Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes. Tim Stinovic from Bloomberg Radio. I guess very
Speaker 1: well known to our Bloomberg audience. We want to welcome
Speaker 1: Kathy would back with us. She's chief executive officer, chief
Speaker 1: investment officer, founder of our investment. She joins us on
Speaker 1: the phone in Connecticut. And you know, Kathy, we figured
Speaker 1: out so much in terms of tech and innovation, but
Speaker 1: when it comes to the zoom call and getting video,
Speaker 1: it doesn't always work. Oh. I know, but I think
Speaker 1: we've come a long way. Carol, Right, We've come a
Speaker 1: long way. So listen, I gotta ask you about the
Speaker 1: trade today. Uh. We really felt like earlier that the
Speaker 1: speculative trade, the euphoric trade when it comes to technology,
Speaker 1: was over. What do you make initially of the pullback
Speaker 1: that we saw today. Well, you know, the what I've
Speaker 1: been surprised by over the last really four or five
Speaker 1: months is cyclicals and value stocks have started to outperform
Speaker 1: the broad based market in disease. Uh. And the surprise
Speaker 1: to us is that we and our innovation strategies that
Speaker 1: are outperformed as well. That's very unusual So the way
Speaker 1: I have interpreted that is that the market is broadening out.
Speaker 1: The bowl market is broadening out, which is a very
Speaker 1: healthy development. I think what we've seen in the last
Speaker 1: few days the correction in technology is UH, perhaps you
Speaker 1: know rotational again value there, given how many years value
Speaker 1: has underperformed, Uh, there could be a bit of rotation
Speaker 1: back into value. Uh. If if you understand our portfolios, UH,
Speaker 1: you'll be very careful where you go in terms of
Speaker 1: the value space, because disruptive innovation, the likes of which
Speaker 1: we have not seen in more than a hundred years,
Speaker 1: is probably going to hurt a lot of value sectors
Speaker 1: more than growth sector. So what are you doing on
Speaker 1: a day like today? Are you are you buying? I
Speaker 1: mean the NASDAC was down almost four percent today, Tesla
Speaker 1: was down significantly. Did you buy? Oh yes, oh yes,
Speaker 1: And we've uh we published our trades at the end
Speaker 1: of every day, so you will see them the markets closed.
Speaker 1: We bought a lot of Tesla today across any strategy
Speaker 1: that holds Tesla, and we will be publishing in a
Speaker 1: few weeks UH a report updating our thoughts about Tesla,
Speaker 1: our excitement about the potential of a ride hailing service
Speaker 1: as a bridge to an autonomous service and are higher
Speaker 1: and the higher odds that autonomous is going to happen
Speaker 1: for Tesla. Uh. And part of the reason for the
Speaker 1: higher odds is now that weymo is on the road autonomously,
Speaker 1: we know it can be done. Uh. Tesla has so
Speaker 1: much more data than Google or anyone else or everyone
Speaker 1: else combined that we think it's in the pole position. Well,
Speaker 1: it's interesting too. You know. It's funny Kathy, people you know,
Speaker 1: expecting you to be on and they were sending us
Speaker 1: tons of questions. You know, this whole idea of the
Speaker 1: treasure trove of data that Tesla has. Specifically, you talk
Speaker 1: about it a lot, you know, do other people believe it?
Speaker 1: Do you? Are you seeing other you know people kind
Speaker 1: of uh put that out as kind of one of
Speaker 1: the fundamental reasons that you want to own Tesla. It's
Speaker 1: not just a car company, right, It's a technology company.
Speaker 1: It's a battery company. Is that thesis of it being
Speaker 1: a data company getting a lot more recognition. We do
Speaker 1: not think many analysts or investors are giving Tesla credit
Speaker 1: for autonomous. Uh. If they were, the stock would be
Speaker 1: a lot higher. What we do think they're giving Tesla
Speaker 1: credit for increasingly? Is you know, it's an electric vehicle franchise,
Speaker 1: and how far ahead of the competition Tesla is when
Speaker 1: it comes to battery technology, to artificial intelligence, both in
Speaker 1: the form of a chip through the data collection. We
Speaker 1: think thirty billion plus miles compared to Google's thirty million
Speaker 1: ish miles. UH and still over the air software updates
Speaker 1: to UH to change performance. It's it's remarkable that more
Speaker 1: are not on board, even the last one yet. UH.
Speaker 1: So I think it's franchise has legs here. So so
Speaker 1: how does that translate into market value for Tesla? How
Speaker 1: much more opportunity is there? How much how much more
Speaker 1: opportunity is is left for this run up to continue? Well,
Speaker 1: I'll give you a sense of UH, and this is
Speaker 1: from our big ideas one. You can get that on
Speaker 1: our site ARC dash invest dot com. UH. We we
Speaker 1: believe that the autonomous market, so the ride hailing market
Speaker 1: but autonomous, will be a seven trillion dollar revenue opportunity.
Speaker 1: And right now, the right hailing companies human driven right hailing, UH,
Speaker 1: their market cap probably accumulatively is around two hundred billion globally. UH.
Speaker 1: If we're right, Tesla is in the pole position in
Speaker 1: the United States to become the autonomous taxi network. Autonomous
Speaker 1: is going to submit to natural geographic monopolies. So in
Speaker 1: the US, our confidence in Tesla has gone up the
Speaker 1: more we understand about autopilot and the more data. Uh.
Speaker 1: It's one to one and a half million robots out there,
Speaker 1: including my model three, are collecting to inform its artificial
Speaker 1: intelligence engine. So that's six to seven trillion dollar market
Speaker 1: we think is going to be more in the developed world,
Speaker 1: ironically than in the um emerging markets in terms of value. Uh,
Speaker 1: for reasons we can get into if you would like.
Speaker 1: So the US could be a third to a half
Speaker 1: of that of that market. So think about that three
Speaker 1: and a half trillion dollars opportunity, and it's it's going
Speaker 1: to be more of a monopoly than I think most
Speaker 1: investors in analysts understand right now, Kathy, I want to
Speaker 1: go back to kind a bigger, broader market today for
Speaker 1: a moment if I can, because you've talked a lot
Speaker 1: about the reflation trade and how rising rates and a
Speaker 1: rotation to value that this could be a challenge to
Speaker 1: your investments. Are we done with those challenges? Or do
Speaker 1: you think what we saw today we're going to see
Speaker 1: continue of the tech trade under pressure. Well, I don't
Speaker 1: know how long this rotation will continue. All I do
Speaker 1: know is that we have a five year time horizon
Speaker 1: and our all of our price targets are five years out.
Speaker 1: A few days ago, I would have told you that
Speaker 1: the returns that we're expecting now we could be raw.
Speaker 1: These are our estimates, so consider the source. But uh,
Speaker 1: the compound annual rate of return that we were expecting
Speaker 1: for our portfolios during the next five years was fifteent,
Speaker 1: which is our minimum hurdle rate of return as of today.
Speaker 1: Just given the last few days of correction, that is closer. Now,
Speaker 1: compound annual rate of return over five years is a
Speaker 1: doubling over five years. Right, that's a healthy return. What
Speaker 1: happens very short term, I can't tell you. All I
Speaker 1: know is we are keeping our eyes on the prize,
Speaker 1: and the prize just got a little bit more interesting.
Speaker 1: But I have to ask you, were you kind of
Speaker 1: secretly rooting for a little bit of a of a
Speaker 1: pullback um to kind of get some of the performance,
Speaker 1: chasing money out of the market. Well, I do believe
Speaker 1: we we love a wall of worry, and we were
Speaker 1: seeing the wall of worry start to build. I saw
Speaker 1: it on social media, a lot of chatter, some just
Speaker 1: waiting for our funds in particular, uh to take a tumble. Uh.
Speaker 1: Some maybe to buy, and some happy to sell and
Speaker 1: short and all of that. We love the liquidity that
Speaker 1: this provides us. We think it's very healthy and very
Speaker 1: healthy shake out. But I'll give you a sense of
Speaker 1: what where I in history. I felt this way before.
Speaker 1: In nine six, we were in a very interesting market.
Speaker 1: Alan Greenspan was the FED chairman, and he was at
Speaker 1: the time UH warned all of us against irrational exuberant uh.
Speaker 1: And many investors were just beginning to understand how how
Speaker 1: the internet was working, and uh, you know what the
Speaker 1: interesting applications were going to be. Uh. We had another
Speaker 1: four years of a move, which when you think about
Speaker 1: that time, that move was too much capital chasing too
Speaker 1: few stocks, uh, too quickly. The technologies weren't ready, the
Speaker 1: costs were way too high for most of what we're
Speaker 1: seeing today. But all the seeds for what we're investing
Speaker 1: in we're planted back then. So we've had fifteen to
Speaker 1: twenty to twenty five years of gest station of these seeds,
Speaker 1: and now they're starting to flourish, and we are ready.
Speaker 1: From a technology point of view and from a cost
Speaker 1: point of view, that's so important to see that electric
Speaker 1: vehicle costs come down. Uh, so that by this time,
Speaker 1: maybe in a year or two, uh, the sticker price
Speaker 1: of the average electric vehicle will below be below that
Speaker 1: of the average UH gas powered vehicle. Yeah. And and
Speaker 1: by the average electric vehicle price will be eighteen thousand,
Speaker 1: and the Toyota Cameray will still be a no brainers. Yeah.
Speaker 1: I gotta ask, um, so much money is pouring into
Speaker 1: your funds? Uh? South Korean retail investors literally give you
Speaker 1: a nickname, money tree. Um, in terms of money. Does
Speaker 1: it ever become too much that's pouring into your funds? Well,
Speaker 1: what I've always said when we've been asked the capacity
Speaker 1: question is that if we are right and the five
Speaker 1: platforms that involve fourteen different technologies are are ready for
Speaker 1: prime time, if not already in the sweet spot of
Speaker 1: their s curve, then our capacity should grow exponentially with
Speaker 1: those platforms. Now, what happened to us in the last
Speaker 1: year was not exponential but parabolic growth in terms of
Speaker 1: the flows, and it's been very gratifying, and we're so
Speaker 1: happy that more and more investors are diversifying into innovation.
Speaker 1: They need to to hedge against all of the value
Speaker 1: traps that innovation is going to UH is going to create. UH.
Speaker 1: But we do believe that given the swish we had
Speaker 1: this year, UM, we will need a little time to
Speaker 1: have the capacity come our way. How is it coming
Speaker 1: our way? Well, you see, because of the performance of
Speaker 1: stocks like those in our portfolios, we're seeing a significant
Speaker 1: number of I P O S UH secondaries. There's the
Speaker 1: stack revolution. There's a stack revolution. And if you think
Speaker 1: about what happened even last year, so our flagship fund
Speaker 1: was up around a hundred and fifty percent, that meant
Speaker 1: that our capacity went up a hundred and fifty percent.
Speaker 1: If you look at our performance since since UH for
Speaker 1: the past five years, our performance of the Flagship fund
Speaker 1: is up a thousand percent. So that means our capacity
Speaker 1: is up a thousand percent. And if we're right and
Speaker 1: we're still on these exponential growth trajectories, we should continue
Speaker 1: to find good capacity going forward. So I'm also curious
Speaker 1: about you, know, of the positions you have, and I'm
Speaker 1: sure you've been asked about this for Cathy. But you know,
Speaker 1: I'm just looking at some of our research that you
Speaker 1: guys are already a ten percent holder and I think
Speaker 1: more than twenty companies and a holder in three And
Speaker 1: forgive me my my mouth's a little bit off, But
Speaker 1: I mean, is that do you get nervous about that
Speaker 1: level of concentration. I mean some investment managers would say, so,
Speaker 1: how do you feel about that? Yes, what we've put
Speaker 1: in risk controls to prevent uh. Again, some of that
Speaker 1: happened because of the swish. Very fair enough, we put
Speaker 1: in risk. Yes, we put in risk control so that
Speaker 1: you know we do so that we will not be
Speaker 1: considered quote unquote an affiliate of of any of these companies.
Speaker 1: That's why I think what we want to be on
Speaker 1: the right side of regulation. Uh. And so you will
Speaker 1: see fewer and fewer names over fift let's say, going forward,
Speaker 1: especially as many of our companies, our issueing are are
Speaker 1: are doing secondaries importantly, and the reason they need to
Speaker 1: do them is often in the world of disruptive innovation
Speaker 1: and particularly because of artificial intelligence, the companies that invest
Speaker 1: the most aggressively today are going to have a higher
Speaker 1: probability of winning. Winner take most markets, like I just
Speaker 1: described autonomous taxi networks, and so they have to fund.
Speaker 1: You know, last quarter Tesla did another five billion dollars
Speaker 1: UH in equities UH and so again bringing more capacity.
Speaker 1: It is doing so well though that we think, uh,
Speaker 1: it will not have to do much more in the
Speaker 1: form of equity or fixed income funding in the future. Kathy.
Speaker 1: One story we saw play out was the so called
Speaker 1: Robin and Revolution, the rise of the retail trader um are.
Speaker 1: What do you think of young people getting involved in
Speaker 1: the market right now? What do you think of the
Speaker 1: access that they have on an up like robin hood
Speaker 1: that makes it really easy and friction less to buy,
Speaker 1: sell and trade. You know what, I think it's wonderful.
Speaker 1: Many people worried about, especially during the game Stock Dame
Speaker 1: game stop controversy, worried, you know, was the little guy
Speaker 1: going to get hurt? H Well, if if a person
Speaker 1: doesn't know enough about options, um or or equities at all,
Speaker 1: and it's just following the crowd, it wasn't going to
Speaker 1: take long for them to learn a very important lesson.
Speaker 1: So I think many have learned very important lessons. What
Speaker 1: is happening now, I think is delightful for for a
Speaker 1: couple of reasons. I remember when there was no robin hood,
Speaker 1: and when social media was not much of a big thing.
Speaker 1: Getting my children interested in investing in equities was very difficult,
Speaker 1: very difficult. Now. While some people may argue that it's
Speaker 1: gamifying the space, it also teaches investors lessons very quickly.
Speaker 1: So a lot of individuals who moved into game stop
Speaker 1: or a C or that bath and beyond all of
Speaker 1: the the usual suspects suspects, they learned. They learned that
Speaker 1: they weren't on the right Those companies are not on
Speaker 1: the right side of change. And there was you know
Speaker 1: that there was going to be a significant correction. So
Speaker 1: I think corrections are are a good They keep us
Speaker 1: all humble and keep us all focused on what could
Speaker 1: go wrong. They create a wall of worry, which the
Speaker 1: strongest bull markets I've been in are built on top
Speaker 1: of walls of worry. And I like the fact. I
Speaker 1: like the fact that there are more concerns now about valuations,
Speaker 1: about inflation, about interest rates. I like the fact that
Speaker 1: there are these words. But I also like the fact
Speaker 1: that the markets are moving through this pretty um uh efficiently.
Speaker 1: Almost very efficiently. If you looked at the trading in
Speaker 1: in ARC in ARCS, E t F, this, this, UH
Speaker 1: today and yesterday. I think if if we had told
Speaker 1: market makers and authorized participants and E t F providers
Speaker 1: generally that we were going to see UM thirty five
Speaker 1: to forty million shares of our flagship funds trade in
Speaker 1: one day, I would have said, okay, that that would
Speaker 1: blow up the system. It didn't. It was very efficient,
Speaker 1: I know. And and there's options trading around our funds
Speaker 1: as well, and the only thing I will say say
Speaker 1: they're as a note of caution is we do have
Speaker 1: a five year time horizon options. Options players do not,
Speaker 1: and you can get hurt badly, especially given our time horizon,
Speaker 1: which is great for the retail investors. We only have
Speaker 1: a few minutes left, so I'm going to kind of
Speaker 1: do a little rapid fire with you and go through
Speaker 1: some things. There is a question coming in from Twitter
Speaker 1: who says, how does Cathy quantify risk in emerging tech
Speaker 1: and differentiate them from the rockets that just take off?
Speaker 1: Just quickly your thoughts on that, How do you do that? Well?
Speaker 1: We use rights law. We center our research on something
Speaker 1: called rights law, which says for every cumulative doubling in
Speaker 1: the number of units produced cost declient at a consistent rate.
Speaker 1: So we watch it for those companies that that that
Speaker 1: are creating the technologies and make sure that they are
Speaker 1: writing down the cost curve so that they're they're finding
Speaker 1: new and new sources of demand as they go forward.
Speaker 1: There are some companies that try and milk the technology,
Speaker 1: and we saw a Lumina try to do this over
Speaker 1: the last four years and they've lost the plot and
Speaker 1: other sequencing players are are starting to encroach upon their territory.
Speaker 1: They're still very strong, but they should have continued writing
Speaker 1: down that cost curve aggressively. Competition comes very quickly for
Speaker 1: those in the league need to keep driving the competition. UM,
Speaker 1: I gotta get to your thoughts on on bitcoin right now.
Speaker 1: What are you thinking? We just got noticed that that
Speaker 1: square about a hundred and seventy million dollars worth of
Speaker 1: bitcoin in the most recent quarter. Thoughts on bitcoin? Yes, yes,
Speaker 1: we're very positive on bitcoin again, very happy to see
Speaker 1: a healthy correction here. Uh. No, market is straight up.
Speaker 1: Everyone should know that everyone should have some dry powder
Speaker 1: for for days like these, And I've been saying that
Speaker 1: for a while. We see so many use cases of
Speaker 1: a bitcoin, but probably the most important use case is
Speaker 1: an insurance policy around the world against confiscation of wealth.
Speaker 1: And that can happen in two ways. It can happen
Speaker 1: with inflation. Bitcoin I think is the best hedge against
Speaker 1: inflation out there bar none better than gold and uh,
Speaker 1: and it can happen out right. I mean when you
Speaker 1: saw in the Middle East, uh prints take or sees
Speaker 1: his own relatives. Well, uh, you know everyone should know
Speaker 1: if you think there's a five per cent chance of
Speaker 1: that happening, you should put five percent of your portfolio
Speaker 1: long term into or your wealth into something like bitcoin.
Speaker 1: You can carry the keys in your head across the border,
Speaker 1: right you think about right in terms of what that
Speaker 1: that allows you. Hey, your big ideas one we've been
Speaker 1: talking about it a lot off air ourselves, a hundred
Speaker 1: and twelve pages. It's on the website. What are the
Speaker 1: big ideas Kathy that we need to be thinking about? Well,
Speaker 1: the new ideas, Uh, you know, big ideas are not
Speaker 1: just a one idea. So we've we've updated our deep
Speaker 1: learning digital wall. It's bitcoin e v right, hailing some
Speaker 1: of the things which are drone work are sequencing long
Speaker 1: read sequencing. Our new our new sections are called reinventing
Speaker 1: the data center. We think Intel is going to lose
Speaker 1: UH is going to lose most of its share in
Speaker 1: the data center, and that's its most profitable UH division.
Speaker 1: Virtual world so gaming UH and sport, gambling, gaming becoming
Speaker 1: moving away from just the pure gaming world. But with
Speaker 1: platforms like Unity and unreal networks like Epic, we're going
Speaker 1: to be bringing virtual worlds into everyday business. Of course,
Speaker 1: virtual reality, augmented reality, we are getting to the point
Speaker 1: where that is viable. Orbital aerospace is another one. The
Speaker 1: space race. We're very excited by that. Kathy, we can
Speaker 1: talk to forever and we shouldn't point out there's ARC
Speaker 1: swag and I know a d percent is donated to charities,
Speaker 1: so you guys thinking about the broader community as well.
Speaker 1: Kathy would thank you so much. Always appreciate it. Be well,
Speaker 1: Kathy Would. She's CEO, chief investment Officer, and founder of
Speaker 1: ARC invest on the phone from Connecticut,