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ARK Investment Management's Catherine Wood on why she is bullish on Tesla and bitcoin, and bearish on banks – The Globe and Mail

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LANDON SPEERS/The Globe and Mail

When Catherine Wood launched her firm six years ago to focus on disruptive innovation, it was a bold move. But the former chief investment officer of global thematic strategies at U.S.-based AllianceBernstein was convinced of the opportunities in new technologies ranging from driverless cars to genomics. Today, the firm oversees US$11.1 billion in assets, and the firm’s U.S. flagship ARK Innovation ETF has outpaced the S&P 500 Total Return Index handily since inception. In Canada, ARK manages the new Emerge ARK ETFs. We asked Wood, 64, why she is bullish on Tesla and bitcoin, and bearish on banks.

Why did you bet on disruptive innovation?

I watched the traditional asset management business heading toward passive indexation. But I also saw five innovation platforms—artificial intelligence, energy storage, robotics, genome sequencing and blockchain technology—that were evolving and spawning new technologies. Indexes are backward looking. I felt there was a void to fill, and we could also be disruptive to our own industry. I consider ARK to be the first sharing-economy company in asset management. We push our original research into social media [for feedback].

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How will focusing on disruptive innovation help you outperform passive indexes?

You need to go back to the late 1800s and early 1900s to see multiple innovation platforms happening at the same time. Back then, it was the telephone, electricity and the internal combustion engine. We expect today’s five innovation platforms to dwarf the productivity gains and wealth creation from those three. If we are right, traditional benchmark indexes are going to be populated by value traps—companies disrupted by innovation.

Where are the value traps?

We think digital wallets, such as Square’s Cash App and PayPal’s Venmo, are going to take the place of banks. They will become bank branches in our pockets. This is going to happen in the United States and emerging markets. In the era of disruptive innovation, flat to inverted yield curves are going to be more the norm and that’s not good for banks’ net interest margins. We think oil companies will be disrupted by electric and autonomous vehicles. Railways will probably face a threat from autonomous truck platoons, and retailers from more online sales as drone technology gets regulatory approval. If pharma and biotech companies don’t invest in new technologies, such as CRISPR gene editing to cure diseases, they will be lost.

You have a five-year target of more than US$7,000 a share on Tesla. Why are you so bullish despite Elon Musk’s antics and tweets?

We keep our eye on the prize. Tesla has competitive advantages versus other automakers in moving toward electric and autonomous vehicles. They include advanced artificial intelligence chips, lower battery costs, more than 13 billion miles of real-world autonomous driving data and over-the-air software updates. I bought my Tesla Model 3 in September 2018, and today I have a better car than I had then. We forecast 37 million electric vehicles will be sold in 2024, and Tesla will keep its 17%-to-18% market share. We don’t think regulators will permit driverless taxis until late 2021, but the expected gross margins are 80% to 90%, and Tesla could win the lion’s share of the U.S. market.

What other potential high-growth stocks do you own?

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We own Illumina, a DNA gene-sequencing company that enables breakthroughs in genomics, and Invitae, a genetic-testing company. We have three gene-editing stocks: CRISPR Therapeutics, Intellia Therapeutics and Editas Medicine. Stratasys is a 3-D printing company making strides in aerospace—it can produce small engine parts cheaply.

Grayscale Bitcoin Investment Trust helped boost your flagship ETF in 2017, when bitcoin soared to nearly US$20,000 before plunging. Why did you sell?

It was a business decision, even though we are extremely optimistic about bitcoin. We do believe it is the reserve currency of the crypto-asset ecosystem. But most wirehouses [major U.S. brokers] would not let our flagship ETF on their trading plat- forms with bitcoin [in the portfolio]. It’s the same in Canada. But ARK Next Generation Internet ETF still owns it. Bitcoin is also one of the largest positions in my retirement account.

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4 Common Investment Biases You Should Avoid – Forbes Advisor INDIA – Forbes

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As individuals, we all have certain biases and beliefs. They stem from different sources and profoundly impact how we think and go about things in our daily lives, including investments. While some notions, such as discipline and patience, help in the investing journey, certain biases can prove to be achilles’ heel for you. 

These biases not only hamper your investments but also prevent you from augmenting your riches. They act as a roadblock in attaining financial freedom and addressing life goals. Here are the four biases you should steer yourself away from.

1. Herd Mentality Bias

There must have been occasions when you have been tempted into investing in a financial instrument just because you have seen your peers and others doing it. It’s a fact that most of us end up chasing financial tools that others invest in, believing that such a move will help them build wealth and that they can not go wrong.

Do you remember the dotcom bubble? During that period, many people ended up investing in companies that didn’t possess robust corporate governance models and strong balance sheets. The results were disastrous.

In a nutshell, adopting this mentality can spell doom. You must make any investment understanding the product structure, the associated risks, and aligning them with your goals and risk appetite. Of late, many new fund offers (NFOs) have come to the fore promising attractive returns. Many investors have even invested in them.

However, before you invest in any such fund, make sure to understand the company’s fundamentals and analyse its long-term growth prospects. NFOs don’t have a track record, and investing in them just because others are doing can cause wealth loss. To simply put, don’t follow the herd but carve your own path.

2. Recency Bias

We are severely influenced by the recent happenings in our life. So much so that we quickly tend to forget the past. In this bias, we tend to give more importance to the recent happenings over historical ones. Multiple times investors have fallen for this bias, only to rule later.

This bias came to the fore in March 2020 when equity markets nosedived hit by uncertainties amid the coronavirus pandemic. Investors’ wealth made over time eroded in no time. However, this was not the first time that Indian equity markets had crashed. It happened during the 2008 financial crisis and 1992 stock market scam, only to bounce back stronger.

However, investors gave so much importance to the happening that most pulled out and exited markets fearing further loss. In the process, they converted notional losses into actual ones. Markets scaled new highs and rewarded those who remained committed to their investments.

Those who had remained invested during that challenging phase are now sitting on meaty gains. Hence, it’s advisable to look at the big picture and not bank on short-term trends. Irrespective of whether you are investing in a stock or mutual fund, evaluating how long you must stay invested without giving into short-term trends is important.

3. Confirmation Bias

Renowned Swiss author and entrepreneur Robert Dobelli in his bestselling ‘The Art of Thinking Clearly’ has called it the mother of all biases and rightly so. It refers to the human tendency to interpret things to confirm existing beliefs, and any notion that contradicts it is weeded out without a second thought. Those with this bias don’t want to take the stress that accompanies conflicting views.

Confirmation bias not only robs you of your ability to think logically but also gives you a false sense of overconfidence. With this bias at the back of your mind, you will always feel that you are in command of your financial decisions and can never go wrong. However, it’s not so. This bias – more often than not – gives you a false sense of hope, and you may end up investing in an instrument with poor attributes.

That’s not all. You may end up sticking to a loss-making investment with the hope that things will eventually turn. However, by the time you realise your mistake, the damage is already done. So, it’s prudent to face facts and mould your thought process accordingly. When it comes to investments, it’s vital to keep an open mind and go ahead accordingly.

4. Loss Aversion Bias

We all hate to lose, isn’t it? When it comes to investments, the focus radically shifts towards avoiding losses more than making gains. In the process, they lose out on chances that can augment their gains. In the long run, this can prove to be detrimental to wealth creation. While it’s prudent to adopt risk-mitigating strategies, it’s equally essential to look for opportunities to bolster gains.

Also, due to this bias, investors continue with loss-making investments because they want to avoid the pain of making a loss. However, it drags overall returns and proves to be a roadblock in achieving financial freedom.

How To Overcome Investment Biases?

By now, you must have realised that these biases pull you back and prevent you from leveraging your investments’ potential to the maximum. So, how do you overcome them? Let’s find out.

Be Logical and Analytical in Your Thinking

You can mitigate and overcome a lot of these biases by being logical and analytical in your thinking. An analytical approach will help you go deep and understand the nitty-gritty crucial for getting your investments right. Do your research and make sure to make investments in line with your goals and risk tolerance.

Understand Your Financial Position

Just as we differ as individuals, so do our financial positions. Note that investments don’t follow a one-size-fits-all approach. So, it’s advisable not to base your decisions based on other’s financial position. Have a holistic view of your positioning and adopt a strategy accordingly.

Manage Emotions

Investing emotionally can lead to flawed investment decisions and fall for any of the biases mentioned above. Hence, you must have a check on your emotions and adopt a rational approach. Weeding out emotions from investments can help you make decisions that can enhance your riches by a significant margin.

Take Help from a Financial Advisor

Professional help is always beneficial in every sphere of life, and investment is no different. If you are finding it difficult to overcome the biases yourself, seek help from a financial advisor. Financial advisors are qualified professionals who help you sort money matters and overcome preconceived notions and beliefs, and they aid you in thinking logically. 

Bottom Line

Biases stem from various sources, including the environment where we grow up and how we see people around us going about their investments. However, it’s essential to understand that wrong beliefs and notions can significantly hurt your finances and deprive you of wealth creation opportunities.

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More Climate Technology Investment Is Needed to Get the World to Net Zero – Bloomberg

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Vast sums are now pointed in the direction of reaching net-zero emissions by 2050. That’s good news: We require somewhere between $100 to $150 trillion in climate investment over the next three decades, and ignoring global warming would prove a costly and potentially irreversible cataclysm. In fact, the crucial coming years need to see sums going into the energy system to more than double from the current $1.7 trillion a year. But does the promised cash add up to what the planet needs? Not quite.

There’s the inconvenient fact that the cash isn’t reaching every corner of the globe in sufficient quantities. Too much stays in the developed world: That’s a problem, given developing economies will account for nearly 70% of global power demand by 2050. In 2020, 90% of energy transition funding went to high- and upper-middle income economies, according to BloombergNEF.

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Investment Funds Are Pushing EU Carbon Price Higher – BNN

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(BloombergNEF) — Investment funds are piling into the European carbon market for the year-end squeeze. This has contributed to European emissions allowances (EUAs) breaking the psychological price threshold of 70 euros per metric ton ($79/ton) and reaching 75 euros/ton on Nov. 25, 2021.

Speculators can increase volatility and create price spikes if they trade opportunistically. They can also bring stability if they have a longer investment horizon (beyond one year) and invest from a fundamentals perspective.

See the full research report here

©2021 Bloomberg L.P.

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