Nov 14, 2022 · 58m · news
Cathie Wood: Elon & Twitter; Why Facebook is a Value Stock Now; ARK's Performance | 20VC #949 · 20VC with Harry Stebbings
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In this interview, Cathie Wood, Founder, CEO, and CIO of ARK Invest, discusses her investment philosophy, her strong critique of passive index investing, and how ARK manages risk and maintains high conviction during severe market drawdowns. She also details the launch and operational structure of the ARK Venture Fund, explaining how she aims to democratize venture capital for everyday retail investors through a collaborative, transparent research-driven model.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 13.9% of the talking time here. How this is scored →
Harry as informed peer 4.7 Guest teaching 4.7 Guest disagreement 2.5 Harry pushing back 4.9
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 4:10 Cathie Rejects Tupelo Narrative
Cathie forcefully corrects Harry's premise regarding her record at Tupelo, clarifying that she was not present for most of the drawdown and took full responsibility only for the period she managed.
Hardest push from Harry ▶ 34:39 Harry Interrupts on Zero CarryHarry interrupts Cathie mid-explanation to directly refuse her framing that a fee-only fund works, arguing that top venture talent demands massive carry upside.
Biggest teaching moment ▶ 4:10 Correcting Tupelo AUM and TimelineCathie educates Harry on her actual tenure and performance at Tupelo Capital, dismantling his assertion that assets dropped under her watch from 1.2 billion to 200 million.
Harry holds his own ▶ 38:59 Citing VC Deal Dynamics and Star PartnersHarry demonstrates deep venture industry knowledge by citing specific anecdotes like Ben Horowitz gifting Databricks' CEO to win allocation, questioning how ARK can compete without star VC partners.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| The Danger of Passive Index Investing | 1 | 3 | 2 | 0 | Harry asks a broad personal backstory question, allowing Cathie to monologue on her critique of benchmark-based passive investing. Host pushback is zero as this is largely a guest exposition segment. | |
| Lessons from Tupelo Capital Management | 4 | 7 | 3 | 2 | Harry brings up researched details on Cathie's former firm Tupelo, but Cathie directly corrects his premise about her timeline and AUM decline. She explicitly states she takes full responsibility for 2000 but not for subsequent asset declines after her exit. | |
| Navigating the Venture Capital Cycle and Crossover Investing | 4 | 5 | 2 | 3 | Harry questions launching a VC product in a saturated market where capital is chasing too few deals. Cathie reframes the setup by contrasting public drawdown severity with private down rounds. | |
| Maintaining Conviction in Down Markets and Portfolio Concentration | 3 | 4 | 2 | 6 | Harry confronts Cathie with a direct, personal question asking if she ever doubts herself when her fund's stocks drop 80 to 90 percent. Cathie explains her data-driven research model and portfolio concentration approach. | |
| Solvency Risks and High-Conviction Plays: Tesla and Invitae | 5 | 4 | 2 | 6 | Harry presses Cathie with the classic market axiom regarding whether markets can remain irrational longer than companies remain solvent. Cathie points to historical examples like Tesla in 2019 to defend liquidity options. | |
| Sell Discipline and the Nvidia Example | 4 | 5 | 2 | 5 | Harry asks how ARK manages sell discipline when public growth strategies often encourage endless holding. Cathie details ARK's 15% hurdle rate return threshold and gives Nvidia as a specific historical sell example. | |
| Large-Cap Tech, Passive Investing, and Bear Market Ends | 5 | 4 | 2 | 3 | Harry asks a structural market question about how much large-cap tech performance is driven by passive index flows. Cathie agrees and details how ARK differentiated its strategy away from FAANG stocks. | |
| Addressing Criticisms of Risk Management and Volatility | 5 | 5 | 4 | 7 | Harry directly raises public criticism, asking why people suggest ARK has zero risk management. Cathie pushes back forcefully, asserting that risk allocation rests with external asset allocators rather than thematic fund managers. | |
| Asset Retention and Why ARK Hasn't Seen Massive Outflows | 4 | 5 | 2 | 6 | Harry pushes on why ARK hasn't suffered massive capital outflows despite severe performance drawdowns. Cathie credits their open-source research and direct retail communication model for asset retention. | |
| The Transparency Strategy: Playing Poker with Cards Face Up | 4 | 5 | 3 | 5 | Harry cites a journalistic critique comparing ARK's public research model to playing poker with cards turned up. Cathie responds by arguing that proprietary information is an outdated concept in the modern era. | |
| Democratizing Venture Capital for Retail Investors | 6 | 5 | 3 | 7 | Harry challenges Cathie's retail VC initiative, calling the management of 50,000 small retail LPs a fundamental nightmare. Cathie explains the operational setup using interval fund structures and Titan's platform. | |
| Zero Carry Fee Structure and Talent Alignment | 7 | 5 | 4 | 8 | Harry actively interrupts Cathie to reject the premise that a 0% carry fee structure can attract top venture talent. Cathie defends the model by citing internal parent-level equity distribution across unified analyst teams. | |
| Winning Allocation and Deal Access as a Crossover Fund | 8 | 5 | 3 | 8 | Harry demonstrates high expertise by naming top VC partners and specific deal dynamics to ask if ARK can win competitive allocations. Cathie argues that their research brand opens doors directly with founders. | |
| Capital Planning and Scaling the Innovation Market | 5 | 5 | 2 | 4 | Harry asks a technical fund construction question on how capital planning works in an open-ended evergreen fund structure. Cathie explains their flexible deployment strategy across secondaries and convertibles. | |
| Underwriting Risk and Long-Term Time Horizons | 5 | 4 | 2 | 3 | Harry asks about underwriting risk before steering into a fast-paced quick-fire round covering Meta, Twitter, and investment horizons. The dynamic is polite and conversational. |
Statements from this episode (41)
Cathie Wood: ARK Invest focuses on five converging innovation platforms
“So we've centered our research and investing around Five innovation platforms genomic sequencing robotics, energy storage, artificial intelligence, and blockchain technology and those are all converging.”
Wood: Passive index investing has reached an extreme and dangerous level
“And I think even though the onus or the burden of proof is on us because passive has done so well. Over the past 20 years, it's been self-fulfilling as more and more assets moved into passive or benchmark sensitive. I think the pendulum has swung too far, and …”
Cathie Wood Expects Significant Private Market Drawdowns
“What I do believe could be a set of significant drawdowns in the private world that has already happened in the public world.”
ARK Venture Fund Targets 75% Private, 25% Public Allocation
“Our desire is to get it close to 75% private and 25% public to allow more liquidity.”
Cathie Wood: Private Markets Value Innovation Better Than Public Markets
“The private markets have innovation more right in terms of valuation than the public markets do.”
Cathie Wood: Fundamentals Will Disrupt Benchmark Investing Within Years
“Fundamentals are going to disrupt that way of thinking during the next few years.”
Wood: 80-90% stock drops increase expected five-year total returns
“What we see as our stocks go down 80 to 90%, if we're right we're seeing the total rate of return expectation increase for the next five years.”
Cathie Wood: ARK averages down and concentrates portfolios in market drawdowns
“We average down during risk off periods, and we also concentrate our portfolios towards our highest conviction names.”
Wood: ARK cut flagship ARKK holdings from 58 to 32 names
“So we've moved our flagship portfolio ARKK from 58 names down to 32, 33 names and we're further consolidating in this risk-off period, but we tend to bottom out in that low thirties range.”
Cathie Wood: Invitae will become a top molecular diagnostic testing company
“And we think they have streamlined and are going to become one of the most, if not the most important molecular diagnostic testing company.”
Cathie Wood: ARK holds private molecular diagnostics startup Freenome
“And I'll also say that in the private world, we think a contender is Freenome. And we have that as one of our first holdings.”
Cathie Wood: ARK requires a minimum 15% hurdle rate for public portfolios
“Many of our stocks were beginning to fall below our minimum hurdle rate of return over a five year period. That number is 15% for the public portfolios.”
Wood: ARK completely sold Nvidia before buying back after stock tumbled
“We ended up selling out of Nvidia and only recently since it has had a tumble. Have we re-initiated our position?”
Wood: ARK has the best innovation analyst team in the world
“I do believe we have the best analyst team when it comes to innovation in the world, and the reason we do is because their responsibilities are broken out not by sector or industry, but by technology.”
Wood: FAANGs, Microsoft, and Nvidia made up nearly 50% of Nasdaq 100 in 2021
“Last year the market reached all-time highs in twenty-twenty-one as we were selling off, and it was the Fangs, it was Microsoft, it was Nvidia, and those, if you look at the Nasdaq 100, account for, account ed at that time, for nearly 50% of that index”
Wood: ARK outperformance signals market is nearing the end of a bear market
“Our strategies are starting to outperform now on days When some of these big benchmarks don't, and that's what usually happens as we're coming towards the end of a bear market.”
Wood: ARK portfolios have under 5% overlap with major equity benchmarks
“Less than 10% of our portfolio is, or I should say less than, there's much less than a 10% overlap between us and any, you know, it's usually less than five percent.”
Wood: Institutional asset allocators hold a massive short on disruptive innovation
“We're giving asset allocators an opportunity to make up for the massive short that we believe they have in their portfolios. And that short is truly disruptive innovation.”
Cathie Wood: Equity benchmark stocks represent past success, not future growth
“Whereas these benchmark stocks are more about the past and their past successes.”
Cathie Wood: ARK sells companies showing management turmoil during fund concentration
“We're selling a lot of our portfolio to concentrate. And again, some of those sales are very good because we have a doubt. Wait a minute. There's a management turmoil or a lot of turnover and just, you know, little red flags that don't force us. They may be we…”
Wood: ARK Invest generated $17 billion in net inflows in 2021
“So last year, our net flows, now they were front end loaded to be sure they were seventeen billion dollars. That's net. There were redemptions, but we kept seventeen billion of the flows last year.”
Wood: ARK lost under $1 billion in net outflows in 2022
“This year, we haven't even outflowed one billion, you know, out of that seventeen billion.”
Wood: Investment edge comes from synthesizing information, not owning data
“Information is ubiquitous. It's how you put it together.”
Wood: Withholding research will be seen as provincial within 3 to 5 years
“And I think it will be Considered a very provincial in let's say three to five years time to hear a firm saying, well, we don't share any of our research because it's our secret sauce.”
Wood: ARK combines Wright's Law cost-modeling with a six-point innovation score
“We're sizing opportunities using Wright's law, a relative of Moore's law, to try and understand cost declines, and then we do our bottom-up analysis. We are as stock research driven as any other bottom-up team out there, and then we have a six-point overlay ju…”
Wood: Retail Investors Often Know More About Innovation Than Institutional LPs
“If we were to use knowledge as the metric for accreditation the accredited investors for ARC Would be those retail investors. They have, they are passionate about innovation, and they know so much about it, and many of them are working in the industry or in th…”
Wood: Wealth-based SEC investor accreditation rules are un-American
“It's truly not American to use income and asset thresholds when knowledge could be an accreditation, ah, measure or metric.”
ARK Invest Partners With Titan for Venture Fund Distribution
“Titan is our partner, our distribution partner. It is an app, Andreessen Horowitz funded app, and we are the first outside equity fund that they are putting on this platform, and they are going to help us help our retail investors get to know our companies, Wi…”
Wood: Investors pay 40% more fees in traditional VC than ARK
“If you were to compare our fees all in management fees all in the 2.75 versus the venture venture two and 20, That top quartile fund you would have to pay 40% more in fees over time.”
Wood: ARK uses same research analysts for public and private markets
“We are not using different analysts for private than public because they've been following these private companies the whole time.”
Wood: ARK Invest gives all research analysts company equity from day one
“We give all of our analysts equity and arc from the beginning.”
Stebbings: Venture is the only asset class where assets choose capital
“In venture, it is one of the only asset classes, I believe, where the asset chooses the capital. In all others, the capital chooses the asset,”
Wood: ExxonMobil mines Bitcoin to capture flared gas in six fields
“So Exxon's doing that. It's six different, maybe many more now, fields around the world.”
Cathie Wood: ARK Venture Fund will not lead deals initially
“We will not be leading deals right now.”
Wood: Disruptive innovation market cap will hit $210T in ten years
“We believe today that truly disruptive technologically enabled innovation is priced in the global markets, public and private, at somewhere in the seven to eight trillion dollar range. So it's less than 10% of the global equity cap, public and private. We beli…”
Wood: ARK Venture Fund marks all holdings to market daily
“They will be able to look at their portfolios here every day now, and because everything will be marked to market every day.”
Wood: ARK Venture Fund sets a $500 minimum investment
“If you can't have a long-term time horizon, you probably shouldn't be involved or just with 500 dollars, maybe you can take that risk. Because that is our minimum.”
Wood: Meta maintains 3B+ users and 67% DAU/MAU engagement ratio
“So daily average users over monthly average users, 67% hasn't changed. Has three billion plus users.”
Wood: Personal portfolio is all-in on innovation, crypto, and private funds
“I think advisors looking at how I have positioned my own portfolio are shocked at how much I'm all in to innovation. Between our funds crypto and private funds.”
Wood: Tesla stock does not price in its massive autonomous opportunity
“Because we believe the autonomous opportunity is massive and is not priced at all in Tesla stock we would still put Tesla near the top or at the top of the pack.”
Wood: Zoom and Microsoft lead enterprise comms cloud rip-and-replace cycle
“It and Microsoft are the two beneficiaries of the first rip and replace cycle that we've seen in the enterprise communication space since the early nineties when Cisco was building out the internet now, but that was on-prem and hardware oriented. Now we're mov…”