Okay, since I’m the contrarian value guy and it’s Let’s Kick the Woman in Her Imaginary Nuts While She’s Down Day, I’m going to play the Devil’s Advocate and defend Wood.
First of all, this woman is not stupid. She graduated summa cum laude with a degree in finance from USC. She’s been in the investment management business since 1977. She rose in a cutthroat, results-driven field filled with male egos and testosterone to become a global CIO at AllianceBernstein, where she managed a $5 billion portfolio at a time when $5 billion was still real money. She chucked a nice, cushy career at Alliance to start an innovative firm in managed ETFs at a time when virtually no one in the industry thought the concept had merit. So, as reasonable people, let’s agree that: 1) she’s not a moron; 2) she has an ability to think outside the box; 3) this ain’t her first rodeo.
Now, let’s also understand that the firms she invests in are, in many instances, young, immature, but, in her conceptual mind, innovative in some way. She’s asking that you give her five years. Every investment style has its moment in the sun. In one sense Cathie Wood is sitting in the same roasting seat Don Yacktman and Bill Nygren were sitting in at the dawn of the new millennium. After years of seeing stocks like Cisco Systems and JDS Uniphase trounce their funds, some investors wanted to crucify these guys and were abandoning their funds in droves. Then came the Dotcom bust, their fortunes revived, and they went from being zeroes to heroes once again.
Now, imagine it’s 2002 and you had been an investor in a tech fund and for the last excruciating year had been handed your guts after being invested in firms like Amazon.com, Flir Systems, and Broadcom. The fund manager was imploring you to told hold on, but you decided to pick up your marbles and put your money in Savings Bonds instead. You swore to yourself you never wanted to see another money-losing tech stock again. In that scenario who would be the moron today? All I’m asking you to do is take a step back, remove yourself from the crowd mentality that loved her then but hates her now, and reflect on whether or not her approach has merit for the longer run. I, for one, would never sell her short.
I have a feeling she’ll be back, and sooner rather than later. I tend to agree with her thesis that deflationary forces built on massive levels of debt, not inflation, are the greater threat to our economy, which should tend to make her stocks more valuable relative to slower-growing companies. That’s what long-term bond yields and a flattening yield curve are whispering to us. We would be wise to listen.