Cathie Wood – Investing in Innovation - [Invest Like the Best, EP.97]

Episode Summary

Executive Summary: Patrick O’Shaughnessy interviews ARK Invest founder Cathie Wood on how ARK uses social, collaborative, and bottom-up research to invest in disruptive innovation. She argues five converging platforms—genomics, automation, energy storage, next-gen internet/AI, and blockchain—are structurally mispriced because markets underweight long-duration exponential growth.

Main Topics: ARK's open-source research model (Priority: 5/5): Wood explains how ARK uses Twitter, crowdsourcing, and external experts to improve research. Why innovation is mispriced (Priority: 5/5): She argues passive indexing and pre-IPO hunting leave public innovation stocks undervalued. Five innovation platforms (Priority: 5/5): ARK centers portfolios on genomics, automation, energy storage, AI, and blockchain. Exponential economics and Wright's law (Priority: 5/5): Investment decisions are anchored in cost curves, demand elasticity, and scalable adoption. Mobility as a service (Priority: 4/5): Autonomous vehicles, ride-sharing, and air taxis could slash transport costs and reshape cities. Team composition and domain expertise (Priority: 4/5): ARK hires specialists from science and tech, not traditional asset management. Portfolio construction and valuation (Priority: 4/5): The firm is index-agnostic, uses scoring, and tolerates high multiples if growth is durable.

Key Arguments: Public-market innovation is inefficiently priced because passive and pre-IPO flows miss it. Social media and crowdsourcing let ARK battle-test ideas in public and learn faster. Five platforms are large enough to compare with electricity or the internal combustion engine. Wright's law and price elasticity determine when a technology is ready for mass adoption. Deep learning will affect every line item of the income statement, not just tech. High valuations can be justified if revenue growth stays above 25% for years. ARK hires for domain expertise in genomics, chips, and engineering, not finance pedigree.

Data Points: Foundation seed capital: the first four ETFs, they seeded - Early ARK launch support from a foundation Initial AUM: $19 million under management - State pension fund investment in March 2016 New investment: $200 million - State pension fund follow-on commitment Assets at time of discussion: $6 something billion in assets - Patrick references ARK’s rapid growth Active share: 95, 96, 98 - Wood describes ARK as highly unconstrained versus indexes Genomic sequencing cost decline: declining 40% per year - Cost curve used to support adoption thesis First human genome sequencing cost: almost $3 billion - Illustrates how early genomics was not scalable First human genome sequencing time: 13 years - Illustrates how early genomics was not scalable Future genome sequencing cost: $100 in a few minutes of computing power - Projected by 2021 in the transcript Industrial robot units: predicted 340; ARK predicted 365; now it's 1,000 - Wood contrasts ARK research with industry forecasts EV cost parity timing: by 2022 - ARK belief that average EV cost falls below Toyota Camry Autonomous vehicle cost: $7 to $10 - Estimated cost for an air taxi/autonomous ride in 2021-22 Taxi comparison: $75 - Referenced cost of airport air taxi trip Current transport cost: 70 cents per mile - Wood says point-to-point transport cost has not improved Target transport cost: 35 cents per mile - Expected autonomous-vehicle cost decline Ride-sharing car utilization: 70, 80% - Fleet utilization expected for autonomous taxis Personal car utilization: 5% of the time - Used to show inefficiency of owned cars Parking ratio: five parking places for every car owned - Current urban parking inefficiency Future parking ratio: one parking place for every car owned - Expected shift with autonomous fleets Oil demand timing: peak in the next two or three years - ARK view tied to EV and autonomy adoption Freight drone economics: a five-pound package over 10 miles for $1 profitably - ARK’s 2015 drone research on Amazon Genome sequencing volumes: 1.5 million to 170 million - ARK’s estimate for whole human genomes sequenced by 2021 Whole-genome unit growth: 200% per year - Expected response to cost declines Annual return target: minimum of 15% compound annual rate of return over the five years - ARK portfolio expectation Revenue growth assumption: north of the 25% - Wood says every portfolio company should sustain this level Monogenic disease prevalence: one in 100 babies - Used to size CRISPR opportunity Monogenic treatment rate: 5% - Only a small fraction currently have treatments Monogenic disease mortality: 30% - Estimated share not reaching age five Monogenic disease revenue opportunity: $75 billion revenue opportunity per year - ARK estimate if diseases are cured Total windfall from correction: $2 trillion windfall - ARK estimate for existing patients with monogenic disease

Pivotal Quotes: "I really do believe we're the first sharing economy company in the asset management space, certainly as it relates to research." — Cathie Wood: On ARK’s collaborative, open research model "Our screen is our research, as it should be in terms of the kind of thing we're doing." — Cathie Wood: On how ARK selects investments "these technologies... will create value traps." — Cathie Wood: On why traditional value frameworks may fail around innovation

Implications: The key open question is timing: investors must decide whether these technologies are still early enough to justify patience before their adoption curves fully compound.