Hello everybody and welcome to
Investing with IBD
sponsored by MarketSmith today is
August 19
2020. i'm your host Irusha Peiris and
today we have Cathie Wood on the show
Cathie is the founder CEO and CIO
of Ark Invest Management
thanks for being here Cathie thank you
Irusha i'm very happy to be here
on today's podcast we're going to talk
about the current markets
disruptive trends and then we will end
the episode with a few current ideas so
let's get into the current market
the market continues to be in a strong
uptrend we have three distribution days
on the nasdaq and S&P 500 Cathie what are
your thoughts on this market and
also just 2020. oh well 2020 has been
pretty wild of course
um during the coronavirus uh
i started doing youtube videos on
fridays just
each each week to hold our clients and
prospective clients anyone's hands
i mean we did have a point of view and
that point of view was
that we were setting up for a very
powerful v-shaped recovery
and i i think a lot of people found it
very
difficult to understand that at the time
um
but now we're seeing it what we've seen
is consumers coming back
very strongly businesses scrambling to
catch up to them inventories are falling
uh they can't keep them on the shelves
this is the definition of a v-shape
recovery the other thing
that we wanted to emphasize for our
clients was
that during difficult times uh
that innovation usually takes off and
the reason it does is because it solves
problems think of all the problems that
the this pandemic has created
right um we're working uh
digitally now of course and uh education
is online uh cash we're not passing cash
anymore
so you know again uh innovation
solves problems and i think the big
surprise to
us has been to hear companies say
that they didn't expect to see some of
the customers they're seeing now
for five years we actually have had uh
companies say that
and some of them have withdrawn guidance
not because
they don't know how low uh their
business is going to go
but they don't know how long this is
going to last has
have we just pulled forward activity or
have we accelerated change that was
underway
and and was going to take place and and
extend over many many years
well how long do you think these changes
do you think these are permanent changes
with the work from home
and and things like that people ordering
a lot more on online
uh do you think that now we've finally
had that kind of
ship that we've all kind of been
expecting yeah i think
well i think it's happening faster now
because of the
the coronavirus i think it would have
happened
much more slowly over time i mean think
about
how uh we viewed working remotely
before right we had to do it
you know there was some question uh you
know
is this person really working or that
was the prevailing wisdom
right i think most of us are
understanding
now that we are more productive we have
become
more productive certainly at arc invest
we've become more productive but we're
seeing that
uh from our clients from our companies
uh i think we've stepped up in
productivity i think the
the gdp accounts uh productivity
was up something like seven percent at
an annualized rate these are crazy
figures normally productivity grows in
if if we're lucky it's growing and it
grows in the one to two percent range
we're now
in the high single digits and i think
it's going to continue for a while
yeah i mean we've definitely seen that
at Investors Businesses Daily too
uh we're all working from home we're a
lot more productive and in many ways
it's kind of hard to argue going back to
kind of the
normal full five day week period
no i agree i agree i mean and and now
we're
i think in a healthy way uh trying to
figure out the the differentiation
between work
and the rest of our lives i i think
there are some healthy
uh there i think people are getting more
into exercise i'm seeing a lot of that
in our own firm
so uh you know there are some very
positive
uh uh results coming out of this however
devastating some of the results have
been
yeah and now now one of the latest news
items over the last couple of weeks
uh that's been kind of just all over the
financial news is
uh the news going on with Tik Tok and
president trump
uh trying warning that he might ban it
and
maybe microsoft is going to acquire it
uh
what what are your thoughts on Tik Tok
and also uh wechat
by Tencent yeah it's been interesting to
watch that of course
um Tik Tok i put it i put the app
on my phone about three months ago so
now i guess the chinese government knows
everything about me but but guess what i
i already
thought that the chinese government knew
everything about me because i've
traveled there so much
yeah so it's no surprise to me
we've talked to some cyber security
experts we have a
business brainstorm uh not a business a
research brainstorm on fridays
uh and uh some cyber security
experts do not believe that tick tock is
a security risk per se a privacy risk
sure um so i found that to be
interesting they would
they they think that you know 5g and
some of what huawei had been doing was
much more of a risk
okay um i wonder if
uh if somehow there was there were some
conversations going on
uh before uh the trump administration
came out with the news because
uh the head of streaming at disney left
to run streaming at Tik Tok
globally
uh so that's a u.s executive
it could be i have also been surprised
there hasn't been
more of a retaliation so again i wonder
how much back and forth there has been
uh that we don't know about it's been
interesting to watch facebook with its
reels
some people think that is just as
addictive
as Tik Tok and maybe one of the
reasons is it includes a lot of Tik Tok
videos so
uh i you know it's kind of hard to
figure that out
i think what uh we've also focused on is
um because china is becoming so
politically sensitive when it comes to
these kinds of services
we're watching a company called sea uh
the
the Sea  Limited i mean s-e-a yes
and the ticker is SE
singapore based and actually 35%
owned by Tencent uh and it is
in a surreptitious kind of way
making its way around southeast asia and
into latin america
and growing just incredibly fast so i
think Tencent
is now you know basically uh
enabling uh some of these other
companies by giving them
lots of helpful hints and probably a lot
of uh support
so uh we're we're watching that dynamic
as well
yeah well talking about Tencent i mean
it seems like Tencent 
invest in like every new company in in
asia they really place their bets in a
lot of where you would think that they
might be competitors
yeah they're they're partnering up and
i've always thought that was an
interesting strategy
yeah we a tallied actually we talked
about it this morning at our morning
meeting
we've we tallied the top 100
companies uh in which Tencent is
invested and i think that
right there is 200 billion dollars uh
right right worth so it's very
interesting Tencent had a very open
mind this way
and um you know they want to participate
no matter where
and and and no matter how so kathy
let's get let's go back and and and you
know just walk us through how you got
started
in investing and and how you got into
this business
oh okay yes i was at uh
usc uh that's the university of southern
california
and um i have to say that because i just
bought a place in
south carolina and there's a usc there
too oh i know yeah now they're very
sensitive with that
which i don't blame them but no i agree
but as you can see in the background
there i have a usc helmet i i went to
usc
business school there at marshall yes or
a fight on
yeah so uh i met
professor art laffer there art laffer
laffer curve
supply side economics yeah wow he was
teaching
in the graduate school i was an
undergrad but i befriended
one of his assistants and all of us were
taking night
classes and he was giving a night class
and um
he suggested that i uh
become that i joined his program and and
he let me apply
or the school let me apply his courses
and and
and and the program that he and his
proteges brought with them from
the university of chicago to uh my
undergraduate degree
so my love of economics started there
but really what that
was was a love of trying to figure out
the way the world worked
and the way the world was going to work
so really trying to understand the
future
art introduced me to capital group on
the west coast so
you know and i didn't even know i was a
junior in college this was 1977
um and i i
didn't even know about this business you
know i was a junior in college
and the investment world was out of
favor then we had been
in an inflationary period
and bonds were out of favor equities
were out of favor
no one wanted to work for an investment
firm they're all going to consulting
firms
and that's where i learned hey when
everybody does this and you do that
maybe there's a great
that's a good idea um so i started there
but they
were trying to figure out what was going
to happen to hong kong in 1997 so it was
1977
20 years and i said i want to be in this
business
and then when i moved to jennison
associates here in new york
three years later um i had the privilege
of being able to move into equity
research
and portfolio management but in order to
earn my stripes
i had to figure out my own universe and
as the CIO still there
uh said you know our analysts are lifers
and so you're just gonna have to figure
out your own universe something that's
not already being followed well
what was that these were companies that
were IPO'ing that kind of fell through
the cracks
uh the reuter reuters what was that
well it was called a database publishing
company at the time
where do we follow that well it's not a
database company so the tech guys didn't
want it
it wasn't a publishing company so the
publishing guys didn't want it
yeah and and so i put my hand up and of
course
that was the very early stages of what
would become
the internet right that's incredible
isn't it isn't it yeah
i mean all these great new companies
fell to you they've
yeah yeah and a lot of times i
i almost feel like in equity research or
even just economics
everyone has a tendency to stick with
the companies that are doing well right
now
it is kind of interesting that you with
an economics
degree you were attracted to disruptors
and a lot of these newer companies
yes yes and i think the other reason was
i learned an important lesson
in economics when i started in the
business
when i moved over to jenison in
economics
uh uh inflation and interest rates were
well into the double digits
and with the guidance of Art Laffer
and watching Paul Volcker i
we we made the call that hey inflation
and interest rates are going to peak
and they're going to come down and
multiples will expand
well no one was thinking about that i
mean Henry Wojciner
these pro i mean Henry Kaufman Al Woods
Lauer Gary Wayne Glowski Milton Friedman
himself
none of them thought that that was true
they all thought inflation
and interest rates were embedded in the
system at a double-digit rate
so again here's another example everyone
was moving that way
and we basically at Jenison said no we
think this
and it was a wonderful time to start
investing
incredible uh so so after that you went
on to
to co-found a hedge fund too right
yes after 18 years at uh Jenison
uh tupelo capital uh one of my
Lulu Wong one of my uh colleagues at
Jenison
and i moved on uh to manage her family's
um fortune or at least a part of it
and uh and the reason
we wanted to do this is it uh it was
opening us up to the
the world uh it was a hedge fund
uh we had a lot of agility and there was
it was
it was the beginning of the well it was
in the middle of the internet bubble and
we saw
all of these opportunities
so it was a great time to start a hedge
fund because
you know after a while you realized okay
now they're counting eyeballs to value
these companies
this is not going to end well and so
you know we did we did very well and
it was an exciting time to to learn
uh how to run a hedge fund and to be
global as well
very exciting and then and then after
that you went to lions bernstein right
yes they were looking so uh lulu and her
family decided to remain
uh a family office instead of building
out which was our original plan so yes i
joined Alliance Bernstein and
i became a chief investment officer of
global thematic investing
and uh it was during the tech and
telecom bust
and so ironically you know
our portfolios down to i remember 11
tech when the indexes were 30 35 to 40
percent
and honestly i think most
most people thought it was political
suicide to do that
um and and it and and it
and the reason i did it was i'd never at
Jenison or at Tupelo
paid attention to the benchmarks but
we had moved into a world where
benchmark style investing and
benchmarks themselves were becoming very
important
sort of a centerpiece of sort of
certainly quantitative research so maybe
ignorance was bliss but it really helped
me not to care
that the tech the tech was 35 to 40
of these indices and to make
that move uh because it did pay off
and so what inspired you to to leave
Alliance Bernstein
and start uh Ark Invest well
so the move towards benchmark style
investing
and and and passive generally in the
business
not not alliance bernstein that
gained some momentum after the tekken
telecom
bust or during it but uh
after 0-809 it became
embedded i think in most traditional
asset managers so we were already a bit
of an odd duck
yeah different duck and after 0-809
i think i i think there was a feeling
that
uh you know this the strategy we were
uh uh involved with was very volatile
and um and i think they would have liked
to have risk completed our portfolios
but that
that is something that wouldn't have
been appropriate for what we do
uh the other thing that i wanted to do
that i could not do it Alliance
Bernstein
or nor could we do it at any traditional
investment firm this is nothing uh
this is not saying anything about
alliance merchant
i wanted to open up our research and
share it with the world
i wanted to develop the equivalent of an
open source
research equity ecosystem patterned
after
open source software and
yeah and it and and this was an
idea that came to me in august of 2012
why don't you disrupt the financial
services industry or at least the asset
management part of it with some of the
technologies
that have disrupted other industries
social media and
being a very important part of that but
just opening up
generally because i wanted
our analysts to engage
with the innovators and and these
innovators are
on social media i never dreamed in 2012
that twitter would be the social network
that um that was the best suited for
this
back then it was tweens teen celebrities
and i thought it would be linkedin
or you know something else but twitter
was it and has been really important to
us
we are now i believe a part of the
communities
we are researching in a much more
profound way
than most analysts and portfolio
managers can be
and that's because we're willing to
share our research well
at a traditional asset management firm
a compliance department is not going to
turn itself
upside down for one portfolio team
among dozens especially because
most of them most of those inside uh
compliance do not use social media
and you know don't and and are more
fearful
of the ex of how much how vulnerable
it might make uh the organization
well that that makes a lot of sense i've
enjoyed a lot of the research over the
years that
that your team has shared and uh it's
right up our alley here at investment
investors business daily uh with a lot
of the stocks that we find
coming up on our radar so let's take a
quick break here uh the market continues
to be in an uptrend
and leading stocks are acting well when
we return we are going to talk
about some of the disruptive trends that
are changing the world today
we'll be back
i am here with Scott St Clair Scott's
one of
our senior product coaches at MarketSmith now scott there are a ton of
publicly traded stocks just on the u.s i
think it's over 5 000
stocks who has the time to go through
all these stocks and find the very best
ones yeah most people don't right so
what you need is a tool like market
smith we have decades of research on
what makes a great winning stock
so we've done all the research for you
so we're going to try to highlight those
specific
stocks with those great data points so
if you're looking for that next great
potential big winner
orange stock ideas button you just click
on it and you've got some of the main
reports
that we use including the growth 250.
yeah and the growth 250
is the first list that i go through on
the weekends
yeah it's the most popular one but there
are others there's a breaking out today
stocks near a pivot and then the blue
dot list right which is very popular
it's going to show you the stocks with
the best relative strength
so we've done a lot of the work for you
what you have to do is review these
lists
you're going to come up with some of the
best ideas in that current market
environment
perfect MarketSmith saves you time and
makes investment research
that much easier for more information go
to investors.com/podcast2020.
Cathie Wood is our guest on Investing
with IBD sponsored by MarketSmith
okay Cathie let's get into some of the
disruptive trends
and let's start out with the genomic
revolution because this one we know it's
out there it's starting to happen but
it's kind of hard for i think a lot of
us
to really grasp how revolutionary this
is
yeah well i think one of the reasons
it's hard to grasp is
is what we discussed earlier the cracks
that this is falling through
technology is going to impact health
care
more profoundly i think than anyone now
understands
there is a convergence among
dna sequencing artificial intelligence
and CRISPR gene editing which is going
to lead
to cures for disease now
it's very interesting to hear our
genomics analysts talk about this
it's almost burying it as i as a
portfolio manager
have to say they'll say something like
curative therapies i said
you mean cures and you know and i
i still think that i
i think people don't believe that
because it really hasn't
happened before right yeah yeah and
let's start with the CRSPR
gene editing because this is i remember
when i learned about this a little while
ago it was mind-boggling
yeah that they could do this and uh so
walk us through
this technology and how it could lead to
a
lot of cures let me back up and start
with dna sequencing
and and now we're able to find the
needle in the haystack
right so uh you know we have
three billion base pairs of dna that's a
lot of hay
right and to find one mutation
was impossible before just impossible
yeah
if it was possible it was way too
expensive so
the tekken telecom bubble was
beautiful because it planted the seeds
for everything that's happening now
but it was way too expensive back then
that's why
that's one of the reasons we took
technology down to 10
of the portfolio back then it cost 2.7
billion dollars to sequence the first
whole human genome even if costs had
come down
by 75 the next year we weren't ready for
prime time
now we're down to uh what by some
measures some private companies can do
it for 500
to sequence your genomic profile 2.7
billion in 2003
to 500 that's veritas it's george
church's company
um and uh envite is the molecular
diagnostic company that
is driving down the cost curve from a
testing point of view and really going
to revolutionize testing as well
so now because we can
sequence a person's genome for that
low amount of money we're going to be
able to identify
mutations from one sequence to the next
so uh many people think oh you'll just
be sequenced once in your life when
you're born and
that's your dna no there are mutations
all the time and they can be caused by
heredity they can be caused by stress
environment poor diet all kinds of
things right
right so we are all going to have
geneticists
and we are going to find out from our
geneticists
uh from one year to the next or every
two years
what mutations have mutated that's like
finding the needle in that
haystack right why do we want to know
that
because a mutation is a programming
error something's gone haywire
and it is the earliest manifestation of
disease
okay so we've got what now
the reason we're able to to
find this is artificial intelligence
artificial sequencing
and artificial intelligence are helping
us understand
the pathways for disease CRSPR gene
editing once we figured out the mutation
is able to reprogram
the the error and really reverse the
disease
artificial intelligence uh might be
able to help us understand uh
when we're heading for stage one cancer
right so we artificial intelligence
might help us understand that but let's
say we when
we don't get it it isn't that good
for a number of years if we do get
stage one cancer we believe
that CRSPR gene editing is evolving
fast enough now
that we will be able to reprogram that
error
now we're already seeing
CRSPR cure humans
of sickle cell disease and beta
thalassemia
CRSPR therapeutics is the company
involved here in those two
human trials and the trials no news is
good news
we would find out there are so many
trials going on right now we would find
out if it was not working
of that i'm convinced they'd have to
stop and something really bad happened
no news is good news we just had a
webinar with
Jennifer Doudna who's the co-inventor of
CRSPR gene editing and i said that to
her i said
is no news good news and she didn't
she she just smiled it was clear it was
clear
no news is good news but the news we're
getting
is it's almost rogue these are patients
who are coming who are in trials and
saying
i'm still in the trial i'm cured
victoria gray was one woman sickle cell
disease
she used to have to go to the emergency
room six or seven times a year
um and the life expectancy of someone
with sickle cell disease is in the 50s
she has not had to go to the hospital in
a year and she's still on the trial
beta thalassemia a man
in uh in a crispr trial
used to have 17 blood transfusions
a year and has not had one in one year
again no news is good news yeah so those
two have been announced
and we're going to see a lot more
milestones this year so CRSPR  their
therapeutics and the ticker symbol
for them is crsp so they're a major
player in this
but now they're there there's another
company that's uh
kind of battling out uh for i guess with
the patents for
the CRSPR technology uh eat us
medicine right ticker symbol EDIT
E-D-I-T
yes why CRISPR over uh well we own CRISPR
Therapeutics Editas and Intellia
those are the three companies with the
foundational patents
so Intellias NTLA those are the three
companies with the foundational patents
for CRSPR gene editing this is for cas9
which is a particular enzyme and and
seems to be the one
uh that is finding most success right
now jennifer doudna confirmed that
wow now why are we invested in the three
of them
well uh we've learned from the
technology world
not the healthcare world but that
technology world
that when um when when there
are advances like this
for the welfare of humankind however you
want to say it
um and for the good of all the companies
involved
cross-licensing will probably uh
take place at the end of the day now we
think
that CRSPR and Intellia are in
stronger positions than Editas for
CRSPR cast nine but but
i mean yeah for CRSPR cas9 EditAs
however
has another flavor of uh
of CRSPR uh that we
think could be important in terms of
pediatric blindness
uh so again it may be in the weaker
position it'll be able to cross license
plus it has
uh another flavor of CRSPR which could
become very important
very cool now you you built a whole etf
around this you know so so people don't
necessarily have to worry about
CRSPR or Editas or some of these other
companies
and so you an etf just just based on
genomics right
yes the genomics revolution is what we
call it
and uh i think
again this convergence of artificial
intelligence so we own some tech
companies in here
um and not too many i mean it is
predominantly genomics companies but
um the the the convergence of artificial
intelligence
uh dna sequencing
and uh CRSPR gene editing is going to
power
other companies as well uh testing
companies i mentioned in vitae
you know in in the world of artificial
intelligence
the companies with the most data and the
highest quality data
are are probably going to take the
lion's share of the market
and we think Invitae could be that
company in the molecular diagnostic
space
um especially now that they just brought
uh bought
arch a liquid biopsy uh company
now why do we say that
uh well their tests are because of the
amount of data they have collected
and and their willingness to go down the
cost curve of dna sequencing
and price tests uh as
low as they possibly can so that they
can
uh so that they can analyze all of these
patients
they will then have access to data
anonymized of course
that that no one else will have
and they'll have more of it the other
thing they have that no one has right
now
is a network of geneticists globally not
all of them
work for Invitae but they're part of a
network
and these geneticists are critical
to helping doctors understand
what the results of these dna sequencing
exams are so so there's
an important network evolving here which
again
reinforces uh the desire of people to go
to a company like Invitae they have
the expertise to uh translate
and decipher uh what all these tests
mean
yeah i mean and if you take a step back
and you mention a number of tech
companies
you know the tech companies that really
did well were the ones that could
create this database or create this kind
of go-to place like a google
or an amazon uh and so it's really
interesting that Invitae here is
building this
this database or something where all the
medical professionals
have to go to get all this information
and also
obviously a very very low cost for the
tests yeah they
started in the hereditary world but they
have now moved into non-hereditary which
is called somatic
so it's going to be much bigger and i
think uh here's another reason
it's misperceived or it has been
misperceived
lab companies like lab corp
and quest diagnostics they have been
commoditized and from a technology point
of view
they are not very interesting companies
from
our point of view they may be very
interesting to value investors but
they're not to
us nonetheless they are perceived
testing companies are perceived as
low margin and commoditized that's why
this
is is going to be such a surprise
it is keeping its gross margins down to
50
and that's because it wants to keep
cutting prices
so that uh more and more doctors and
payers
will be attracted to its tests so it's
being very wise that way
yeah and they're using the exact same
strategy but that all the tech companies
did 20 years ago which is
really interesting healthcare companies
have not done that they have believed in
keeping prices
as high as possible for as long as
possible myriad genetics
case in point and that's why they're
losing
so let's uh talk about obviously a very
a very
big topic for all of us COVID-19.
what are some of the companies that are
are uh really
involved in helping defeat this and and
i'll just bring one up now because i'm a
fan of this company Illumina how
are they playing a role uh in this with
the sequencing
yeah so the the covid-19 coronavirus uh was sequenced in
two days
in china with aluminum machines
back in 2003 remember when i said the
technology wasn't there and the cost
wasn't there it took
five months to sequence that virus
and think about that if you if you don't
have the sequence if you don't
understand the virus
you can't have a test we wouldn't have
had any tests
uh if if we had had to wait for five
months of course
instead two days and then another
company
Twist Biosciences um
was critical here so Illumina
read the genome uh twist
was able to write it and send the
instructions
to Abbott and Cepheid Cepheid's owned by
Danaher
and they were able to then
produce tests so the turnaround time for
sequencing was two days
the turnaround time so that's reading
the sequence the turnaround time for
writing the sequence was two weeks
record time that was Twist and uh the
testing companies then
were within a month we started to have
uh
tests um and i know there were some
mistakes in the cdc
uh not allowing uh universities and so
forth to participate so that was a
political mistake but the science of
scientific
um breakthroughs were there two days two
weeks
uh a month one to two months um
and then on the vaccine side
we have and Moderna gets a lot of the
publicity
mrna um and uh
as it should it's it's working at break
neck speed
um it is a an MRNA
vaccine company we've never had an MRNA
vaccine before
i um and no no in
inovio ino is a dna vaccine company
we've never done that before
and Arcturus ARCT
is also an mrna uh
vaccine company but it is a self
replicating mrna that is that
that that's its differentiation it does
not get much press
um and i i have to tell you it is one of
our top positions
in um in the genomic portfolio not
because we put it in there as a top
position it was too small a cap
it earned its way there because it
struck
a deal with duke university and uh
singapore i think the singapore
uh it's one of the medical institutes in
singapore
and we believe that very soon after
moderna
uh has a vaccine if not before
we're not sure about that Arcturus will
have one
and the difference will be it will be a
single dose
so you won't need a booster shot uh
and so far uh we know israel is already
working with arcturus
and has already ordered it it'll be
about 70 dollars
per vaccine Moderna's will be
60 dollars for the vaccine and a booster
so we think the compliance uh just one
vaccine
uh will win a lot of uh business over
two Arcturus although
there will be lots of room for both of
them
oh that's perfect i mean that's it's
incredible because how many things how
many variables are going on
and all these all this innovation is
really helping out yeah i think
uh just one more note on vaccines the
the
the budgets for vaccines dried up after
sars in o3
because sars made two it was a
coronavirus it had made two
rounds and then it just went poof so
there was a mad rush
rush into vaccines then yeah it went
poof
there was no need for them and really
funding uh
dried up and and and we've had to rev it
back up again
so understanding disruptive trends will
help you develop
more conviction in your stock so you got
a great example here of just one huge
trend
so coming up next we are going to talk
more about trends and we will also talk
more about stocks so stay tuned MarketSmith will give you a huge edge in the
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we are back with Cathie wood on Investing
with IBD sponsored by MarketSmith
okay Cathie let's go into a few ideas
here now the first one
is is probably the the most debated
stock
on the market it is tesla and obviously
you're a big fan
of tesla why do you continue to like
this idea
uh we still think it's way
underestimated
even with the massive move it has had it
hit
uh 350 at the bottom in march
um and is now
1900 roughly there yeah it went over
1900 and fell back a little bit today
yes uh and
uh even with this um
our bear case for this stock has been
1500 now that's a five-year price target
that assumed that tesla would lose
market share we first made this analysis
in 2018 2018
tesla had a 17 share
of the global ev market including china
last year
i think i've got this number right they
had 23 percent share
we assumed for our bare case that
tesla would lose market share from that
seventeen percent
and go down to in our base case eleven
percent
and in our bear case six percent
instead what has happened it went up to
twenty three percent last year
and now i think we're up to this is
rough uh
as of mid-year uh uh about 26
so it's still increasing has 78 nine to
eighty percent share in the united
states
and even in china where i think there
are 150 electric vehicle manufacturers
crazy crazy um tesla has
21 had in june 21 of that market think
about that
150 and tesla is 21
now it's incredible yeah it is
incredible what's really interesting is
Pinduoduo
which is a social commerce company yeah
it uh basically is
giving away a tesla or there's some
or selling a tesla selling selling tesla
on its network for a discount and
tesla has had uh uh has had to go to
them and say wait a minute
the customer is ours not yours so they
but
think about that Pinduoduo thinks this
is so important in china
is going to be such a business getter
yeah
a driver for it that it so
uh that's that's the first thing so it's
not losing share
it's gaining share and in that bear case
we have
nothing for autonomous at all
and nothing for ride hailing ride
hailing we do think they're going to
start a ride-hailing service this year
they're going to compete against uber
and lyft uh
we believe if they do that and again we
think they will
uh we think that the bear case is
history um and so when we see it past
uh uh 1500 to 1900
um we're not worried at all and in fact
our base case
which is in the 7000 range this is again
a five-year target
our base case will also go up if they do
launch this ride-hailing network because
we have not included
uh that and in our base case we have
simply assumed
that they keep their share from last
year
not lose it uh so
i i believe i'm right we may have so we
may be assuming that it does go back to
17
i'll have to check on that but but
nonetheless
so we're at 1900 now 7 000
before ride hailing it will go up with
ride hailing
our minimum hurdle rate of return for
any stock in our portfolio
is 15 at a compound annual rate
over the next five years that means a
doubling over five years
so at 7 000 plus versus
1900 now we're still well
above that it's still one of the most uh
we believe it will
drive more performance than most stocks
in our portfolio even today
now with the legislation or uh within
california
and obviously uber's been affected with
it having to have full-time employees
would a tesla be affected by that would
their ride
hail network be affected by that or it's
just these are tesla drivers
and and they're just taking advantage of
their tesla car and connecting with
other
drivers and driving to from one location
the other well
even uh well tesla could actually hire
these people
make them full-time employees because uh
the the total cost of ownership for
a a model 3 today is about 30 percent
less than a toyota camry mostly because
of the residual value
in fact i've seen uh some model s's
uh selling for 90 percent of what people
bought them for and we think the model
threes will be even better if those
become the
ride hailing network cars so what's
going to happen
tesla will say to a person join
us and for five thousand dollars down or
seven thousand dollars
buy a well we'll let you buy a model 3
you can work the rest of the price off
and oh by the way it's going to be
cheaper for you than a
toyota camry so they will do that and
then what does that do
if they if they drive uh
for 50 or 60 of the day
compared to the five percent of the day
that i drive and less than that now that
we're that i'm not driving to the train
station
yeah um they're going to be delivering
real miles data real miles
traveled to tesla to feed
its autonomous network
so we think they have somewhere between
14 and 15
billion miles worth of data the
just like what i mentioned with the
genomics based data in vitae
same is true in the autonomous taxi
network the winner
is going to be that company with the
most data and the highest
quality data and the best ai
deep learning neural network expertise
and they're doing some very interesting
things with
video labeling in the ai uh
area which we think has them miles i
mean there's just
no one's even close no one google's not
close cruise automation's not close
no one's close and even in china baidu
was supposed to be the autonomous taxi
platform yeah you know it's interesting
uh
we we just learned that uh Nvidia is no
longer included
as a part of that platform it's now
Xilinx which is an FPGA
that is FPGA's are not going to be
driving autonomous taxi networks or
platforms
so we think even in china tesla might
have
more of a shot at the autonomous
opportunity
than we expected we expect them maybe to
get 10 percent of that market
we do think each market's going to be
a natural geographic monopoly we think
tesla will get
the bulk of the u.s market we didn't
think that about china and we still
don't think that about
china but baidu is suggesting to us or
the moves they've made recently that hmm
maybe even tesla has a shot there
now one of the criticisms of the tesla
and the self-driving cars
or that that initiative is they've
they've kind of got
taken a different route they've maybe
tried to be a little bit cheaper on on
some of things or doesn't
analyze as well because i i guess what a
few years ago with Mobileye
they kind of had a falling out with them
and so they're gonna do it themselves
so do you see any concerns uh with that
or you still think that you know these
guys are definitely gonna be the the
first ones are most likely gonna be the
first ones
to really get to that stage five i guess
with self-driving
yes i i i do believe actually uh elon is
saying that he's been
um driving to and from work pretty much
without
uh in the prototype of their full
self-driving car
pretty much without uh having to
intervene
um so i i think
they're what i love about elon musk is
he's he he's the guinea pig he's
willing right right and
and and i believe him when when he says
that
so they are they probably because of the
billions of miles of data they have seen
more corner cases uh
then i think most auto manufacturers
and technology companies will see in the
next five years
so it's going to be very tough for
anyone to catch up to them
so now i i find it interesting maybe six
months ago or a year ago when they
announced
that they're going to get more into the
insurance
business too how do you think that's
going to affect
their their model yeah i think this will
help them in on the ride hailing
uh side of things i remember uh talking
to uber drivers
and the insurance costs were killing
them i
i mean i really felt terrible for them
they were getting that
you know that the hikes they were seeing
were
enormous um so tesla knows more about
how its cars are going to perform with
autopilot
uh than any insurance company will so
tesla will self-insure
we're we're pretty sure of that and so
the insurance costs are going to come
down
uh dramatically you know when the when
NITSA did the
uh analysis on the first fatal crash
um the model s fatal in florida
um when it took them six months to do
that study but
after they finished and remember this
was about three years ago yeah
even nitsa stated in its report i may
not have this exactly right the wording
but they said that anyone driving a
tesla car with autopilot
was going to uh experience
40 was going to be 40 safer now was it
40
fewer accidents or fatal accidents i
don't remember but
40 safer any insurance company
knowing that would price accordingly
they're not willing to do that right now
the insurance companies are a little bit
uh behind the times they don't
understand this autonomous concept
tesla does so it can insure perfect
let's go very quickly to one more stock
here uh let's go to square
and and what what do you like about this
company right now
uh square is uh becoming the first
uh branch bank in our pockets or pocket
books
it is going to disintermediate the
banking system
uh its cost of customer acquisition is
twenty dollars
why why is it whereas a bank trying to
get a credit card come from
a customer we know this from all of the
solicitations we get
right right so credit cards or or
checking accounts savings accounts
they're willing to pay
uh anywhere from 350 dollars to
1500 per customer why
think about your own behavior my
behavior i have been at the same bank
for 20 to 25 years
i have it's a pain to change and you
know
habit uh now we are seeing the disrupter
coming in from they started with the
unbanked
and the underbanked and that's where
they dominated for a while
especially in the south and southwest
now we're seeing the demographics pick
up
the reason their cost of customer
acquisition is so low
is they've got a viral network my
children are very happy to have me on
uh the cash app right they they're
very happy to but what about venmo
versus the cash app well venmo
yes and cash up is
out marketing venmo right now they're
both growing very rapidly but cash app
is out marketing venmo
um uh you know uh with
uh cash app uh what are they what
they're called cash app fridays and
the different prizes they give like
bitcoin and so forth and
um and and co-marketing with Fortnite
and uh Travis Scott and all of that so
they're doing some unbelievable things
that way they also have the other side
of the ledger
they started with small businesses and
merchants
and what they've been able to do is
because they
know the merchants swipe the credit
cards through the square
right their square sale um
square knows every minute of the day
every second of the day how these
businesses are doing and so it's going
to them and saying hey you're doing
really well would you like a working
capital loan
hey you're doing really well would you
like uh to buy another piece of
equipment
a bank has no idea how these companies
are doing
they get for every piece of data that a
square has
on a company i mean for every
i should say 10 000 pieces of data
or bits of data uh a bank might have
one uh so and and it'll be lagged
by weeks or months so we're talking
about
truly disruptive innovation that
we believe is going to transform banking
transform financial they're offering
um securities equities
so trading now through the cash app just
like robinhood is
uh they're going to offer insurance so
watch out financial services you are
about to be
hollowed out so i often say this to our
clients prospective clients i say you
know we're a great hedge
against those passive indexes
you're in right now especially with
those robo advisors wealthfront and
and others um well uh
i i would also be careful because
the transformation that these five
innovation platforms that we're focused
on dna sequencing robotics
energy storage artificial intelligence
blockchain technology
those five innovation platforms which
are involving 14 technologies
are going to disrupt every sector
so you may think you have a cheap
looking portfolio an inexpensive a good
value
but it might be a value for a good value
for a reason
it's being disintermediated it's a value
trap
so be careful that's perfect well Cathie
i know you have to
to run so thanks so much for joining us
today
oh thank you my pleasure Irusha
it's been my pleasure so next week we
are going to have Jay Jacobs of
Global XVTS on the show Jay is a senior
VP
and head of research and strategy at
GlobalX so that's it for this week
on Investing with IBD i'm Irusha Peiris
and thanks for listening
