARK Invest CEO sat down with Joe Hamilton, publisher of the St. Pete Catalyst and head of network for Metacity, for an enlightening fireside chat.

Before offering her thoughts on innovative technology, inflation and cryptocurrency, Hamilton asked Wood to relay a story he never gets tired of hearing – why she relocated her investment firm from New York to St. Pete.

“After we did look at a lot of both no-tax and low-tax states, we were drawn to Florida – specifically, the Tampa Bay region – because of its vibrancy and because it did seem to us like it is going to be the next Austin,” said Wood. “And I do mean the Tampa Bay region because I don’t think St. Pete can do it all by itself.”

Artificial Intelligence 

Wood called breakthroughs in artificial intelligence “mind-blowing.” The investment icon said advancements in the technology are happening faster than she expected, despite ARK “pushing the envelope” on AI’s potential.

Wood said artificial intelligence training costs dropped 60%, combining both hardware and software. She then dropped her first bombshell idea, offering her latest take on the technology that she said was “hot off the research press.”

“This isn’t even in our Big Ideas 2022,” said Wood. “We believe we are six to 13 years away from the Holy Grail – artificial general intelligence. At which point we will see an inflection point in productivity, and it’s going to be pretty mind-blowing.”

An artificial general intelligence (AGI) is a machine capable of understanding the world like any human and with the same capacity to complete a wide range of tasks.

Cryptocurrency

Hamilton asked Wood for her thoughts on last week’s $40 billion collapse of the popular crypto token Luna and its associated terraUSD stablecoin (UST). Terra was the first major attempt at an algorithmic stable coin meant to retain a $1 value at all times.

Wood replied that she participated in a podcast with the founder of Terra about 18 months ago, and after relistening to the conversation, she realized it was “a Ponzi scheme.”

Wood noted that the number of Luna tokens in circulation went from around 300 million to 6.5 trillion in just six weeks.

“They adopted the U.S. (monetary) policy on that,” said Hamilton, eliciting laughs from Wood and the audience. “Well, you make a good point on that,” she replied.

Still, Wood remains extremely bullish on Bitcoin. She called the apex token, designed to stop minting once 21 million units are in circulation, a good store of value. She said the cryptocurrency uniquely and positively impacts emerging markets and provides an insurance policy against the confiscation of wealth in several ways, with inflation the most pervasive.

“So, we’re out there saying, and you can find this in our Big Ideas 2022 on our website, a $1 million target,” said Wood. “It’s actually $1.3 (million). So, this is a money revolution, and we do think it is going to spread through the world …”

Inflation

Hamilton noted that Wood has previously stated that innovation is one of the strongest hedges for inflation due to its cost-reducing effects. Wood called the last year the most difficult time of her career in terms of inflation and deflation, even worse than the Great Recession of 2008-09.

She blamed the mainstream narrative of inflation and interest rates for increasing the discount factors used to present the value of future cash flows. As interest rates rise, the present value of future cash flows drops, which Wood said disproportionately affected her investment strategy.

“We have been fighting this notion that inflation … has now reached a point where it’s embedded in the system and is going to move into wages,” said Wood. “I know the wage rates here – we were talking backstage – have skyrocketed, but I think this is a special situation.”

Wood said she is fighting the narrative that America is in a situation similar to the 1970s, where inflation embeds in the system, and people should “get used to it and operate around it.” She said the market holds significant deflationary forces, which she believes is the greater risk.

“The risk is you stop innovating and lowering costs,” said Wood.

Investment strategy

Wood said that while many people expected an apocalyptic scenario for her company over the last year, with nothing but outflows from her investment funds, ARK netted $17 billion in 2021 and continues to receive strong inflows. She explained that her young team of analysts remains focused on a five-year outlook and recently concentrated ARK’s portfolios on its “highest conviction names.”

Wood said her flagship strategy, the ARK Innovation ETF(ARKK), went from holding 58 companies to 35. Contrary to most investment strategies, she explained concentration is a risk-control measure for ARK. She said that many of the stocks ARK dropped lost visionary managers willing to stand up to short-term-oriented shareholders.

“It’s so interesting to watch our portfolios almost become negatively correlated to the stock market,” said Wood. “So, that’s been the story of the past few years.”

Hamilton noted the five-year outlook mimics the mindset of a venture capitalist, and Wood said she started her company by stating that ARK is “the closest you’ll find to a venture capital company in the public equity markets.”

Wood added that ARK offers all its research to the public, feeding her clients with transparency not found anywhere else. She said the investment firm would continue to publish its models because the traditional financial world underserves innovation investors.

Wood said she becomes concerned when a traditional company buys an innovator, stating that NewsCorp bought the once-popular social media platform MySpace and “killed it with advertising.”

Wood encourages the companies she invests in to spend aggressively now and capitalize on massive growth opportunities. She believes that ARK’s focus – “truly disruptive innovation” – is valued at roughly $7-8 trillion, less than 10% of the global equity markets.

“By 2030, we believe that $7-8 trillion will be $210 trillion and that it will dominate the benchmarks out there,” said Wood. “In other words, there’s going to be a lot of disruption.

“Tesla, we were beating the drum on that, and nobody believed us. Nobody believed us, and boom – they scaled.”

The post Cathie Wood on AI, crypto, inflation and investment strategy appeared first on St Pete Catalyst.

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