What Cathie Wood JUST Said on CNBC

kathy woods arc etfs which saw record

inflows earlier this year

are getting whacked with the broader

tech weakness all five of arkhanvest's

actively managed etfs are now negative

for 2021. joining us now for a first on

cnbc interview is arc invest ceo

kathy wood kathy welcome back to the

show good to have you

great to be here sarah thank you

it's been amazing to watch your rise and

your funds rise over the last year and

yet

the past few weeks have been absolutely

brutal the ark innovation etf down 31

from from the recent highs how concerned

are you about these

rising interest rates and what that's

doing to a lot of your high growth

companies

about valuations sure uh well we've been

struck that

uh the market never priced in 0.5

one or 1.5 interest rates

uh we think the market never believed

interest rates would stay down here and

so

it it over time we believe has used sort

of a normalized

three to five percent uh so we we don't

think that is why the market is uh

correcting here we do think the speed of

the

increase in interest rates is scaring

people

uh it became very comfortable in a low

interest rate environment nothing that's

what i said it's the rate of change

uh to to become involved with the market

and i think

this has shaken a lot of investors up

maybe

perhaps and i would say even in the bond

market

in particular we've been in a 40-year

bull market in bonds

so i think there's a lot of confusion

and i i think there's a little bit of

paralysis here

i also think that there is a very rapid

rotation now into value stocks we've

seen

energy up year-to-date uh 39 financials

up about 16

uh those are traditional value sectors

uh

and so i think that's been part of the

reason for

ark's uh setback but if i could add

a little perspective to this this

happened to us

in the fourth quarter of 2016 as well

right after president trump was elected

the stock market took off because tax

rates were going to go down and so forth

and so

the market started pricing in a very

strong cycle

uh which was correct uh in that

period of time our our strategies went

negative

and what i said at the time and what i

believe now

is that the bull market was

broadening out to incorporate value or

more cyclical sectors

and i thought that was going to be very

good news for our strategy

longer run the worst thing that could

have happened to us

was another tekken telecom type bubble

where the market

narrowed narrowed so that only a few

groups won

right now the market is broadening out

and we think in an

underlying sense the bull market is

strengthening

and that will play to our benefit over

the longer term

how about tesla specifically which is

now off 37

from the recent highs is down another

more than 5

today everyone wants to know what your

new price target is

kathy because the last time you gave

that price target

it seemed crazy to a lot of people and

then not so much when tesla actually

rocketed 700 percent

so where are you now on where that stock

goes

well we're about to publish i i'm hoping

it's within a week or two

our new forecasts our confidence in

tesla

has gone up for a number of reasons one

it didn't lose

share of the electric vehicle market

when all of the

traditional luxury brand names started

bringing their own electric vehicles to

market

now we expect it will lose share but our

expectation is

was that its share would go from 17 at

the end of 2018

down to 11 as more electric vehicles

were coming out

instead what happened that share moved

up to

more than 20 percent and roughly 80

percent

in the u.s market 80 of electric

vehicles

so that's the first source of confidence

market share up not down

the second is autonomous

we believe that uh elon musk

who over the weekend tweeted out that he

would

offer or tesla would offer uh full

service driving

uh to anyone who wanted it i

saw an incredible burst in demand so for

him to be able to do that suggest to us

that

he's going to be able to show us the way

to autonomous

much faster than most analysts and

investors expect so

our our the probability we have put on

uh tesla really winning the lion's share

of the autonomous taxi network market in

the united states

also has gone up so you might imagine

the price targets have gone up

considerably i have a broader question

on tesla in a moment kathy but but

quickly first

on on self-driving technology are you

saying all of the revelations

and news from the company in the last

couple of weeks has only improved your

outlook on the company because some

analysts

based on the response to freedom

information request uh

were underwhelmed by by the out the

outlining that they're more like

level two in terms of that technology

than perhaps some expected

uh the announcement to be well we

believe

uh that tesla has been doing this

differently uh

staging uh the movement into autonomous

differently from

other companies like waymo and cruise

automation

uh and so i can understand why there's

some confusion

uh we think that uh their strategy is

not market by market

ultimately but national uh and so

i i i think there's a misunderstanding

about how they're going to market

um my broad question on tesla kathy and

you have been

so right on this company and so many

other companies that that you know i sit

and think who am i to even bother asking

this question but but i think it is fair

to compare things today to amazon uh

to to people who were right to be

bullish on amazon as

as it pulled back in 1999 for a couple

of years because of where it is now but

it did take

almost a decade for it to get back above

its pre-pullback 99 peak

during a period of time when it

continued to take market share continued

to grow revenues continued to grow

profit

but there was a nine-year period where

the share price

was underwater is that not possible to

apply

to tesla going here even if you're

absolutely right that the company's top

and bottom lines

continue to grow continue to take share

well i know the amazon story well

because i

was living eating and breathing at the

entire time

so what we saw in the tekken telecom

bust was

uh the recognition that uh we were not

ready for prime time for

a lot of the companies evolving at that

at that time and so there were a wave of

bankruptcies

uh and uh and the psychology became

well uh many people thought that the

internet was a figment of

wall street's imagination and that no

one would make any money off of it

and amazon included and the time period

you're talking

uh about wilfred was when um

amazon basically was saying look we will

we will be as close to cash flow neutral

as possible

but we are going to turn every revenue

uh dollar we possibly can back into

investing

that's how they won but they did not

show profitability

not any substantial profitability but

often losses

for for many many years they just

believed that if they

uh if they invested aggressively at that

time

that they would win the lion's share of

the uh

online retail market and that was

absolutely right i think that tesla has

already passed through that

uh uh phase of its life it did invest

aggressively and it has on

on four metrics uh it is

leading the charge so to speak so

battery technology

costs lower than anyone else's out there

and will remain lower

uh artificial intelligence chip it

designed its own no one else

has designed its own chip this is

analogous to

apple in the day smartphone uh or no

cellular uh companies nokia ericsson

motorola

didn't see the future apple did and yet

it couldn't get qualcomm or intel to

move quickly enough it had to design its

own chip

and of course now apple uh basically

accounts for the lion's share of

all the profits from smartphones in the

world we think this is going to happen

uh also with tesla maybe not worldwide

because we know china wants its own

champion

but that ai chip that uh that tesla

designed

our analyst said uh was four years ahead

of where

nvidia was at the time and this was a

couple of years ago

they have more data collected than any

other company by orders of magnitude

not just by any other company but by all

other companies out there

because the largest pool of data

with the highest quality is going to win

in the ai game

they have the largest pool of data and

finally until very recently

tesla was the only automobile

manufacturer

able to improve performance

uh of its cars with over-the-air

software updates

i got my model 3 in 2018 never had a

problem except

a wheel a nail in the wheel which they

couldn't correct over the air of course

never a problem so what they've done is

extraordinary and

i think this is their market to lose i

think they're in a very very

different place also we're not in the

tech and telecom bust

we are 20 years later all of the seeds

for what is happening

were planted back then now they're

coming to fruition

autonomy should have known that tesla

off the session lows down 4.8 percent

kathy

if you would stay with us because we're

going to take a quick break and we have

a lot to hit to when we come back

including crypto i know you're a fan and

some of your other holdings we

saw right there on the wall like

palantir and square stay with us here on

closing valve

we schlatt okay so let's uh

while uh well while they go on a quick

little break here let's do a little

summary as to what was just said here so

uh first thing i want to touch on is the

the you know really what's causing this

uh this is something that look a lot of

people identify trends in a marketplace

and we were actually just talking about

this over here in the uh

in the private course member live chat

which obviously if you haven't joined

yet make sure to check out that coupon

code down below and get yourself that uh

38 off look at that we got a nice little

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you can go down below it expires on

march 15th why not

okay so i need lifetime access too which

is great but anyway

uh kathy what identifies the same thing

that we've talked about on this channel

before very early on that that the

risk here has been the velocity or the

acceleration

rather of rates going up and now how

rates are really consistently

sitting up so it's kind of like that

that rush up that that sort of boop

uh and then now that we're sitting there

is a really potentially driving some of

the anxiety here

i personally think that may have started

this anxiety

but i actually think that this the

rotation

into uh you know recovery stocks is

actually really taking the lead right

now

so it's kind of like if there are two

drivers in a car one is

you know both of them are sitting here

this is the recovery driver this is the

rates driver

i think the rates driver hit the gas

really hard really fast like floored it

and we took off like that caused a big

shock to the market

now the the rates driver is kind of

taking the foot off the gas a little bit

and at the same time the recovery driver

is kind of putting the foot on the gas a

little bit

so it's kind of like you got these

people in charge and tech is just in the

back going oh

that's kind of the way the market feels

right now personally i think

it's just going to be a matter of time

before society realizes that

recovery and rates are stupid drivers of

the stock market and

the tech driver will come back in the

market you know going along with this

analogy here

where tech will circle back and the tech

will include

the end phase and the electric vehicle

stocks all of which which are selling

off to great discounts today

i mean if if you were somebody who was

new to the stock market right now

let's say you had even if you got money

in your portfolio and you're down right

now

to november lows you know certainly

you're not down to like the summer of

last year's lows

try to forget for a moment the rest of

your portfolio as hard as it is to do

and ask yourself okay cool hey if i'm

getting paid on friday

would i buy stocks at today's levels and

when you look at stocks today it's like

man tesla 566 neo 35

yeah i'd consider buying some of that

right in my opinion that's what i'm

looking at

now do i want to buy cheesecake factory

where it is now less inclined to do that

i certainly see way more of a run

potential in neo now

than in cheesecake factory now so

personally i think this this rotation

into

value or recovery is getting a little

overdone one of the downsides of this

that kathy hasn't brought up yet

is the potential for value traps but she

is back on so we'll circle back we're

sticking around i

i wanted to ask about bitcoin a big

picture question over

the next decade do you think it will

prove to continue to be correlated with

risk assets

or will it emerge to be negatively

correlated in a way that you could argue

gold perhaps has been over the long term

or the dollar has been uh in terms of

its correlation with stocks

what's been interesting about the

correlations uh bitcoin to any other

asset class is the correlations have

actually been very very low over time

in fact the highest correlation is

between bitcoin and real estate

now the irs taxes bitcoin as property

but i don't think that's the reason for

this correlation it just so happens it's

that

so we think that as it becomes a

better accepted uh new asset class and

and we are seeing institutional movement

into the space and we're seeing

the diversification of balance sheets

and into from

cash into bitcoin we do think

it will be uh it will behave actually i

would say

more like the fixed income markets

believe it or not

uh if you think about bonds from this

level you know this idea of a 60 40

balanced portfolio is a bit problematic

we've been through a 40-year bull market

in bonds

we would not be surprised to see this

new asset class

become a part of those percentages maybe

60 equity

20 20. uh so i

actually think that might be the biggest

surprise here i wanted to ask about

fintech as well i know you're

a big believer there and i wondered

whether you look at the

incumbent financial companies and banks

in a different light than perhaps

you do the incumbent autos compared to

tesla or the incumbent

retailers compared to amazon 10 or 20

years ago are any of the traditional

banks with all the investment they're

putting into tech whether it's

goldman with marcus city with their

partnership with

google or the investments the big banks

have made into zell

whether any of those banks are

investable as plays on

fintech or are they all going to get

crushed like certain retailers

and autos have been well uh it's

interesting that you say that um

we we have often um expressed

uh a point of view that there's old dna

and new dna

it's very it when when uh the technology

platforms shift

it's very hard for dna uh to

shift from old to new that said you've

seen with walmart you're going to have a

walmart a target a costco so you'll have

maybe two or three mega banks and yes a

lot of them are investing

aggressively now which is what they

should be doing but we do believe that

uh the two of the biggest uh

sectors that will be disrupted in in the

world today are the two that

have been best performing this year

energy and financial services

so choose wisely and make sure you're on

the right side of change make sure these

companies

are investing enough have invested

enough so many companies

simply uh leveraged up to buy back

shares

and now they're facing this huge

investment uh

mandate so make sure make sure that you

invest

in those that will be the survivors and

we do think

that the carnage is going to be pretty

significant in both the

energy and the financial services sector

long term

now uh in a v-shaped recovery and we

think we're in a very strong recovery

right now

they're going to do fine they're going

to do fine and in fact the yield curve

is very wide by recent standards so

that should accrue to the benefit of

financial services

broadly so we're not saying that this is

a fake out

short term but we are saying long term

watch out

yeah kathy just back to your funds

performance just recently and and what

we've been seeing how are you

navigating these heavy first inflows and

now outflows

and my other questions are related to

that is is why are you selling liquid

stocks

for illiquid stocks in a downturn

well it's part of our strategy so in the

coronavirus

uh we concentrated our portfolio towards

our highest conviction name so the

flagship portfolio got down to 33 names

as the bull market extended we added

names it's up to 55 names

many of those names were much more

liquid stocks

and so you're right sarah when we get

opportunities like

this to invest in pure plays

instead of more mature plays still

innovation

but more mature and not as pure play

we will move back into pure play those

are the more volatile names of course

and uh so we're getting great

opportunities and just to give you a

sense of that

our minimum hurdle rate of return for

any stock to enter our portfolio

is 15 over a five-year period so that's

a doubling over five years

now consider the source but given the

very sharp pullback we have had here

recently

uh nothing's changed from our point of

view on our long-term

projections so the only thing that's

changed

is the rate of return so a 25 rate of

return over five years

so we're becoming more and more

optimistic

about our portfolios in the sell-off

we could we could go through a number of

stocks that that you like and that

are all high interest on the street from

palantir to square

why why don't you give us besides tesla

which we know you're a big fan of and

your your conviction has increased there

what where which one you think is the

most underappreciated name

right now in your portfolio that you'd

be looking to add positions to

well um we just went through this this

morning

uh in vitae in the molecular diagnostic

space

is probably one of the most important

companies in the genomic revolution

and it is getting hammered uh you know

it's a company that has had

uh historically small cash cushions

although they've changed they've

uh rectified that with offerings which

is great

um but it's investing aggressively to be

the leader in the molecular diagnostic

uh

uh testing space many people the

disconnect for many people here

is when that one statement just led the

stock up like seven percent

corp and quest diagnostics which are

effectively

very mature companies commoditized

value stocks and so it is a little bit

like

tesla in the automobile industry

the new lab tests which are going to be

informed by artificial intelligence and

big data

and super computing power uh are goi

are we believe in a winner take most

market

as we move into personalized medicine

much different from one test for all

although we'll see multi-cancer

screening certainly in that realm

but we think the move towards

personalized testing

is going to give just a few companies

the lion's share of the market those

companies

with the most data the highest quality

data and the best ai

expertise kathy great to see you thanks

so much for joining us today

thank you thank you wilfred and sarah

very much uh we've only got nine minutes

left of the session

yeah we do okay so let's break down a

little bit more about what she said here

so she did end up bringing up

the value stock portion by the way she

is going to bloomberg in about

70 minutes she'll be on bloomberg and

we'll watch that as well

uh but uh look she she did go into value

traps

after the talk here or after her or the

commercial break that we had

one of the things to keep in mind about

value traps she's not

i feel like she's not purposefully not

being like super blunt but basically

what she's saying is

hey y'all you gotta be real careful

about buying the crap that people are

buying right now just because it's going

up

because these are companies that are

buying back their shares

and spend money wasted money on

dividends rather than investing into

transitioning into the future

maybe they'll create a future committee

and invest in the future in the future

uh she's she's obviously very very

frustrated

but she's expressing it in a very

logical way

and this has become a benefit for her

though

which she just mentioned this this bum

that she just dropped

i think flew by a lot of us uh and i

want to really highlight this one right

here

so her thing is over five years usually

she wants to see a 2x

over five years she wants to see the

portfolio 2x that's a 15

compounded annual rate of return she

just said

at today's prices we are revising that

to 25 compounded annual rate of return

that is 3x kathy wood is now saying

at these prices i expect stocks to 3x

so while everybody's running over to

cheesecake and all this other crap

and i'm saying that in her paraphrasing

right i'm really overly paraphrasing

here

but while people are running over to

this other stuff they're creating an

opportunity that now means we're

expecting a 3x return on on people who

are basically buying these stocks

today pretty powerful uh now uh i did

also by the way i sent a tweet

to her uh just about two minutes ago so

if you can go to uh

realme kevin on twitter and uh and and

retweet i would love

to have your support mostly because i

would love for us to be able as a

community here

to get kathy on this channel so your

help in making this happen would be

really cool

i i don't think she will block me for

for

this but uh no i i would love to see

kathy uh uh on here because

i want to ask her about the difference

of a of opinion we have regarding the

fed

what if she's wrong what if the fed

isn't going to jack rates

sooner than expected of course then

we'll also have to talk about what if

she's right

uh you know we'll also have to talk

about some of her individual stock picks

what do we think about square's

relatively stretchy valuation compared

to something that feels relatively

inexpensive compared to tesla now she

does have more of a tesla position than

square

but we want to we want to be able to ask

about these particular things so we can

identify in our portfolio why a certain

stock pick over another

obviously if we were to get kathy on

i'll also

put a q a section in the private stock

group

where we can uh where i can ask you

anytime i usually anytime i do an

interview where i will certainly from

now on

uh but and i've done this more

sporadically but i need to be more

consistent about it i like to have a

little channel where just like oh ask

questions for this guest coming up

and it's a great way to interact there

so uh at realme kevin

on twitter would would love to see your

support uh for this

uh no no no paper hands no paper hands

no kathy's uh killing it

i'm in big support of what she's doing

so

uh let's go let's look at the sticks

here so we've actually got a little bit

of a pump here oh wait hold on

we got to keep going with with uh one

more thing that

kathy mentioned so one more thing about

kathy wood

is uh she really went deep on tesla she

talked about how phenomenal it is

that uh tesla is is really going to be

allowing people

to manually download the beta for full

self-driving

and honestly she's right that is a huge

catalyst

now people are upset that there were

some foia requests freedom of

information act requests

that where basically tesla says look

we're telling regulatory agencies this

is level two technology which means it's

not really full self-driving right

personally i think tesla's doing that

because they're saying it's a beta

we're still requiring people to hold the

wheel so it could be level three

but it's basically level three with an

asterisk where tesla's telling the

government we're still telling people to

hold on to the steering wheel

i don't see that as much of an issue i

mean green was tweeting about this

yesterday i was reading these threads

you know he's somebody who likes to hack

into the code behind

tesla's work and does a great job i i

don't think any of that is an

issue i actually am in heavy support of

rather than this like oh let's just have

a thousand people or maybe two or three

thousand people doing the self-driving

beta

this is a huge inflection point for

tesla when that full self-driving beta

comes out

because it basically means i mean look

the older self-driving stuff

this stuff was basically a beta anyway i

mean not really but i mean there are

some k

like you can't fully trust this the

self-driving yet uh it's it's basically

still level two beta-ish you know and

i'm obviously

uh oversimplifying here but being a

tesla driver look i trusted a lot on the

freeway

but i can't trust the thing everywhere

and you start getting used to where you

can

trust it or not but kathy's right that

is that is going to be an

under appreciated facet of tesla

evaluation until it actually becomes

appreciated

i honestly think most tesla analysts are

not including

the true disruptive potential full

self-driving

in fact i uh responded to a tweet

earlier today as somebody was showing

off

uh chevy cruze's cadillac

you know self-driving and i almost

wanted to vomit

i mean the thing is like three years

behind tesla i remember dealing

with the problems it had to deal with

three years ago it's shocking

uh anyway so uh projections have changed

going from okay and the other thing that

she's doing is she's concentrating into

her higher conviction stocks

this is what i'm doing with new money i

sold before the crash i sold around what

was it one to 1.5 million

i sent out buy alerts to to everyone in

the stock group

which remember use that coupon below and

get your 38 off

uh expiring in about seven days but

anyway yeah you know

that that that was in my opinion the

time to shave down my lower conviction

stocks

that's around the same time i sold

microvision for example and some of

these other ones

and that gave me some more of an

opportunity to really go shopping over

the last few weeks here so

okay that's the part on kathy wood

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