WEBVTT - Ark CEO Wood on Buying 'Solution' Stocks

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Jason

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<v Speaker 1>Kelly on Bloomberg Radio. So I want to get right

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<v Speaker 1>to it because Kathy Wood is back with us. You

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<v Speaker 1>know her well, top performing fund manager, thoughtful observer of

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<v Speaker 1>our investment world and really our world at large. She

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<v Speaker 1>is CEO at ARC invest UH and also chief investment

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<v Speaker 1>Officer at ARC invest. She joins us on the phone

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<v Speaker 1>from Connecticut. Kathy, it is good to have you back

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<v Speaker 1>with us. Um. First of all, how are you doing.

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<v Speaker 1>How's everybody at you, you know, at you, you know,

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<v Speaker 1>your team doing, your family? Hope everyone's okay? Yes, thank

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<v Speaker 1>you everyone. Everyone really is doing wonderful. I mean, we

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<v Speaker 1>we had a seamless transition just because we were so

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<v Speaker 1>digital to begin with. And uh so everyone both both

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<v Speaker 1>of my family's ARC and my family at home. In fact,

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<v Speaker 1>I'm going to have all three of my children home

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<v Speaker 1>at the end of this week, which is fabulous. Yeah. Absolutely,

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<v Speaker 1>And I do wonder. You know, you talked about, you know,

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<v Speaker 1>sort of the shift to digital, Cathy, uh, and that

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<v Speaker 1>certainly has been a theme every time we we've talked

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<v Speaker 1>to you. I mean, I do wonder and we want

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<v Speaker 1>to get into everything you feel about the investment world,

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<v Speaker 1>but tell us a little bit about running the firm.

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<v Speaker 1>At this point, it's sort of what that's like. And

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<v Speaker 1>any even like subtle or or maybe more than subtle

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<v Speaker 1>changes that you made in terms of managing because you

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<v Speaker 1>have a very cohesive team. You know, we've talked to

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<v Speaker 1>you a lot about that over the years, and a

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<v Speaker 1>very engaged team with each other. Yeah, it's been very interesting.

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<v Speaker 1>I was I was concerned. We didn't want to lose

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<v Speaker 1>any of that. And so to this day, every morning meeting,

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<v Speaker 1>everyone in the firm is on and UH, we talked.

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<v Speaker 1>I just we checked one of our our client PM

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<v Speaker 1>and his wife just had a baby, So you know,

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<v Speaker 1>we start a conversation that we just keep in touch

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<v Speaker 1>and keep you know, showing concern for one another. Uh.

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<v Speaker 1>And then we get into our research meeting. So I

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<v Speaker 1>actually think we've bonded even more closely throughout this ordeal.

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<v Speaker 1>And our productivity has been incredible. Marketing, UH, Marketing launched

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<v Speaker 1>a completely new website in the middle of all of this. Um,

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<v Speaker 1>you should take a look. It's really phenomenal. And UH

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<v Speaker 1>and and our communication and marketing is key to this.

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<v Speaker 1>We've been over communicating. I don't know if people feel

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<v Speaker 1>that way, but uh, their mantras over communicate, over communicate,

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<v Speaker 1>So we are we are, We've become pretty prolific in

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<v Speaker 1>this time period. I feel like you can't over communicate

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<v Speaker 1>at a time like this, Kathy. One thing I want

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<v Speaker 1>to ask you, and then we want to get into

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<v Speaker 1>your thoughts about the market and what's going on. But

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<v Speaker 1>you know, you are someone that we do go to

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<v Speaker 1>to talk about our worlds being you know, the innovation

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<v Speaker 1>that's going on, the disruption that's going on, and I

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<v Speaker 1>feel like you invest very logically watching those trends, but

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<v Speaker 1>you also do with a heart and soul. So I

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<v Speaker 1>have to ask you about you know, everything that's gone

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<v Speaker 1>on the last three months and really the last two weeks.

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<v Speaker 1>You know how you see it in the discussion and

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<v Speaker 1>you're having with your investment team and your employers just generally,

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<v Speaker 1>you know, your employees generally about how it impacts our world.

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<v Speaker 1>And I guess ultimately, you know, I get you know

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<v Speaker 1>our investment world at all, you know as well, it's

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<v Speaker 1>all connected. Yeah, I think you know. We have a

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<v Speaker 1>very young team and so for those who are in

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<v Speaker 1>New York and have had to be in New York

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<v Speaker 1>the whole time. For some of them, it's been lonely.

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<v Speaker 1>That's why I wanted to make sure that we kept engaged.

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<v Speaker 1>And we we get together many times during the week,

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<v Speaker 1>different kinds of meetings, but that first one in the morning,

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<v Speaker 1>I think is really important just to gauge how everybody's feeling. Um.

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<v Speaker 1>So I think that many of our employees though, have

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<v Speaker 1>gone to their homes and uh, we have Morocco, we

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<v Speaker 1>have Germany, we have Canada, uh and and really I

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<v Speaker 1>think we've all worked really hard to to you know,

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<v Speaker 1>keep the communication lines completely open so we have no trouble.

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<v Speaker 1>We have us trouble getting hold of one another then

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<v Speaker 1>we did before when we were all in an open

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<v Speaker 1>space office where there were a few conference rooms. So um,

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<v Speaker 1>I think our you know, our video and uh, we

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<v Speaker 1>we used teams off just because for for security reasons.

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<v Speaker 1>But um we've been using Zoom as well depending on

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<v Speaker 1>the call. So I mean, I think these tools have

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<v Speaker 1>improved our productivity enormously. Kathy, you're someone who invested in

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<v Speaker 1>a lot of the big tech names. Right. We've talked

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<v Speaker 1>about Amazon, We've talked about Tesla, We've talked about so

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<v Speaker 1>many of them. A lot of them have also been

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<v Speaker 1>very vocal about especially we just talked about Jeff Bezos

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<v Speaker 1>and what he has talked about Black Lives Matter and

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<v Speaker 1>kind of an exchange he's had with some folks on

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<v Speaker 1>social media. And I do wonder, you know, as you

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<v Speaker 1>look at big tech and their response and maybe their

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<v Speaker 1>responsibilities to society, you know, as a whole, I just

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<v Speaker 1>wonder how you see it. Well, UM, you know that obviously,

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<v Speaker 1>I think compassion is the order of the day, and

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<v Speaker 1>I think showing compassion for you know, the communities and

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<v Speaker 1>the people, and I think it's all of us actually

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<v Speaker 1>have been hurt and distraught over all of this. UM

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<v Speaker 1>that's been important. We UM. If you, if you were

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<v Speaker 1>to take a look at our team page at our

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<v Speaker 1>dash invest dot com, you will see how diverse a

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<v Speaker 1>team we have and how we all had to rally

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<v Speaker 1>around each other. And uh you'll also see the statement

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<v Speaker 1>we put up and uh you will see, Uh you

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<v Speaker 1>won't see some things that you might expect to see

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<v Speaker 1>because we don't want to get caught in a crossfire,

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<v Speaker 1>a political cross fire, so to speak. Uh, we just

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<v Speaker 1>want to lay it out there. We're doing. We're certainly

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<v Speaker 1>talking to talk at our invest in terms of the

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<v Speaker 1>kind of team, and I have never had a better

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<v Speaker 1>team never. I think the diversity has been phenomenal for us.

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<v Speaker 1>So you know, we like to lead by example. That's

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<v Speaker 1>certainly what I think we're doing now. We weren't afraid

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<v Speaker 1>to make a statement. Uh and you know, many asset

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<v Speaker 1>managers I think stay away from all of this completely.

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<v Speaker 1>We felt it was important, especially given who we are

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<v Speaker 1>and what we were going through. UM. But other than that,

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<v Speaker 1>you know, I think there is a lot of politics

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<v Speaker 1>going on and we don't want to get caught in

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<v Speaker 1>the middle of the politics. So as you look at

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<v Speaker 1>your key holdings, what do you make of the way

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<v Speaker 1>some of your companies have reacted to sort of circle

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<v Speaker 1>back to some of the things that Carol was saying,

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<v Speaker 1>because you know, CEOs do feel, especially CEOs of consumer

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<v Speaker 1>facing companies, do feel compelled to to speak out. We've

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<v Speaker 1>only got about a minute left, then we're going to

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<v Speaker 1>continue the conversation. Yeah, Well, what happened during the correct

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<v Speaker 1>the teeth of the coronavirus is algorithms were out there

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<v Speaker 1>aiming for companies with UH low cash buffers and higher

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<v Speaker 1>cash burn and they because growth Companies oftener in that situation,

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<v Speaker 1>they took some of our stocks to the cleaners, and

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<v Speaker 1>we brought them up aggressively to you in VT Zerlo

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<v Speaker 1>and they have been some of our best stocks. They're

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<v Speaker 1>great opportunities and they're all they're all all of the

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<v Speaker 1>stocks were involved with our salute include solutions to the

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<v Speaker 1>problems we're having today. Uh and, so you know it

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<v Speaker 1>was innovation gains traction during top five. We have quoted

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<v Speaker 1>you a lot about that um throughout the last three

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<v Speaker 1>months because as as whether it's healthcare or other systems

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<v Speaker 1>are certainly being disrupted and that's when you bring a

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<v Speaker 1>bat change. So, Kathy, you were talking about some of

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<v Speaker 1>the moves that you made based on essentially what the

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<v Speaker 1>al Goos did in the depths of all of this,

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<v Speaker 1>and we just heard Charlie Pellett talk about the amazing

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<v Speaker 1>rebound of the SMP. Take us a little more inside

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<v Speaker 1>some of these trades and help us understand how you

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<v Speaker 1>make those decisions, because we know from talking to you

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<v Speaker 1>over the years, you make decisions with conviction, uh and

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<v Speaker 1>and with a lot of enthusiasm to say, at least

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<v Speaker 1>help us understand the process and some of the decisions

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<v Speaker 1>you made about specific names. Yeah, sure, Jason. Uh, it's

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<v Speaker 1>during risk off periods that we get some of our

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<v Speaker 1>best opportunities. So we have a five year time horizon.

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<v Speaker 1>All of our forecasts are based on learning curves and

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<v Speaker 1>cost declines that are pretty consistent over time and uh

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<v Speaker 1>and so that's where our conviction starts. But during crises,

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<v Speaker 1>what happens is a lot of investors uh really try

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<v Speaker 1>to get back to their benchmarks. They feel they figure

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<v Speaker 1>that's a low risk place to be. Uh. And so

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<v Speaker 1>what they're doing is they are usually selling our stocks,

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<v Speaker 1>which are either not in indexes or they're very small

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<v Speaker 1>parts of indexes and um and there's you know, our

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<v Speaker 1>stock to go on sale. This particular time, algorithms came through.

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<v Speaker 1>I saw them, I we I was watching them in

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<v Speaker 1>real time. It was fascinating. Uh. And they were they

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<v Speaker 1>were shooting at companies that involve solutions to the problems

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<v Speaker 1>we're having. To you is an online education company. It

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<v Speaker 1>is so busy right now. It doesn't know what to do.

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<v Speaker 1>I mean, it does know. It's a very well managed company,

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<v Speaker 1>but they can't believe how busy they are. That stock

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<v Speaker 1>went from thirty dollars to eleven and a half dollars

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<v Speaker 1>in two weeks. When we know it's one of the

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<v Speaker 1>solutions to our problems. We piled into that in Vita,

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<v Speaker 1>a molecular diagnostic testing company, say the same thing. UH

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<v Speaker 1>small cash cushion, cash burn algoes went after it, and uh,

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<v Speaker 1>I think it was down as well. UM square Tesla,

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<v Speaker 1>we can use Tesla. Tesla had gotten almost to a

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<v Speaker 1>thousand dollars earlier this year, it dropped all the way

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<v Speaker 1>down to three and fifty dollars. We bought it up

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<v Speaker 1>to ten percent. Every time it dropped below ten percent,

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<v Speaker 1>we can only buy up to ten percent. And look

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<v Speaker 1>today it hits an all time closing high at nine

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<v Speaker 1>fifty roughly. So in a very short period of time,

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<v Speaker 1>what was very clear to us is that this this

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<v Speaker 1>coronavirus was going to make a lot of companies who

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<v Speaker 1>was going to throw them into turmoil while he was

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<v Speaker 1>going to turbo charge some of our companies. So just

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<v Speaker 1>take Tesla. You've got the traditional auto companies. Now they

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<v Speaker 1>are pulling back on their e V budgets and cruise

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<v Speaker 1>automation for GM, laying off I think nine percent of

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<v Speaker 1>its employees. UH, today, Unlike one year ago practically to

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<v Speaker 1>this day, UM, when people were saying Tesla was going

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<v Speaker 1>to run out of cash and it was selling at dollars,

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<v Speaker 1>Tesla's balance sheet looks like a fortress with eight billion

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<v Speaker 1>dollars in cash and it's moving into exponential growth, Kirk,

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<v Speaker 1>because it's taking so much share. China's numbers today to

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<v Speaker 1>slot number one e V manufacturer in China, even though

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<v Speaker 1>they're about a hundred manufacturers going after e V s,

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<v Speaker 1>it's it's unbelievable. Yeah, and you can't like ignore the

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<v Speaker 1>numbers and listen. I usually when we bring you on, Kathy,

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<v Speaker 1>I mean I was looking at some of your funds.

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<v Speaker 1>I mean it's just remarkable and consistently, you know, I

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<v Speaker 1>think innovation, the our innovations up around twenty eight maybe

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<v Speaker 1>a little bit more. I think I was looking as

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<v Speaker 1>of closing numbers on Friday, UM our Next Generation is

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<v Speaker 1>up thirty four percent this year. Genomic Revolution e t

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<v Speaker 1>F is up thirty four I mean, you consistently your targets,

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<v Speaker 1>your picks, they definitely perform. I do wonder when you

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<v Speaker 1>look at this time and again, as you've said to

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<v Speaker 1>us during times of stress and turmoil. We see more

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<v Speaker 1>disruption happening. You just talked about, you made the case

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<v Speaker 1>for Tesla. What else is happening now that you think

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<v Speaker 1>longer term are going to be those smart investment plays,

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<v Speaker 1>and those are going to be those companies that are

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<v Speaker 1>going to kind of rise up out of this disruption. Okay.

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<v Speaker 1>Another one I would add is where UH and PayPal

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<v Speaker 1>as well. But I think our conviction and Square is higher. UH.

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<v Speaker 1>I think many people were learned or surprised to learn

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<v Speaker 1>that one of the most serious virus spreaders out there

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<v Speaker 1>is not cash but credit and debit cards. And so

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<v Speaker 1>this idea of contact less payment digital wallets, I think

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<v Speaker 1>is gaining momentum. And the more we dig into the

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<v Speaker 1>cost of acquisition for a Square cash app customer or

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<v Speaker 1>a Venmo customer versus a bank a traditional bank, the

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<v Speaker 1>more we're sure that traditional banks are going to be

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<v Speaker 1>disintermediated and disrupted in a way that they do not

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<v Speaker 1>now expect. Uh. There's a network effect taking place with

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<v Speaker 1>if you think about it, the the viral virility of

0:12:52.400 --> 0:12:56.800
<v Speaker 1>these digital wallets is is it's taking place twice as

0:12:56.840 --> 0:13:00.400
<v Speaker 1>fast as social networking did in the early days of

0:13:00.440 --> 0:13:04.600
<v Speaker 1>Facebook and UH and Google. And the reason is while

0:13:05.760 --> 0:13:08.320
<v Speaker 1>children didn't want their parents to follow them on Facebook,

0:13:08.360 --> 0:13:11.160
<v Speaker 1>they're quite happy to have them in their payment sequences

0:13:11.320 --> 0:13:16.120
<v Speaker 1>to send their allowance every once in a while. Yeah,

0:13:15.360 --> 0:13:19.320
<v Speaker 1>I can confirmed that that is true. And the mockery

0:13:19.440 --> 0:13:22.560
<v Speaker 1>that I faced when I initially couldn't venmo my kids

0:13:22.760 --> 0:13:26.120
<v Speaker 1>was withering, to say the least. All right, so what

0:13:26.280 --> 0:13:29.520
<v Speaker 1>used to take two years for social network to accomplish

0:13:29.679 --> 0:13:32.199
<v Speaker 1>is taking one year for cash happens then to a

0:13:32.280 --> 0:13:35.200
<v Speaker 1>ven Moo to accomplish. We've done some fabulous work. They're

0:13:35.400 --> 0:13:38.760
<v Speaker 1>just a Max Friedrich just published our white paper on

0:13:39.400 --> 0:13:43.360
<v Speaker 1>square cash up then mo versus banks. Um, all right,

0:13:43.440 --> 0:13:45.679
<v Speaker 1>well we're getting Unfortunately we're gonna have to leave it there.

0:13:45.760 --> 0:13:47.840
<v Speaker 1>Cathy would We as always could talk to you for

0:13:47.960 --> 0:13:50.240
<v Speaker 1>hours on end, but we really appreciate you taking some

0:13:50.320 --> 0:13:54.680
<v Speaker 1>time today from Connecticut. CEO c IO of ARC invest

0:13:54.800 --> 0:13:57.800
<v Speaker 1>Cathy would, Uh, top performer. I mean we talked about

0:13:57.840 --> 0:14:00.880
<v Speaker 1>it all the time, and you're right. We woke her

0:14:01.000 --> 0:14:02.920
<v Speaker 1>uh frequently about disruption