Wall Street has always found ways to promote its investment gurus, which all too often have been loudmouthed alpha bros. In the past year, however, the hottest alleged wise man has been a wise woman: Cathie Wood, a 65-year-old devout Christian and once divorced, once widowed mother of three who reads the Bible each morning, backed Trump, and heads up her own “disruption”-focused investment firm, Ark Investment Management. Less than seven years after she started it, the firm now has more than $53 billion under management.
Wood’s perpetual optimism, alongside her trademark jet-black hair and big funky glasses that cover half her face, has made her not only the world’s most telegenic evangelist for technology stocks but also a powerful cult leader, with devotees wearing shirts that feature her face above slogans such as In Cathie We Trust and The Queen of the Bull Market. They can’t get enough of her. After she reiterated in May that Bitcoin would hit $500,000, one Wood enthusiast on Wall Street Bets, a Reddit bulletin board—where she is referred to as “Cathie Bae”—thanked her: “Cathie Bae, giving me my daily shot of hopium.”
Another wrote, “God bless this lady. She gets it.” Added another: “She’s a smartie and makes bazillion dollars. I like listening to her.” And then, for good measure, another responder wrote, “She’s feeding me the hopium I crave right now.” To which another scribe responded, “And she’s saying it with extreme confidence … sexy as fuck.”
Other People’s Money
The long-term performance of Ark—the name reportedly refers to the gold-covered chest that contained the original Ten Commandments—is certainly sexy A.F.: Since the firm started operating, in October 2014, Ark’s flagship fund, Ark Innovation, is up an impressive annualized 34 percent—as in an increase of 34 percent every year for the past six-plus years. In the year ending March 31, it was up 175 percent. (The S&P 500 was up 56 percent during the same time period.)
Ark comprises six targeted, actively managed, publicly traded “exchange-traded funds” (or E.T.F.’s)—Innovation; Genomic Revolution; Next Generation Internet; Fintech Innovation; Autonomous Technology and Robotics; and Space Exploration and Innovation—and Wood’s investment strategy, in case you haven’t guessed it, is “disruptive innovation,” which she defines as the introduction of a new technology that potentially changes the way the world works. It’s led her to take big positions in technology darlings such as Square (Wood’s third-largest holding), Zoom, Zillow, and Tesla, which is her largest holding.
“She’s feeding me the hopium I crave right now.”
As probably only Wood could do, she recently corralled billionaires Elon Musk, the co-founder and C.E.O. of Tesla, and Jack Dorsey, the co-founder of both Square and Twitter (Wood’s 17th-largest holding), to join her for an hour-long virtual panel discussion to talk about Bitcoin in all its wonderfulness.
All this has made Wood quite wealthy. And like many gurus who manage other people’s money for a living, Wood—whose net worth is estimated at $250 million—has also figured out a way to make money whether the stocks she buys go up or down. (She charges a fee of around .75 percent of the money she and her team of about 10 analysts manage.) The problem, at least in the eyes of her critics, is she often can be “talking her own book”—Wall Street slang for talking up your own investments every chance you get so others help you pump up their value. (During the Bitcoin panel with Wood and Dorsey, Musk alluded to this phenomenon: of Bitcoin, he said, “I might pump, but I don’t dump.”)
Critics point to her enthusiasm for Tesla, of which Ark owns about five million shares, worth around $3.3 billion. Back in March, Woods predicted the stock—at that point trading at $655 a share—would rise to $3,000 by 2025. A few weeks after she made that prediction, she sold Tesla stock worth about $178 million. (A little pump and dump, perhaps?)
Then there’s Wood’s crazy thoughts about Bitcoin, the world’s best-known and most valuable crypto-currency, with a market value of some $750 billion. In November 2020, Wood predicted one Bitcoin would eventually be worth $500,000. It’s now trading at around $40,000, which is about two-thirds of its all-time high, $64,000 per coin, reached in April. There’s a long way to go for Wood to be right. (It’s not the first mistake she’s made. This week, she lost some $3.2 million when her bet on the Robinhood I.P.O. went awry.)
But, as with her Tesla predictions, her outlandish views on where Bitcoin will trade helped her own pocketbook. Her E.T.F.’s own about $1.43 billion worth of Coinbase, the publicly traded crypto-currency exchange where Bitcoins can be bought and sold. (It is her sixth-largest holding.) Her investment in Grayscale Bitcoin Trust, which is a publicly traded company that owns nearly 650,000 Bitcoins, is worth about $304 million. In other words, she has about 1.7 billion reasons to talk up the price of Bitcoin.
Despite Wood’s lunatic predictions, Ark’s E.T.F.’s continue to put up impressive numbers as the bull market roars on. The Ark Innovation E.T.F., with $25.5 billion under management, is up 51 percent in the last year, although it’s had a rough 2021 so far, down more than 2 percent, while the S&P 500 is up around 19 percent. Her other E.T.F.’s have also lagged the broader markets so far in 2021. The Ark Next Generation Internet E.T.F. is up only 2 percent for the year, while her Ark Autonomous Technology & Robotics E.T.F. is up less than 5 percent for the year. That’s not where you want to be if you are any money manager, let alone one as outspoken as Wood.
None of this gives her the slightest pause. Her evangelism knows few bounds. During a May conference call with investors she said, in her flat, matter-of-fact delivery, “At this time in the market, the opportunities … are pretty phenomenal.” And even though the stock markets are at or near their all-time highs, Wood believes it’s still early days in the stock-market boom.
“With regard to this equity bull market, many consider what has happened in the last three months to be the beginning of another or the equivalent of the tech and telecom bust, which lasted almost three years,” she said. “We do not believe that’s the case, in the least. The kind of growth that we’re going to see coming out of these technologies … is going to be astonishing.”
A Christian Optimist
Wood comes by her sunny optimism naturally. The oldest daughter of Irish immigrants, she grew up in Los Angeles and graduated from the University of Southern California with a degree in finance and economics. She was mentored by Arthur Laffer, the economist who trumpeted trickle-down economics, and he helped Wood get a job at Capital Group, the huge Los Angeles–based asset-management firm. He also ratified her curiosity about Bitcoin, telling her it was “a very big idea,” after overcoming his early skepticism.
After three years at Capital, she moved to New York to join Jennison Associates, another large asset-management firm. She stayed for 18 years, cycling through jobs such as chief economist and managing director. In 1998 she co-founded the hedge fund Tupelo Capital Management and three years later joined AllianceBernstein, as chief investment officer and the manager of a $5 billion portfolio.
The story goes that, in 2014, when AllianceBernstein wasn’t all that keen on her idea for actively managed exchange-traded funds, she founded Ark, with part of her seed money coming from Bill Hwang, the founder of the now defunct family office Archegos Capital. She and Hwang, also a devout Christian, met after advising a Wall Street faith-based group.
Less than seven years after she started it, the firm now has more than $53 billion under management.
“On our way back from that event, we were exchanging stock ideas back then and I know he bought into one of the stocks in which we had a high degree of confidence, Netflix,” she told CNBC, after Archegos blew up. (She did not respond to my requests for an interview.)
The first few years were rough.
“Most people thought I was nuts, because active management was dead,” she told Forbes. “A close friend of mine called it a vanity project.… That threw me, but it also made me even more determined to prove him wrong.”
To her legions of fans, Wood can do no wrong. Anthony Scaramucci, the hedge-fund manager best known for his 11-day stretch as the communications director in the Trump White House, is a big Cathie Wood fan. Like Wood, the Mooch is a keen investor in Bitcoin.
“She’s a national treasure, because she’s broken every boundary on Wall Street,” he says. “Wall Street doesn’t have a glass ceiling. Wall Street has a diamond ceiling.” He believes she is “a visionary” who has combined her years of experience at other firms and her deep research into serious convictions that he finds refreshing. “She’s not somebody who said, ‘Oh, Bitcoin is a fad. I’m going to buy into Bitcoin because I think Bitcoin is a fad.’ She’s like, ‘O.K., this is why I own it. This is why it’s going to be greener. This is why it’s transforming our society.’”
Dr. Frankenstein, We Presume?
But Wood’s detractors think her tech holdings are overvalued and will suffer the same fate as occurred in previous tech bubbles. CNBC’s Jim Cramer (did someone say “alpha dog”?), for one, believes her success might be coming to an end. Cramer likes to deride her portfolio as “WoodStocks” and says that “the era of Cathie Wood propping these stocks up with her own buying bazooka, I think, appears to be over.”
Skeptics such as Edwin Dorsey, a recent Stanford grad and an aspiring short seller, thinks Wood is smart about macro-economic trends and technology but is “weaker” at individual stock picking. He cites as examples her $1 million bet on Wirecard, the German payment company that turned out to be a fraud. He worries that she owns too much of a stake in several companies—such as Tesla—and that she wouldn’t be able to sell those stocks quickly enough if she had to.
In many ways, Wood has re-created in stocks the problem that has plagued banks for generations: borrowing short and lending long. Wood allows her E.T.F. investors to buy and sell her funds on a daily basis and owns huge stakes in companies that are not easy to sell quickly.
In early March, when Wood was having a particularly rough go of it, Dorsey tweeted, “ARK’s illiquid holdings are problematic because as ARK faces redemptions, hedge funds could take predatory short positions in ARK’s illiquid holdings and create a performance death spiral.”
To prove his point, he included a list of Wood’s concentrated stock-ownership positions and how the stocks had performed between February 16 and March 3: Compugen, in which she then owned a 21.3 percent stake, fell 31.9 percent during that period; Stratasys, in which she also owned a 21.3 percent stake, was down 45.4 percent; and Organovo, in which she owned a 20 percent stake, was also down 31.9 percent.
Chris Irons, another short seller of Quoth the Raven Twitter fame, agrees with Dorsey. “Instead of battening the hatches, it appears to me that her strategy is to try and double down,” he says. “And that works until it doesn’t work, and the more you pile in speculative investments on the way down, the worse the pain is going to be every time the market has even a slight hiccup.”
Wood’s perpetual optimism, alongside her trademark jet-black hair and big, funky glasses that cover half her face, has made her not only the world’s most telegenic evangelist for technology stocks but also a powerful cult leader.
Marc Cohodes, an outspoken California-based short seller, fears Wood has created a Frankenstein and hasn’t a clue how it operates in the wild.
“She’s engaging in rank speculation with a dollar amount in the billions that’s never been seen before,” he says. He thinks she’s preying on the gullibility of Joe Six-Pack.
“People spend more time researching where they’re going to go eat at night than they do on the stocks they buy,” he continues. “She is basically a product of today’s environment, and that’s an environment of easy money, of simplifying aggressive investing and speculation with these sound bites that get people excited, to attract money, to sort of Ponzi up the thing.”
He’s particularly peeved that she sold that $178 million of Tesla stock just weeks after sending her price target into the stratosphere.
“That is major fucking uncool,” he says. “I feel bad for people who buy into this or who get off on this or believe it, who, if certain things happen, will get destroyed.” Cohodes continues: “The guys who should regulate the business she’s in are doing a shit-ass job. We’re driving a car which is geared to go 80 miles an hour. And just because you can get the car to go along at 190 doesn’t mean your brakes will work or that the engine won’t blow. I mean, if everyone wants to get wasted, fine, but just don’t get in the car. Take the keys. I mean, if Cathie Wood wants to kill herself, no problem, but don’t take innocents with you.”
Cohodes wants the Securities and Exchange Commission to step up and do its job and ask Wood, “What are we doing here? How can this go on? Where are the limits?” He adds, “We’re at the point right now where Archegos meets Bill Hwang, which meets Bible study, which meets Cathie Wood, which meets easy money, which meets mass speculation, which meets an S.E.C. that doesn’t care, which meets a government that wants to put down people who expose the truth.”
He proposes that the S.E.C. institute some safeguards for Wood and her family of E.T.F.’s: hold more cash, own no more than three days of trading volume in one particular stock, refrain from—duh—selling a stock after pegging it to a far out-of-the-money target, since skeptics could consider that behavior akin to a pump-and-dump scheme.
Like any zealot, Wood ignores the doubters. She’s a huge believer in the future of DNA sequencing, for instance, and has a nearly $2.5 billion bet riding on four stocks in this particular neighborhood: Crispr Therapeutics, Intellia Therapeutics, Beam Therapeutics, and Editas Medicine.
“In the world of DNA sequencing,” she told a group of investors in May, “which we think is going to transform health care completely, for every cumulative doubling in the number of whole human genomes sequenced, there are going to be many, many doublings over the next 5 to 10 years. For every cumulative doubling, the costs associated with short-read sequencing go down 40 percent. Think about that. And the costs associated with long-read sequencing go down about 20 percent. The cost associated with battery technology, battery-pack systems, again, 28 percent. With industrial robots, in the north of 20 percent range.”
Who knows if she is right, or what she’s even talking about, but it sure sounds great, doesn’t it? #Hopium or #hokum … the market will decide soon enough.
William D. Cohan is a former investment banker and the best-selling author of three books about Wall Street, including Money and Power: How Goldman Sachs Came to Rule the World