Cathie Wood, they screamed
The S&P 500 has returned over 100% from the Covid bottom. That’s a pretty astounding move for such a short time. Like, a really incredible rally in the stock market.
Cathie Wood is (or was) the most infamous fund manager from this time period. She placed all her bets on “disruptive” technology companies. She adopted one of the most high-risk, high-reward investing styles you’ll ever see. Basically her style is “put literally all of my money on the most speculative tech companies I can find.” (You could argue that she only invested in “good companies,” but the market does not agree with that assertion - as evidenced by the current prices of those companies.)
And for a while it paid off. Her flagship ARKK fund performed ridiculously well during the Covid lockdowns. She looked like a hero. “The next Warren Buffet,” they said. “Technology is the future,” they said.
But the moment someone looks like a hero, it’s time to start thinking about taking your profits. That’s how the stock market works. By the time the magazine covers and talk shows catch up, the narrative is already past its peak. In the traditional stock market manner, the hero of the day got smacked down when the slightest bit of change came along. That’s just how it works. (I know a really good trader, Brent Donnelly, who has empirically tested the “magazine cover indicator”… and it’s literally an actionable, profitable event to trade. Bet against what the cover stories are shouting and you’re likely to make money. This is obviously not investment advice, but you get my point.)
Cathie Wood’s performance over the last 12 months is actually pretty embarrassing. Because the world is no longer blindly betting on “disruptive.” People have finally realized that “disruptive” does not mean good company. In fact, I’d even argue that “disruptive” is usually nothing more than a cover for “bullshit earnings, unproven management, and absurdly high risk.”
The thing about disruptive is, being disruptive is literally the whole point of business. It’s the entire point. Anything that’s not disruptive is worthless. If you’re not doing something that other companies are not doing, you don’t even have a business. If you’re not innovating or pushing or creating, or capturing part of a strong market, you won’t even make any money. Saying that a business is disruptive is like saying young people are disruptive to old people. It’s like… yea, that’s how the world works. The new pushes out the old. The market demands change. Saying that does not make you a philosopher.
“Beyond Meat is disruptive to the legacy meat industry.” Well sure, but do people actually like their products? In my experience, not really.
“Uber is disruptive to the cab industry and the food industry.” Well sure, but is it actually a good company? In my experience, not really.
“Electric vehicle companies are disruptive to the auto industry.” Yea alright, but when will they actually start making a profit? Will they ever have a good product? Will they ever actually make money for shareholders?
At the end of the day, what matters in business and in the stock market is making money. Not being exciting, not being creative. Making money.
Don’t tell me what’s disruptive. Literally everything is disruptive. Show me a good business with solid management at a reasonable price. Plain and simple.
Everyone’s a headline clairvoyant
There isn’t always some "brand-new frontier that's going to change everything."
People are way too fond of acting like some new movement or technology is going to "change everything." That we are on the cusp of something radical, something earth-shattering, something that's going to swiftly and saliently change people's lives forever.
People often fail to understand that broad, sweeping change is mostly a fictitious plot device or a figment of our imaginations. Change happens constantly, slowly, and with unexpected twists and turns.
People like the oohs and aahs that come from being a Predictor Of Things To Come. People like to make predictions of huge, sharp changes in the world or technology or society. That's largely an ego thing. We can’t help ourselves.
And people also like stories. People like to attach sharp, well-defined narratives to extremely complicated and blurry things. That's a simplifying mechanism. But not everything has such a clear, predictable trajectory. In fact, almost nothing does. Everything is complicated and happens at different rates of speed than we predict, and with more and bigger obstacles in the way than we expected. But we humans sure do love our simplifying heuristics. Simplifying mechanisms help us survive. Evolutionarily speaking, they are an advantage. But that doesn’t mean they’re not also a huge mental and emotional weakness. Especially in the modern world where our lives are ten thousand times more complicated than they were 500 years ago.
Furthermore, people like to imagine that they are part of a generation that is "changing everything." People like to imagine that they are part of a definitive "out with the old, in with the new" moment in history. This seems to satisfy both people's compulsion towards simple, exciting stories and their ego needs. And it also feeds into an artificial sense of identity. By being part of “the changing class” or “the disruptive generation,” people feel attached to something bigger than themselves.
But I find it very hard to take anyone seriously when they're always making predictions. Or when they constantly think that X technology or Y social movement is going to "change everything... you watch."
Not only is that an unproductive thing to say (it accomplishes nothing), but it's obnoxiously self-serving and lacks nuance.
We often fail to realize that most of the stories we think are unique to our generation have been playing out since the beginning of human society. Often, they have been playing out constantly or over and over.
Every generation has its technological advances and its social stories. And those do have widespread consequences. For example the printing press, the Summer of Love, Windows 95.
But it's almost never true when someone says "you watch, this is the time where the working class takes back its power." Or "this is going to change the way people think about politics." Or “you watch, this is going to change the way we eat/sleep/drive/work/whatever.” These sorts of predictions have probably been made every day since human beings learned how to speak words. These claims are too definite, often too optimistic, and they lack sophistication.
I mean, look at Elon Musk and Tesla. Musk has been saying, over and over for several years now, that he’s months away from having fully self-driving cars. His ability to make and break promises is staggering. But shareholders don’t care - they keep believing him. Because they are positively obsessed with those predictions.
And people keep saying “you watch, in five years we’ll all be in driverless cars.” Or “you watch, there won’t even be any gasoline-powered cars on the road by 2035.”
And I just shake my head.
It must be nice to live in this level of optimism. It must be blissful.
But no. Unfortunately it’s not true. Every time someone has said something like this to me, I replied that it’s going to take us years and years to get cars fully self-driving without any major problems. And just think for a moment about the implications of the statement “everyone will be driving electric cars in ten years.” First of all, that implies that production capacity will absolutely explode for EV companies, and battery makers, and chip manufacturers. Batteries are crazy expensive, and the world is pretty short on microchips at the moment. Logistically it isn’t even possible.
Second, that implies that everyone in the U.S. will have the money to buy or lease new (electric) cars in the next several years. And that is… profoundly untrue. People can’t even afford cable television anymore. Let alone a hundred million brand new cars.
And finally, this assertion implies that we in general just have our act together and we will find no black swans. That there will be no more surprises that keep it from becoming true. Again, that level of optimism must feel nice. But it’s reckless and, as far as I’m concerned, inappropriate.
And look, of course I’m not trying to be negative. I’m just trying to be realistic. I’m a pessimist about normal behavior, but a radical optimist about uncommon behavior. I believe in people when they do things that are good for themselves and others.
Actions are stronger than predictions
We shouldn’t be making such bold claims about the future. We shouldn’t be so blinded by optimism that we ignore basic, fundamental details. Like logistics and finances and Le Unexpected.
If you want to be a Predictor Of Things To Come, by all means you’re free to do so. But my sense is that you get all the reputational downside of being wrong with none of the upside of being right.
I don’t really believe in making predictions or using empty words like “disruptive.” It’s a waste of time if you’re not actually doing something about it. I see politics the same way - if you’re not out there crusading for change, why even waste your time complaining about politics? You’re not accomplishing anything other than ruining your family dinner and pissing off Uncle Steve.
What I do believe in is actually putting effort into what you think is important. Finding something you believe in and getting in - the earlier the better. I know some brilliant people who have pivoted their attention away from stocks and more towards crypto. Are they taking higher risk with their lives and their money? Of course they are. And they’ll have to live with the consequences, good or bad. But they believe in it and they’re backing it up with hard work and diligence. That I believe in. Putting one’s money where one’s mouth is.
I believe in predictions as long as they are backed up by action. I believe in people taking risks on what means something to them. And maybe in the end that does make Cathie Wood a legend. Who knows.
(I doubt it.)
I admire people who say they believe something and then actually live as if they believe it. That’s a rare thing. And even if those people are wrong, they have my respect because their actions put meaning into their words.
Go drink some water.
JDR
“The future is something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is.” - C.S. Lewis