- Cathie Wood of Ark Investment Management is buying the dip as shares of some of the most disruptive companies are hitting record lows, move is echoed by other high-profile fund managers including Bill Ackman of Pershing Square who has upped the ante with Netflix (-0.61%)
- Investors looking to replicate the likely-to-be phenomenal returns in bets on disruptive technology will need a long-term time horizon to see multiples on their investment
Viewed in isolation, Cathie Wood’s recent move to declare “innovation on sale” and the continued moves by her US$14.4 billion ARK Innovation ETF to soak up shares of innovative companies thumped down by the prospect of policy tightening appear almost bigoted.
But take a closer look under the surface and there may be some method to the madness.
For starters, even Bill Ackman’s Pershing Square is getting in on the action, buying up 3.1 million shares in streaming giant Netflix, even as shares of the company continue to come under pressure on concerns over subscriber growth.
Ackman was made famous with his very public US$1 billion short bet against multilevel marketing firm Herbalife, going head-to-head against longtime activist investor Carl Icahn and is not known for being a “long” investor.”
But the times have changed and not to be outdone, Ark Investment Management stepped up buying of retail trading app Robinhood Markets, even as the online broker’s stock tanked to a record low following earnings that fell well short of Wall Street expectations, buying 2.44 million shares last Friday.
With Robinhood Markets trading at 67% below its IPO price, Ark Investment Management, through its various ETFs, has bought shares almost every week since late October, when the stock dropped below its IPO price of US$38 according to data compiled by Bloomberg.
Legendary value investor Warren Buffett once provided this analogy – if you like eating hamburgers and suddenly they go on sale at half price, what do you do? Buy more hamburgers.
If so, then perhaps investors like Wood and Ackman are taking a leaf out of Buffett’s own page book, choosing to be greedy while others are fearful.
Because there is increasing pressure on professional money managers to report wins regularly, with reporting periods getting more compressed, Wood and Ackman could possibly be the Buffett’s of the future, betting big on companies that have tremendous value, but aren’t showing it up right now.
Netflix arguably pioneered the streaming industry, pivoting from a company that provided mail-order video rentals to a content giant that has now expanded into games as well.
Similarly, Robinhood Markets revolutionized investing and trading for retail investors and pressured legacy brokers to bring down fees – that move alone saw retail trading flows on U.S. markets rise to as high as 25%, in a space traditionally dominated by institutional investors.
Both Ackman and Wood emphasize that investors need to look towards the long-term, at least five years or greater, and they may end up having the last laugh.
Not many investors will recall that Facebook (now called Meta) (+2.40%) had an abysmal IPO and traded underwater for the most part, falling by as much as 47% from its offering price just four months after its debut.
Had investors snapped up Facebook at the time, for the “princely” sum of just US$20 in August of 2012 and held them for a decade, they would be sitting on returns of 1,400%.
Whether it was betting on railroads in late 19th century America, or a man named Henry Ford at the turn of the century, disruption and innovation ultimately play out well for early backers in the long run and those who take a long-term view on investments.
