https://nymag.com/intelligencer/2022/05/the-rise-and-fall-of-cathie-wood.html

Cathie Wood is always bullish.
Photo-Illustration: Intelligencer; Photo: Patrick T. Fallon/AFP via Getty Images

Around the middle of April, Cathie Wood sat onstage at the storied Fontainebleau hotel in Miami. It was an awkward time to be a keynote speaker at a conference for money managers: Wood’s flagship fund, the ARK Innovation ETF, had lost roughly half of its value over the prior year, as its aggressive bets on hot companies from Coinbase to Robinhood and Tesla had melted down amid a bear market in tech stocks.

Wood, though, had evidently not lost her luster — judging by the crowd’s applause — nor her brazen bullishness. A year earlier, she’d thought her firm, ARK Invest, would deliver annualized returns of 15 percent, she acknowledged, setting up what seemed like a mea culpa for her poor performance. Instead, she doubled down: “Now we think 50 percent.”

So far, she’s been wrong — her main fund is down another 34 percent since her comments — but her firm still has more than $16 billion in assets, according to fund-tracker Morningstar. While that’s a fraction of the $40 billion ARK had in March (a figure the firm still lists on its website), it means Wood’s pool of money is still roughly the same size as major hedge funds like Bill Ackman’s Pershing Square. (Wood declined to comment for this article.) In the realm of Wall Street, Wood is an unusual creature: Not only is she a rare female portfolio manager, but she was also an outlier in her nearly boundless optimism about the riskiest investments on the market, including cryptocurrency and Tesla, which four years ago she (correctly) predicted would go up more than 1,000 percent. Last fall, she put a $500,000 price target on bitcoin, then — as bitcoin’s price cratered — raised it to $1 million a few months later.

Wood’s willingness to make such calls so far ahead of reality — and so out of step with Wall Street’s old guard — has earned her a rockstar reputation among stonks-obsessed retail investors, making her a mascot for buy-the-fucking-dip Robinhood traders, some of whom have dubbed her “Cathie Bae” on Reddit. In an industry loath to make guarantees about the future, Wood’s brand was like price-prediction porn: To hear her talk was to feel your mind liquefy in a clickbait-like flood of dopamine-inducing buzzwords — her portfolio a cornucopia of self-driving cars, crypto, genomic cancer cures, AI, streaming, and gaming. She told risk-drunk investors exactly what they wanted to hear. In her view, it seemed, tech stocks only went up and to the right.

Betting it all on super-volatile tech stocks.
Photo: Marco Bello/Getty Images

Even the origin story of Wood’s firm was unconventional. She started ARK after reportedly clashing with her former employer: Her old boss at AllianceBernstein told the Financial Times that “her biggest blind spot is managing risk and volatility” — a serious charge against someone responsible for other people’s money. Wood, a devout Christian, credited the inspiration for starting ARK  — which offers nine exchange-traded funds that anyone can buy like a stock, making them accessible to rank-and-file investors in a way that hedge funds are not — to a divine “calling” from the Holy Spirit. But she also owed some credit for her start to a now-disgraced peer: Bill Hwang of Archegos Capital Management — arrested following his fund’s implosion last year — gave Wood critical seed money.

Yet Wood tends to plow right on through any adversity, be it criticism or a market sell-off, as though she believes she’s fighting a righteous battle. “Truth will win out,” she said repeatedly on her firm’s monthly webinar in May, addressing questions about a looming recession and investors shorting her fund.

In 2020, Wood’s predictions appeared to be on their way to coming true. She was riding high atop the Fed-driven bull market: Her ARK Innovation fund, often known by its ticker as ARKK, returned some 157 percent during that first year of the pandemic, compared to just 18 percent for the S&P 500 as a whole. It was a legendary performance that drew accolades from various market watchers, including CNBC’s Jim Cramer, who in February of last year tweeted, “Cathie Wood is a genius.” In late 2020 ARK even started running parody “Bad Ideas” ads, making fun of investors seeking “safety and comfort” in traditional funds:

As it turned out, Wood’s ARKK fund had already peaked. And Cramer’s compliment — an apparent vouch for Wood on a day investors pulled a record amount of money from her fund, following a plunge tied to a decline in Tesla stock — seemed increasingly questionable. Wood’s fund is now exactly where it was in March 2020, meaning pandemic investors who bet on her have now round-tripped all the way up and all the way back down. Adjusting for inflation, they have lost money.

Wood’s collapse has started to seem emblematic, not just of the current bear market in tech, but of the excesses that fed into what now appears to be a pandemic bubble. A professional who espoused the “to-the-moon” mentality of many amateurs, Wood may now be unintentionally teaching them a valuable lesson: Stocks (and cryptocurrencies) do, in fact, go down, too. There’s a generation of young traders that has yet to experience a true crash in their investing lives — the COVID bear market of 2020, after all, lasted only two weeks — and now, through Wood, has a front-row seat to a bona fide true bear market.

Morningstar, a fund-rating company that usually takes a dispassionate perspective, recently published an excoriating review of Wood’s performance, downgrading ARKK to “negative” from neutral. Though her fund had beaten all other U.S. stock funds in 2020, Wood was now looking more like a one-hit wonder. Wood’s returns, Morningstar wrote, had been “wretched,” making ARKK “one of the worst-performing” funds in the U.S. since 2020. Her “perilous approach” and “haphazard” disregard for risk — unlike other asset managers, ARK doesn’t employ any risk-management staff, Morningstar noted — was likely to “hurt” investors, according to the analysis. “Wood’s reliance on her instincts to construct the portfolio is a liability,” they wrote.

“I wouldn’t even put your money with Cathie Wood,” snipes Fraser Perring, a short-seller who founded Viceroy Research and is known for spotting massive fraud at the German company Wirecard well before the authorities did. “She is part of the problem.”

As of recently, Perring is short ARKK. “Why wouldn’t you be?” he says. “She invests in every shitco going.” (He’s made “a couple of million bucks” on the bet so far.) Investors who bought Wood’s fund at its peak last year — from which it is down 75 percent — would have lost much less money if they’d bought bitcoin instead, despite the fact that the cryptocurrency’s price has also plummeted in the meantime, Perring points out. “Cathie Wood is the opposite of a short seller — she’s a capital depleter. The amount of capital she’s evaporated in the world, how can people even suggest she’s successful? She’s successful at failing.”

Indeed, since her incredible pandemic run, Wood has gone from the investor to beat to the one to bet against: Since 2020, investors shorting ARK funds have made about $3.3 billion, according to Ihor Dusaniwsky, the head of predictive analytics at S3 Partners, which tracks short activity.

As Wood was taking a victory lap a year ago, those old-school investors ARK mocked in its ads were structuring ways to make money off Wood’s downfall. Matthew Tuttle, a former wealth manager who’d grown skeptical of the industry, began worrying that the market in early 2021 looked like a bubble. “This reminds me of 1999,” he recalls thinking. He was well aware of Wood, having crossed paths with her over the years at investing conferences. “You knew Cathie Wood was the person who bought Tesla and bitcoin and basically said ‘F you’ to all the people who said she was crazy,” he says.

But it wasn’t just what Wood was trading, but how she was trading that made Tuttle, and others, question ARK’s methods. She continued beaming hope about her stocks even as others abandoned them, loading up on more shares as the price tanked — a dangerous gambit that Wall Street has a special term for: trying to catch a falling knife. (Some accused her of doing this when she bought more shares of Coinbase when they fell 20 percent one day in May after the company reported disappointing quarterly results.)

Even if Big Tech stocks like Apple were still propping up the market, Tuttle could see that shares of smaller tech companies were starting to erode, making Wood’s fund uniquely vulnerable. “Beneath the surface, the termites were eating at the foundation,” he says. “That’s what I loved about ARK — it’s got the termites.”

In November, Tuttle debuted the antithesis of ARK: the Tuttle Capital Short Innovation ETF, also known as SARK. If you invested in it at launch, you would have doubled your money some six months later.

By mid-May, even some of Wood’s supporters had soured on her. “I think that Cathie Wood is the kiss of death,” Cramer said on live TV. “The Coinbase call was embarrassing.”

Wood’s undoing in the midst of a market meltdown was seen as inevitable by those who resisted the bullish frenzy. “From our side of the table, none of this is shocking about Cathie Wood. I’ve seen this movie before,” says Carson Block, the short seller behind Muddy Waters Research, whose investigations have exposed multiple corporate frauds. “It’s not that you were really that brilliant, you were just long.”

Even Wood, with her normally sunny outlook, has begun admitting that there may be dark times ahead. ”There are a lot of indicators to us, saying we’re in a bit of a bear market here,” she said during this month’s market update. “Yeah, we think we could be in a global recession.”

Still, over a period of years, stocks do tend to go up. But even if the tide eventually turns back in Wood’s favor, other investors are questioning whether the self-styled futurist has a future in stock-picking, given the volatility that has become her hallmark. After all, Wood, what some call a “permabull,” could be merely the epitome of the broken-clock parable — guaranteed to be right twice a day.

That style is what makes Tuttle believe that people will still want to short ARKK even when the market goes up because the fund tends to seesaw even in good times, meaning it can have downdrafts of 10 percent or more in the span of a week or even a single day. In fact, that’s what made Wood’s fund stand out to Tuttle in the first place. “This one, from everything I’ve seen,” he says, “is the most volatile one out there.”

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