Cathie Wood Is Taking Fire In 2022
Rarely have I seen an investment professional critique and criticize another professional with such clarity and aggression on live tv. The last of this caliber I recall was Carl Icahn versus Bill Ackman over Herbalife, the supplement company (see video below) in 2013.
Jim Cramer blasts Cathie Wood
Jim Cramer eviscerated Cathie Wood on CNBC. In a generally calm manner, uncharacteristic of Cramer, he took her apart.
She buys like someone who just started yesterday
Wood runs the Ark Invest group of ETF’s. The flagship product is the Ark Innovation ETF (ARKK) and is down approximately 60% over the last year, and up 20% over a 3 year time frame.
Cathie Wood calmly responds to questions and defends herself
Interesting Cathie Wood is from Los Angeles and attended USC, where I received an MBA in Finance. She did her first job at Capital Group, one of the finest investment managers the country has ever known. In those days, the 1980’s, “The Caps” as the account was known to professionals was in the value camp, or at least the GARP (growth at a reasonable price) camp.
How is it that Ms. Wood drifted so far from the DNA of The Capital Group purveyor of The American Funds?
Of note she was mentored at USC by Art Laffer, best known for a theory popular during the Reagan years that exposed an the idea of a rate of taxation that maximizes revenue to the government. This was fundamental to a trickle down economics tenet that rates being cut would raise government revenues. The theory carried his name and was represented by The Laffer Curve.
Clearly Ms. Wood has stellar credentials. Summa Cum laude from the University of Southern California with a B.S. in Economics and Finance, assistant economist at Capital Group, chief economist at Jennison Associates for 18 years before starting a hedge fund.
In 2001 she joined AllianceBernstein as Chief Investment Officer for 12 years and in 2014 formed Ark Invest.
What do I mean when I say “drifted” far from her roots at Capital Group where people are earnings multiple driven and value seeking? Her investment philosophy is one based on buying innovative companies, innovation as she calls it.
Yet, she is willing to do this at almost any price and buys based on potential future earnings and very high multiples of revenues. This is the polar opposite of The American Funds overriding philosophy. Call it buying stocks on a hope and a prayer.
This style works with falling interest rates, increasing productivity, and optimism. At best, a mixed bag today. Think of the risk this way, imagine a company sells products and brings in $1Billion in revenue.
Assume the cost of generating that revenue was $1.5Billion i.e in general terms, the company lost $500 million. Assume next year the top line in $2B and the bottom is -$4B. In this case, revenues were up 50% and the loss went UP 167%.
Not a good thing unless the company is an exceptional enterprise, innovating, and on the way to profitability. Think Tesla, Google, and thousands of names you have never heard of because the firms have disappeared.
A multiple of revenues approach would buy the company based on the “top line” growth rather than the bottom line as in earnings per share (EPS).
Bill Ackman versus Carl Icahn 2009
Finally, purely for entertainments purposes, I have included the clip of the Ackman/Icahn battle. This took place during market hours and captured the attention of investment professions. It was the equivalent of watching a heavyweight boxing match.
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About The Author
Following a 25 year career in capital markets, Tom Levine founded Zero Hour Group in 2014.
The Los Angeles, California based firm provides consulting services, strategic analysis, and real estate services. Services offered nationwide and across a variety of sectors. The firms' clients range from family offices and high net worth individuals to institutions and professional investors.
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Tom Levine is a Native Angelino and graduate of USC Marshall School of Business, Claremont Colleges, and spent a term at the London School of Economics. Additionally, he is a certified Short Sale Specialist under the National Association of Realtors.