Cathie Wood: How Exponential Growth Is Changing The Deep Value Landscape

In her recent interview on The Investors Podcast, Cathie Wood discussed a number of topics including how exponential growth is changing Ark’s deep value landscape. Here’s an excerpt from the podcast:

Question: So given that the focus of Ark work is on disruptive technologies, some might think that the Ark investment approach is the direct opposite of the value investing style of someone like Warren Buffett. But Ark’s approach appears to have actually a few characteristics that might be unexpectedly similar, such as going big on high conviction bets, investing for the long term, a circle of competence, clearly defined industry focus. Would you agree with this assessment or would you categorize Ark’s philosophy in a totally different way?

Wood: No, I think you’ve hit on some very important points about what we do and the way we do it. At the beginning of last year, I remember saying frequently, if you give us a five year time horizon, I will tell you with a straight face that Ark is a deep value asset manager.

And I still believe that. Sure, we had great performance last year, as you said. But if our estimates are correct, given the number of exponential growth curves evolving at the same time right now, so five platforms, 14 technologies, I believe that as a value manager what we’re doing is discounting the future. Exponential growth is a very difficult concept right now because we really have never seen it without some perceived failure, and that was the tech and telecom bubble.

That felt like at the time, and I was right there, like exponential growth that would never end. And of course it did end in tears. It was too much capital chasing, too few opportunities too soon. Now the seeds for everything we’re doing now were planted back then. They’ve been gestating for 15 to 20 years. Now we believe, and Amazon is the poster child for this, that there are companies that are going to be able to deliver 20, 30, 50, 60 percent compound annual growth in revenues during the next five to ten years.

This really has not happened in our lifetime and certainly not on the scale with all of these platforms and technologies. So I think that our role as a deep value manager is still very much in place.

You can listen to the entire interview here: