Cathie Wood was in familiar territory. She was listening to someone tell her she was wrong.
It was February 2018. Wood, a veteran money manager and CEO of Ark Invest, was on a panel on CNBC with Canadian entrepreneur Kevin O’Leary, who is best known as Mr. Wonderful on the business-related reality show “Shark Tank.”
The topic was Tesla, and the two did not agree. At the time, Tesla shares were trading just below record-high levels, even though the company was facing one of the roughest patches in its history. Its stock was indefensibly expensive compared with those of other automakers, O’Leary argued. As giants like General Motors entered the electric vehicle business, the premium that Tesla’s shares commanded from investors was bound to shrink.
“No,” said Wood, the only female investor on the panel that day, after hearing O’Leary out. She then rattled off all the reasons Elon Musk’s company was different. GM doesn’t have the software engineers, distribution network or battery technology that Tesla has. In the future, software, artificial intelligence and automaking would converge. Tesla was ready for that.
“The future is electric. GM’s not electric yet,” she said.
It was classic Cathie Wood, a mashup of in-the-weeds business analysis and an almost prophetic certainty about the future. It was also precisely what the online army of fanatical Tesla shareholders wanted to hear.
As Tesla struggled with production problems, dwindling cash and an erratic Musk in 2018, Wood gave a full-throated defense of the company, her largest single holding. That began an unlikely mind meld between Wood and the new generation of tech-focused, risk-hungry people who started trading in droves in 2020.
On paper, she seems an odd standard-bearer for these younger, diverse and deeply irreverent ranks of retail investors. Wood is a 65-year-old creature of Wall Street’s asset management industry and the well-heeled Connecticut suburbs, as well as a deeply religious donor to conservative political campaigns.
But Wood and her firm’s unusual approach to investing — which combines high levels of risk with high levels of transparency about her views to produce, at least last year, astronomically high returns — have connected with new investors in a way the financial industry had only dreamed of.
Her aggressive bets on often unprofitable technology stocks are a better fit for traders who brag on Reddit about YOLO-ing their rent money than it ever was for the endowments and institutions that rely on the traditional money management industry, where she spent more than 30 years.
In other words, Wood has finally found her people.
“I listened to her and I was like, ‘That’s how I think,’” said Casey Flores, a 30-year-old amateur trader from Richmond, Virginia, who first saw Wood on CNBC over a year ago and was soon following her every trade. “I just was like, ‘I like this lady.’”
Her ability to connect with individual investors like Flores has helped make Wood the most influential investor at work in the markets today. After the funds she managed posted astounding gains in 2020, many of these new traders have embraced her feast-or-famine style of investing the way previous generations mimicked the relatively risk-averse methods of stock pickers like Fidelity’s Peter Lynch or Berkshire Hathaway’s Warren Buffett.
Wood is unlikely to match last year’s performance, which was driven by an unpredictable confluence of events: the economic shock of the COVID-19 pandemic; the Federal Reserve’s move to cut interest rates; the trading boom among individual investors. Her funds are trailing the overall market badly in 2021.
Even so, Wood has already changed Wall Street, perhaps for good, as some of the world’s biggest financial players rush to introduce the kind of products that she and Ark pioneered.
Wood now manages nearly $85 billion — up from less than $10 billion at the end of 2019.
Her firm bet heavily on tech stocks that flourished with most of the country stuck at home. Its flagship fund, Ark Innovation — crammed with shares like Roku, Zillow and the payment-technology firm Square — soared almost 150%, trouncing the S&P 500’s 16% gain.
Her decisions to buy and sell companies are disclosed daily to any investor who signs up for her email updates. Her frequent — and seemingly fearless — pronouncements on television can make headlines and move share prices.
Despite her frequent pronouncements about transparency as a core value of her firm, Wood declined repeated requests to be interviewed for this article, which is based on conversations with former colleagues and employees and her frequent public statements to the business media and religious groups.
In such appearances, she repeatedly describes her late-career decision to start her own investment shop as more than a business leap of faith.
It began, she says, with a head-on encounter with the Holy Spirit.
A Business Plan, From Beyond
On a gorgeous day in August 2012, Wood — a fund manager struggling through a rough quarter at AllianceBernstein — was struck by the silence inside her stately home in Wilton, Connecticut.
Her three children were gone, off to camp and other activities for the summer. She was facing two full weeks alone in the nearly 6,000-square-foot house she bought with her ex-husband in the 1990s.
Then she felt it.
“Wham,” Wood said last year on the “Jesus Calling” podcast, which is centered on the devotional writings of bestselling Christian author Sarah Young. “I really feel like that was the Holy Spirit just saying to me, ‘OK, this is the plan.’”
The plan was for Wood to use her experience as a tech investor to build a new kind of money management firm — optimized for the social media age and embracing a level of transparency that was radical, at least on Wall Street.
To do it, Wood had to quit her job and put her personal wealth on the line at the age of 57.
“Most of my friends told me I was nuts, and yet I wasn’t listening to them. I knew that I needed to follow God’s will for me,” she told a Christian ministry organization in 2016. “That was the only way I was going to be happy.”
The first of four children of Irish immigrants, Wood spent much of her childhood on the move — her father was a radar technician for the Air Force — before the family settled in Culver City, California. She graduated from an all-girls Catholic school in 1974, and then attended the University of Southern California, majoring in business administration.
There she found a mentor in Arthur Laffer, one of the patron saints of supply-side economics, after she petitioned to be admitted to one of his graduate courses. “That took a lot of chutzpah,” Laffer, 81, said.
He found Wood to be an impressive student, unwilling, he said, to abandon any topic until she understood it completely. “I’ve never seen anyone so thorough, so careful and so research-oriented in my life, which makes her quite self-confident,” he said.
Wood’s work ethic and voracious consumption of information are recurring themes among former co-workers. She often woke well before dawn to get one of the first trains to Grand Central Terminal each day, treating the nearly two-hour journey from Connecticut as a sort of perpetual cram session on rails.
In the days before smartphones, tablets and laptop computers, colleagues remembered her lugging bags laden with research reports into and out of the office each day.
Sig Segalas co-founded Jennison Associates, a New York money management shop where Wood worked from the early 1980s until 1998, first as an economist and then as an analyst and a fund manager. For many of those years, his office was next to hers, and he remembers her as typically one of the last people to leave the office each day.
But even given her work ethic and deep preparation, Segalas — who started on Wall Street in the early 1960s — said Wood’s tendency to present her investment decisions as near certainties was unusual. “I’ve never met anybody with as much conviction,” he said. “It’s almost mystical, to be very honest with you.”
Of course, even the best-informed forecaster sometimes gets it wrong. For instance, in the early 1980s, when Wood was a portfolio manager at Jennison, it held a large position in Mexican stocks. Rumors began to circulate that Mexico might devalue the peso — a move that would crush the firm’s investments there.
While many economists thought the move was unlikely, Wood was especially sure it wouldn’t happen, Segalas said. “She was adamant. ‘There’s no way they’re going to do it. No way they’re going to do it,’” he said. “Sure enough, they did it. And everything collapsed.”
Such an approach to investing produces sharp ups and downs, which is why volatility has been a hallmark of Wood’s career and, at times, a hurdle.
In 2001, Wood joined AllianceBernstein, where she oversaw a respectable $5 billion in assets at her peak. True to form, her performance at the Manhattan firm was a roller-coaster ride. Consider the AllianceBernstein Global Thematic Growth Fund, which she took over in the midst of a brutal year, 2008, when it tumbled 45%. The next year it rose 55%.
But an analysis of her record by Morningstar, published in March, found that her investments at AllianceBernstein were notable for their high volatility and “underwhelming long-term results.” Her global fund fared especially poorly in 2011, tumbling roughly 24% when the market was flat. In 2012 — the year of her epiphany that she should start her own firm — she again undershot her benchmark’s rise, even without subtracting the cost of fees.
Such a return profile proved a difficult fit at AllianceBernstein, which catered to conservative fiduciary institutions such as pension funds and endowments. Many simply couldn’t stomach Wood’s style.
“I think she was viewed as brilliant,” said Lisa Shalett, a colleague at AllianceBernstein who is now chief investment officer at Morgan Stanley Wealth Management. But she was also seen as “not institutional,” Shalett said.
In 2013, Wood left AllianceBernstein. By January 2014, she had founded Ark.
Launching Ark
Chris Burniske, then a senior at Stanford, didn’t know much about whom he was meeting that day in 2013, but he had heard that she was some sort of financial big shot.
A mutual friend had asked if he would be willing to show Cathie Wood and her son, Robert, the campus.
A surfer from Hawaii who studied ocean science, Burniske rolled up barefoot on his skateboard, and spent much of a weekend squiring Wood and her son around, using the opportunity to make a number of casual digs at the financial industry. Wood wanted to hire him anyway.
He didn’t take her up on the offer at first. The idea of moving to New York and spending his days at a computer were unappealing. But after spending a few months working as a fishmonger at a Whole Foods in Austin, Texas, he decided he might give it a try.
Philosophically, Ark is unlike any other money management firm, not just in its investment strategy and products but also, and especially, in its staffing.
Burniske ultimately helped steer Ark into cryptoassets. (He has since written a book on valuing cryptoassets, and is a partner in a venture capital firm.) Another analyst, who covered automation at the company soon after it started, had little experience, though he had published a book in 2012 about how to strike it rich by trying to find silver coins mistakenly included in coin rolls. The analyst covering a broad swath of highly sophisticated technologies lists his employment history as two brief internships — one as a brand manager for the energy drink Red Bull and a year captaining a 43-foot sailboat.
The unconventional approach extends to Ark’s investment product of choice: actively managed exchange-traded funds, which allow investors to buy and sell shares throughout the trading day, just as they do with stocks. The vast majority of ETFs are modeled on broadly traded indexes, which saves money because they don’t need to pay professionals to pick stocks. But Wood buys and sells stocks constantly.
And anyone can follow along.
Ark churns out an unceasing stream of podcasts, white papers, YouTube videos and newsletters, broadcasting to millions of followers both Wood’s image and her firm’s views on investments as varied as Bitcoin and biopharmaceuticals. And decisions to buy or sell stocks are disclosed in a daily email blast that has become required reading for many traders.
Such transparency is anathema on Wall Street, where firms typically disclose their holdings once a quarter and shield their strategy from counterparts and rivals.
“Cathie is a big believer in her stocks, and she promotes her stocks,” Shalett said. “So for her, it’s kind of like, ‘I don’t mind having an open kimono.’”
Open access also seems to be a key reason that Wood has connected with the kind of investors who have recently been drawn to stock trading.
“That’s very punk rock,” said Maximillian Lawrence, who began buying the Ark Innovation fund early last year. A 46-year-old artist and teacher in Philadelphia, Lawrence respected Wood’s transparency, which fit well with the do-it-yourself ethos of the art and skateboarding communities he runs in.
“The difference between her and a lot of these other folks is she legitimately believes in these things, and she doubles down,” Lawrence said, injecting an expletive for emphasis. “You can see it in her trades.”
And investors don’t have to hand Wood their money to invest with her. Many, like Flores would do on occasion, just pick up shares of whatever she’s buying.
Flores, who works in sales at a financial technology startup, didn’t know anything about some of the companies he was buying when he started mirroring her trades last year. But that didn’t matter.
“They would go up 11%, sometimes like 17% the next day,” Flores said. “It was … wow.”
The effect was magnified as more amateurs followed along. “It was just insane to see her buy list, and then every single thing on the buy list the next day would be up a ridiculous amount,” he said.
Wood’s disclosures continued to move the markets. Her purchase of more than 1.5 million shares of the stock-trading app Robinhood, which went public late last month, were credited for a price surge after they were publicized in late July and early August. The stock jumped more than 50% on Aug. 4.
“The golden touch of Cathie Wood continues to carry a lot of weight,” wrote Chris Vecchio, a market analyst with DailyFX.com, in a client note.
More Money, More Scrutiny
As Wood has attracted more attention, money and power to move markets, those scrutinizing her company argue that Ark’s unique structure may be creating risks for its investors — not to mention her online disciples.
Wood is the sole portfolio manager overseeing almost $85 billion in assets. She represents what’s known as “key man risk” — essentially the chance that illness, accident, death or something else renders an important leader unable to perform. Many investors would flee Ark if Wood wasn’t at the helm.
She may also be a victim of her own success. Ark has far more money to invest than it did just 18 months ago, and spending it poses a challenge. The kind of technology stocks the company has traditionally favored are small and lightly traded, so big bets can move their prices sharply. Ark risks bidding the price up when it buys, then taking a big hit when it sells because such stocks often have few buyers.
Also, many of the stocks that Wood buys appear highly correlated — they go up together — which worked out well last year. But they also go down together, exposing her to crushing losses when market conditions turn against her.
Investors got a sneak peek of what such an ugly sell-off might look like this year. The flagship Ark Innovation fund plunged more than 35% between February and May — far worse than the market — as investors began to favor traditional sectors that were poised to benefit from the economic recovery.
Recent volatility — partly a result of the rise of the
variant of the coronavirus and concerns about an uneven recovery — has helped Wood’s fund recover somewhat, but the Ark Innovation fund is still down about 7% for the year. In comparison, the Nasdaq is up roughly 14% and the S&P 500 about 18%.
But her funds’ lackluster showing this year pales next to last year’s surge. And the niche that has become almost synonymous with Ark — actively managed, fully transparent exchange-traded funds — is one of the fastest-growing parts of the money management business.
Over the past year, investors dumped about $110 billion into the kinds of actively traded funds that disclose their holdings daily, analysts at JPMorgan said in a recent research report, noting that such huge inflows demonstrate that “portfolio transparency need not be an impediment to the success of an active ETF strategy.”
On Wall Street, major firms are rushing in to siphon off their share of those investor dollars. Late last year, the world’s largest money manager, BlackRock, added three transparent funds — which disclose positions daily — to its offerings. Just last month, Goldman Sachs Asset Management began selling its first transparent, actively managed version of an ETF. JPMorgan Chase’s asset management group also announced plans this month to convert four of its mutual funds into “active transparent” ETFs, along the lines of Ark’s offerings.
Others are predicting that Wood’s luck is about to run out. Recent filings from some prominent hedge funds showed they had been purchasing ‘puts’ — bets that make money when the price of an investment declines — against her fund during the second quarter.
For her part, she continues to look for new opportunities. In May, as tech stocks were tumbling and cryptocurrencies took a nosedive, she said on Bloomberg News that Bitcoin could rise to $500,000 over the next five years. It is currently trading around $45,000. Her firm has also filed plans with regulators to start a Bitcoin-themed ETF that would track the performance of the S&P Bitcoin index.
And even though her funds are lagging the rest of the market, Wood stresses that her belief in her picks is remain steadfast. Recent months had been difficult for her clients, she acknowledged to her interviewer. But in the next breath, she hastened a bit of advice.
“Keep the faith,” she said.
