A faceoff between Cathie Wood, CEO and chief investment officer of Ark Investment Management, and value investor Rob Arnott, partner and chair of Research Affiliates, at the Morningstar annual conference pit the future against the past with no clear winner.
Wood, as usual, championed stocks that exemplify disruptive innovation, whose doubling of production will cut prices so much as to increase demand substantially. Sales of electric vehicles will increase 20-fold by 2025, she said, because they will be more affordable than gas-powered vehicles as the price of powering technologies like artificial intelligence decline.
By 2025, an electric Toyota Camry could cost 30% less than a gas-powered one, said Wood. Electric vehicle manufacturer Tesla is the single largest stock holding of Ark's ETFs.
Arnott said Tesla was in a bubble, which he defined as having a price that would be justified only by implausible assumptions, which are not impossible but unlikely. To justify Tesla's current price of over $730 requires a 50-fold increase in growth over the next 10 years. "It's not impossible but not plausible," he said.
Also, said Arnott, "disruptors get disrupted." Palm, the manufacturer of the first personal digital assistant (PDA), which was spun from 3Com initially at three times 3Com's value, was disrupted by BlackBerry, which, in turn, was disrupted by Apple's iPhone.
Cisco, the tech company with the largest market capitalization 21 years ago and with 2% annual earnings growth and 13% annual sales growth since, is trading at a share price lower than its 2000 peak.
"It was priced for stupendous growth, but it got [just] impressive growth," Arnott said.
Arnott applied the same analysis to mutual funds and ETFs. Of 108 funds that doubled in one year, 70% lost value the following year and 80% fell an average 53% over three years. "Five of those 108 funds are Ark Invest's own," Arnott said.
