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You're listening to Teip. Hey, everyone, welcome to the Investors podcast, I'm your host, Trey Lockerby, and I'm so incredibly excited to have with me Kathy Wood from Ark Invest on the show today. If you're not familiar with ARC's ETFs, they are fascinating and have been outperforming the market by a wide margin. For example, ARC's innovation ETF has returned over one hundred and seventy percent in the last year, and Arek is now managing over fifty billion dollars.

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In this episode, you'll learn how innovation is often not priced into the market, how rights law can help determine future returns and the five main areas of disruption that arc is focused on and much, much more. This was such a fun and wide ranging discussion. I really hope you enjoy my conversation with Kathy.

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Would you are listening to the Investors podcast while we study the financial markets and read the books that influenced self-made billionaires the most? We keep you informed and prepared for the unexpected. Welcome, everybody. Today, we have Kathy Wood from Arkansas vest, Kathy becoming quite the household name. I really can't wait to have this discussion. Thank you for coming on the show. I am really happy to be here. I know how wonderful this show is, so thank you.

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OK, Kathy, I want to dig right in because we have a lot of ground to cover, and I want to first talk about ARC's investment thesis, which is focused on disruptive innovation. I read that your favorite innovator is Copernicus, and I'm wondering how he came to be your favorite innovator and if he's influenced your investment approach.

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Well, Copernicus, I learned about in physics class, in high school, and we were trying to figure out who was right, Ptolemy or Copernicus was the earth at the center of the universe or was the sun. And I learned so much about contrarian thinking, how much a person can be ostracized for contrarian thinking. And I learned so much also about how the elegant and simple solution won the day Ptolemy was trying to contort his thesis into the truth. Copernicus was looking for the truth and found a simple way to think about it and presented it to the great disdain of his community.

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He also was well, he was a bit of a quote unquote Renaissance man and that he was an economist. And I trained not only in finance but also in economics. His law is called Gresham's Law. If you've studied your economics, meaning that good money chases out bad and we can get into that if you want, but that's less relevant. The relevance was economist and really a disruptive innovator of sorts.

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Right. So that begs the question, what, in your opinion does the market think or hold at the center of its universe that might not actually be the case?

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Let me describe what I think has been the case for the last 20 years and I believe is changing the market of so traditional asset managers and analysts considered benchmarks to be the center of their universe. They were measured against benchmarks and they actually, I think, turned them into idols of sorts. They worshiped at them. And I actually have taken all my career the opposite stance that we are not here to invest in what has already worked. And this is specifically our best.

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But I, I think investing is really about the future, right? Not about the past. In fact, when I was describing to people friends, not in the business. The reason I wanted to start Arek and again, not in the financial business. So I had to explain it carefully.

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One response I got back was, oh, you mean the future of investing is investing in the future? And I said, yes, you got it. And I, I believe that's changing because we are now in a period of disruptive innovation, the likes of which we have never seen, and it's going to disrupt the traditional world order. So while the benchmark seemed to beat active managers for nearly 20 years, maybe that's a bit of an exaggeration, but it seemed like forever.

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Now we're seeing truly active managers outperforming the benchmarks because they're investing in the future and the future is going to disintermediation and disrupt the traditional benchmarks.

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So given that the focus of our work is on disruptive technologies, some I think that the ARC investment approach is the direct opposite of the value investing style of someone like Warren Buffett.

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But our approach appears to have actually a few characteristics that might be unexpectedly similar, such as going big on high conviction, bet investing for the long term, a circle of competence, clearly defined industry focus. Would you agree with this assessment or would you categorize ARC's philosophy in a totally different way?

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No, I think you've hit on some very important points about what we do and the way we do it at the beginning of last year, I remember saying frequently, if you give us a five year time horizon, I will tell you with a straight face, that arc is a deep value asset manager. And I still believe that. Sure, we had great performance last year, as you said. But if our estimates are correct, given the number of exponential growth curves evolving at the same time right now, so five platforms, 14 technologies, I believe that as a value manager, what we're doing is discounting the future. Exponential growth is a very difficult concept right now because we really have never seen it without some perceived failure. And that was the tech and telecom bubble that felt like at the time.

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And I was right there like exponential growth that would never end. And of course, it did end in tears. It was too much capital chasing, too few opportunities too soon. Now, the seeds for everything we're doing now were planted back then. They've been gestating for 15 to 20 years now, we believe. And Amazon is the poster child for this, that there are companies that are going to be able to deliver 20, 30, 50, 60 percent compound annual growth in revenues during the next five to 10 years.

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This really has not happened in our lifetime and certainly not on the scale with all of these platforms and technologies. So I think that our role as a deep value manager is still very much in place.

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OK, so are we talking about waiting for the companies to mature and scale to the point where they're actually producing free cash flows, or are we talking about the technology itself needing a lot of time to actually evolve?

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We're speaking about two important characteristics of what we do back in the tech and telecom bubble investors, they actually got it right. There were some momentous changes underway. And of course, the Internet was at the heart and soul of them back then. But what we saw was there were two problems. One, too much capital chasing, too few opportunities too soon. Now, why was that? The technologies weren't ready. I mean, no one was talking about the cloud, right.

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And the costs were way too high. To give you a good example of that one DNA sequencing to sequence the first whole human genome. It took 13 years of computing power and it cost two point seven billion dollars. Think about that. To sequence one person's genomic profile today, it takes roughly six hundred dollars and a few hours of computing power. Now, the first genome was sequenced in 2003. This is only 17 years. But during those 17 years, costs came down and the technology improved dramatically.

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So what I'm hearing from you, there is a little bit of Moore's Law, which most people know of as the computational power that should double every 18 months or so. But you also are touching on rights law. And for those who don't know, in nineteen thirty six, an engineer named Theodore Paul Write found that every time total aircraft production doubled, the required labor time decreased by 20 percent. This has become known as rights law, and people might also find this concept in their everyday lives, like driving to work without having to think about it, for example. So does ARC incorporate rights law into its investment thesis?

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You've hit it so right is a relative of Moore's Law. Moore's Law is a function of time, as you said, every 18 months to two years. Now it's two to three years. And right law is a function of units, rights law says, for every cumulative doubling. That's the only thing I would change in what you said. For every cumulative doubling in the number of units produced costs associated with a specific technology decline at a consistent percentage rate. So let me give you a few examples. Let's continue with DNA sequencing for every cumulative doubling. Now, last year, I think we did roughly two point. This is going to be two thousand nineteen two point six million whole human genome sequenced around the world. Now, there are billions of people.

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So we are in the early days. So two point six meant that in the history of all time. If you add that to the sequences before we had sequenced roughly altogether about four million whole human genomes in the history of all time. And it won't be long before we'll be at five now. Right. So two and a half to five. Every time you get that cumulative doubling, those costs drop by 40 percent. Think about it. That's how you got from two point seven billion dollars to six hundred dollars.

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And we're going to one hundred. We're going to a dollar and we're going to 10 cents because the data is what's going to become more important than the actual business of sequencing. And if you do the same thing for battery pack systems, for electric vehicles, for every cumulative doubling where at two million last year, so will quickly be at four million and I should add all the other sales before. But they are so early here that we're going to see a doubling in no time for each cumulative doubling in the number of battery pack systems produced cost decline by twenty eight percent.

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So within a very short time, the average electric vehicle cost will be below that of the average gas powered vehicle cost. Already the total cost of ownership is lower. And if you do that, the same analysis on collaborative robots, that number is roughly 18 percent for every cumulative doubling. So these are rapid cost declines. And why is that important? Because with each cost decline, each step function down. A new technology unleashes waves of new demand.

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It can afford it. So back in the Internet and the tech and telecom bubble, the technologies weren't ready and the costs were way too high. Now we're into from very low basis everything that we are discussing and everything that we research is at a very low base today compared to where it's going. The costs are declining dramatically and the units are going to scale dramatically. And from a timing point of view, which many people say, well, OK, you're a thematic investor.

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I've known a lot of it or watched a lot of it, thematic investors. And what they get wrong is the timing. Well, the reason rights law is so useful to us is we know the cost decline. We can see if that's on track. But the second question we have to ask to get the timing right is for every percentage decline in price. So we are able to tell if demand is responding to costs the way we have been expecting.

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And if we're wrong, we'll have to figure it out. They started milking the cash cow. A thousand dollars per genome. Yeah, let's just keep it there. Let's keep it there. Now, they've got competition as their patents are expiring. So in the innovation world, you can't milk the cash cow. In fact, there should not be a cash cow. And especially today, because we're in a world where winner takes most. And the reason for that is artificial intelligence.

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The companies with the most data and the highest quality data are going to win the game.

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So I find that incredibly exciting and also scary or intimidating, because a lot of our listeners, myself included, would consider ourselves to be value investors, quote unquote, which is oftentimes referring to investing in very boring and reliable companies. But value stocks do have a tendency to underperform during certain economic environments. This last decade being the perfect example. And it sounds like you think this might be a secular trend. This underperformance might be a secular trend that's here to stay.

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I think reversion to the mean which value investing certainly is a play on that happened regularly over the years when the world was not changing that rapidly. Now the world is changing rapidly and many of the sectors that are going to be disrupted are what you would describe as value sectors, whether it's financial services, a lot of health care that does not embrace these new technologies, sequencing, artificial intelligence, gene therapies, any industry associated with the internal combustion engine.

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So think about this. Our entire infrastructure, the developed world's infrastructure was built upon the internal combustion engine, and that is going away. It's going away not only for environmental reasons. In fact, the reason it is going to go away much faster than anyone anticipated is how much battery technology is improving cost wise and performance wise. And so think about it. That's autos, trucks, it's rails. It's ultimately airlines. So we see disruption touching roughly 50 percent of the S&P 500.

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And a lot of those are in the value space. What we believe is going to happen. I remember in the early days of our investing in Amazon, at my last firm, I joined in one, we're in the middle of the tech and telecom bust. We're running away from one disaster after another. And Amazon in 2000, we took our first position in it and I remember announcing it at our morning meeting and other portfolio managers and analysts basically saying, oh, that's ridiculous, because the perception then was the Internet had been nothing more than a figment of Wall Street's imagination. And none of these companies would ever earn any money. And I remember back then saying to many in the firm where value investors, I remember saying, if I told you that Amazon's revenue growth during the next 20 years was going to compound at a twenty five percent annual rate and we dropped that into a dividend discount model, you would be buying this stock all day long. And Bill Miller did as you know, he was the value investor famous for buying Amazon.

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This is what I mean. Deep value manager Bill Miller, he basically I guess he helped the world understand that if you have a long enough time horizon, some of these new technologies can be transformational. Online retail as a share of total retail today is still only, I think, reaching 20 percent in the US. I don't even think it's there yet. Think about that. That's when s curves go into overdrive. And many value managers think they are sure that these retailers are in bargain basement territory and online is done as much damage as it's going to do. We don't think so.

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Well, you touched on a couple of the platforms that our canvass is focused on. I'd like to just step back and give you an opportunity to talk about all five of the platforms and how they came to be.

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They are. And before I tell you what they are, I'll describe why they are innovation platforms from our point of view. They need three characteristics. One, they are technologically enabled and follow declining us. So that's rights law. Two is they cut across economic sectors. And very quickly, by the way, we present in one of our desks how quickly electricity across sectors. It was very narrowly defined in the early days. And then when a big surprise and we think because of this phenomenon, that traditional research departments are going to have to reorganize if they want to invest effectively in innovation. How are they set up right now? Very siloed by sector subsector, even some subsector right? And yet these technologies are going to evolve much more rapidly than these companies because they're cutting across sectors. So if you're very siloed and technology really has very little to do with what you're doing, health care is a great example of that. You're not really looking for the ramifications of health care. Right? Each one of our analysts is extremely comfortable with technology. They have domain expertise, which is becoming deeper by the day, and they are, in effect, generalists around each innovation platform.

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We think that's how research departments are going to have to reorganize, at least to pursue innovation style investing. So we've got rights law, we've got cutting across sectors. And the third characteristic for these platforms is they are launching pad for more innovation. So DNA sequencing has been a launching pad for CRISPR Casse nine gene editing. Why? Well, in order to edit a genome, you have to understand where the mutations are. Until we sequence a genome, we cannot understand that.

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And in fact, we cannot understand mutations which are the fundamental cause of disease at all. So health care is moving from guesswork because we didn't have the science and knowledge and technology toward science and technology impacting health care decision making. So now the five platforms I've given you a preview with DNA sequencing, DNA sequencing, foundational will transform health care. Energy storage is foundational. I just mentioned how it would disrupt the internal combustion engine and all the infrastructure associated with it.

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Robotics costs are coming down to the point where robots and particularly collaborative robots so think robot arms on an assembly line. Workers will train them to take their jobs. And as we move back into a labor shortage and we believe we will, those workers will be overseeing robots and their wages can go up with increased productivity can come increased wage gains. So robotics critically important here, artificial intelligence. We believe that artificial intelligence is going to impact every line item of the income statement and the balance sheet and that any company not embracing it for their own use and gathering as much data not just from internally, but externally is going to be in harms way.

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And then finally, block chain technology, block chain technology. Many, many people associate block chain technology with Bitcoin as we do so. Bitcoin is little B block chain technology or Bitcoin. That technology is capital B. And so we do believe that starting with the financial services sector, block chain technology will be quite disruptive. The name for that today or the shorthand name for it is DFI Decentralized Finance. And we're seeing very early days, but amazing progress.

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Amazing progress. I'll just say when we started the firm, we had four platforms. The last platform we broke into artificial intelligence and block chain technology because we think both of them are going to be quite profound in their ramifications. We originally called the category next generation Internet, but we believed each of these should be broken out because they are going to be foundational going forward. Of the five platforms, which one excites you the most? Well, I think the one that is still the most misunderstood and it's because of what I mentioned earlier, technology and health care have never gotten along really.

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And what I mean by that is in the financial markets, technology analysts didn't want to follow health care at all because it was too highly regulated, too slow moving. Health care analysts didn't want to follow any technology because it was too fast moving and too volatile. Right. So two different types of, quote unquote, DNA in the market. Now we have a situation where technology is going to take over health care, and I still don't think people understand how profoundly this is going to take place.

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I sometimes use an analogy and I don't mean to make light of it, but just to help people understand how profound this says. So in the early days of advertising, so maddening, the CFO or the chief marketing officer would say, you know, I know that half of my advertising works. I just don't know which half.

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And now we know because of Google and Facebook and Twitter and all of the social networks snap. And so we've got a lot of precision there. Now, today we can say, and it's probably even more true than it was for advertising. I know that my health care spending works. I know that some of it is working. I just am not sure what is working. And in fact, until very recently, we couldn't associate mutations with diseases. And we're at the earliest stages of this.

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I mean, you had the odd one, but it was guesswork before. It was just pure guesswork. We could not identify a needle in a haystack. We could not decipher the three billion lines of code in the genome. It was impossible.

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And now it is. Now we can identify mutations. And why is that important? A mutation is the earliest manifestation of disease. And so we are going to not only be able to identify the mutation, but thanks to new technologies like gene editing, we will be able to edit those mutations. We're in the earliest days. First human trials. We're seeing the first cures for sickle cell disease and beta thalassemia. It is working. And until the last year, yes, there were trials in China that suggested that it was working, but the FDA would not accept those trials as evidence.

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So now we're having human trials in the United States and we're seeing cures. And the woman, Victoria Gray, famously has walked out of her trial one day and into an NPR studio and said, I've been cured, I think cured. And a man who had beta thalassemia, he used to have 17 transfusions, blood transfusions per year. He hasn't had one now. And I think more than 12 months. Think about that. These are what they call functional cures, very early days.

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And I don't think that investors understand this. I remember three years ago saying, wait a minute, there are three companies that have the foundational patent for CRISPR Casse nine, and we're seeing diseases being cured in mice and in non-human primates. And yet these three stocks together collectively weren't even reaching five billion dollars in market cap. Today, they're roughly I just did that calculation, 20 billion. Apple is a great company, one point five two trillion dollars, but is not curing disease.

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And these three are 20 billion dollars. So do you understand when I say the most either misunderstood or underestimated, I think is the genomic revolution and the foundation is DNA sequencing.

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All right. Back to the show. Well, and speaking of misunderstood and underestimated, Tesla really comes to mind. And you've become very well known for this pression prediction of a four thousand dollar stock price for Tesla. This is pre stock split, five to one stock split. And you said this three years ago and it's panned out like Babe Ruth calling a home run. Right. Even Elon Musk himself tweeted that the stock price was too high back in May of twenty twenty when it was around seven hundred and fifty dollars a share to what gave you the conviction in Tesla that even the founder himself failed to recognize?

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I think our focus on rights law as the centerpiece of our research and the comfort of being able, even with quarterly reports, to say, OK, are there any clues in that quarterly report? We understand everyone is focused on why a company, Tesla included, missed gross margins by thirty five basis points and the stock's down 30 percent. We're looking at that and look for clues. Wait a minute. Did their market share increase or what did they say about battery costs or you know what we're interested in?

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Did the demand for the cars go up as they cut the price? While auto analysts are freaking out that they cut the price? They don't understand. That is what happens to new technologies. The price comes down and that's why they proliferate. So having traditional auto analysts following Tesla was not a very good idea and still is not a very good idea. You need to have robotics analysts, energy storage analysts, artificial intelligence analysts, software as a service analyst.

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These are not auto analyst. We are very true to write solar and maybe Elon didn't study right or take it far enough out if he did. And in fact, this is why I think we have been so successful in becoming a part of the communities where researching we are out there on social media and what are innovators doing? What's Elon doing? Head down, trying to get that manufacturing facility to scale and produce these cars is what they're doing right now.

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We're doing right law. And so I think that innovators have found our research very interesting because their heads down knowing they need to get this right and get it right as quickly as possible before someone else does. They're not looking at rights law. We are they are taking our research, though, and I think we are informing them and actually helping them in a way size the ultimate a market opportunity and how quickly it might be able to evolve if they're able to scale the unit production.

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You know, I've heard Elon Musk say that Tesla should be looked at almost like it's 12 different startups, and if we do that, would you say that a four thousand dollar obviously pre split stock price is appropriate? And do you think there's even more upside to be gained from today's price?

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So that split price would be eight hundred, and we've just crossed that, so that first estimate was back in the earliest days of Ark. We've done iterations since then that have put the price point higher. And because we're about to put out another one, I think in about a month after our Big Ideas report comes out. So stay tuned for that, which will inform this question importantly. But anyone who looks at our ETFs where we have to disclose our holdings at the end of every day, they will see that Tesla is still the largest holding in our flagship fund. So that should give you a sense that we think this story is well on its way in a way, but has just begun in another way. After all, total auto sales are in the eighty five million range globally. Last year there were two million electric vehicles sold. We think that's going to 40 million in the next five years and we'll take more than half hour at that time. Auto sales in total will probably be lower than 80, so they'll take up to a half of sales by then. Think about that. That's five years to to 40. That's a 20 fold increase. And Tesla is on the vanguard of this movement.

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Well, another holding I noticed in your autonomous technology ETF is Baidu, which appears to have the support recently of the Chinese government behind it. And they have their own autonomous taxi service. Do you think that could hinder Tesla's performance, especially in China moving forward?

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It's very interesting, we recently looked at by do they have an open source platform called Apollo? And so it's up on GitHub, you can see what they're doing now. They tell us that that is an older version and that they've advanced it significantly for their own purposes. But they're just trying to show the way for everyone. And what we're noticing is and what seems to be important to them and to China from an infrastructure point of view is vehicle to vehicle communication. We are actually thinking about that a little bit in the same way we're thinking about Lydda. There's this vociferous debate out there about Ladar Tesla's not using it. It's using many other sensors, but relying importantly on radar, whereas almost everyone else is using LIDAR, which again met with quite a bit of derision out there in the day when we were fighting that controversy. We believe Ladar is a crutch. You used a driving example earlier. I'll use one here.

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So when I first was studying to get my license, I had all these facts in my brain about what I needed to do when I stepped in that car and when I stepped into that car, now 16 years old, I was paralyzed, paralyzed by all of this stuff going on in my head. And as you said earlier, there are only a few things you really have to know and learn. We think that's the equivalent of that's what Lydda will do. It will stop the exponential trajectory of autonomous. We think we think vehicle to vehicle might be doing the same thing. And that's what I do, is spending some time on. In fact, as we were talking about this very recently, I asked, I said, could this actually give Tesla a competitive advantage in China? Because if it's not going to be using the lighter crutch and it's not going to be using the vehicle to vehicle crutch, which it doesn't feel it needs, might it just be able to sail through?I doubt the government will allow that. But I will tell you just back to I do we are impressed at how much they are doing on Apollo now. What had hindered by due stock was the base business, their search business. They've been losing massive share, but that might be finding a bottom here. So it would be nice to have that as a tailwind. As Autonomist takes off, China is determined to be number one in any innovation category. It's been a part of their five year plan for two plans. Now, Xi Jinping believes that this is going to catapult them to the number one economy in the world, as well as the demographics, of course. And we wouldn't be surprised.

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They are very serious when it comes to innovation. One of my concerns has been, you know, if they're not joining the open source world, generally, Apollo is an exception for them at Baidu, but they're not joining the open source world generally, certainly not the Bitcoin block jam world. Are they going to be dealing themselves out of some important innovation? And I think they will be. And so we'll have a bunch of innovation specific to China and they may lose their way a little bit in the rest of the world. But that being said, we are impressed with what we're seeing on Baidu. And if what they say is correct and that's a bit outdated, then we're even more impressed.

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Well, we have a tool on our website called the tip finance tool, and what it does is basically does all the heavy lifting to do an easy internal rate of return calculation for you. And I was looking at Baidu and the financials look incredibly strong. But, you know, sometimes you hear about data coming out of China being somewhat suspect.

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And since it's a foreign stock that might not be as familiar to US retail investors, how do they gain confidence investing in something like that? And how do you account for yourself?

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There are differences in accounting, to be sure, and differences in ownership structures as well. So if you think you own a share of stock, you really don't own a share of stock. You own the right to participate in the profits of the stock. But there's a different set up. What we have found and we've hired an Asian innovation analyst because we see how much innovation is taking place and how quick the uptake is in China. So we believe that there's a big role for an Asian innovation.

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Analysts were probably going to have to as we are getting more involved with Chinese companies. What we see is a great openness to us because we're known for innovation and wanting to innovate. They answer questions in a very straightforward way. And the kinds of questions we are asking are often around technology and we can tell if there's any fudging or not or if they really know what they're talking about. And I would say even down to the IRR people, it is interesting to me how much how knowledgeable they are about technology. Elon Musk said every mayor in China of every city in China is very tech savvy. So I think this technology or this innovation streak is being cultivated widely and deeply. So, yes, I'll tell you what numbers I don't believe at all. I don't believe there macroeconomic numbers at all. As I said, I have a background in economics, and so I don't believe any of them. I believe we learn more from multinationals who tell us what's going on in China.

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But when it comes to these technologies in these new these companies really trying to innovate, I think we're getting more straight talk. I think they also want to learn what we know as well. So it's a good give and take.

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You know, I'm trying to figure out the secret sauce here behind Arcon vest, and we talked about your focus on the future. I'm also curious about the company culture. One billionaire we study a lot on the show is Ray Dalio. And the culture at Arek appears to embody similar traits to Bridgewater Associates, quote unquote. Radical transparency approach basically is just this focus on transparent communication and the search of truth. I'm curious if you relate to that and also if you may incorporate the idea of meritocracy principle in which you're getting the most credible feedback to make the best decisions.

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Yes, I use a radical transparency as well, but ours is different. First, everyone knows what we're thinking. Our research is there for the having. It's up on our website and our theme developers who basically participate in our brainstorming sessions on Fridays. They can even look into our models. And as you know, we are starting to put some of our models up on GitHub. My understanding is Bridgewater has built or has built an incredible company, an institution. My understanding is they are not quite as free with their thinking in that way. In fact, I would say quite the opposite and bordering on secretive in many ways.

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So I think we're very different that way internally. I think we are very transparent. If you walk into our office, we're all on one floor now. It's going to be two floors, but we've got stairs, we're building stairs. There will be a link. And so the communication lines are completely open. And to be honest, we don't go through the the measures that I hear the bridge water goes through in terms of reinforcing this. However, if I or anyone in leadership or anyone in the firm at all, we're very flat.

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I should mention that we're very flat. If anyone feels that there is some dishonesty taking place or that's too strong a word of winging it or however you want to frame it, we are searching for the truth. So that is absolutely we're aligned with Bridgewater on that. And if we feel that anyone is veering from that search in any unhealthy way, we're going to call each other on it and they'll call me on it, too, for whatever reason not to. I mean, I absolutely insist on that push back. In fact, the people in the firm, I get along with everyone in the firm, I'm very happy to say. But I think those who push back at me the most, we have the, shall I say, closest relationship just because I know I can trust they're going to catch me if I seem to be veering off in the wrong direction or seem to think I know more than I really do know. So it might be a little different that way. I think we call each other out because we want to get to the right answer as fast as we possibly can. And I do think and you'll hear these words thrown around at many organizations, but our trust in one another and our respect for one another, those are very high. I've never been in an organization where the trust and respect has been this high. And it's rising. It's rising.

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Well, that's why I bring it up, because, you know, from running my own company, I found how hard it can be to foster a culture like that with honest and transparent feedback and maintaining sort of a flat and level organizational structure.So I commend you for that. I think if you can accomplish that, it's a tremendous competitive advantage. I'm also curious about how diversity plays, because looking at the team, it seems very diverse over Iraq. And I'm wondering if that's intentional or if that's just a byproduct from what you've built to date.

[00:47:15]

Well, in the early days of Ark, the people who were attracted to Ark and even in the very early days, there was some self selection, they wanted to do something meaningful. Most of them never intended to join the financial world. That was the dark side of the earth. And so I had to convince a few if they really wanted to change the way the financial world works, make it a better environment and a more productive environment, then come to Ark and help me do this. Now, I have found that in the early days the self selection was so diverse, it was beautiful, it was so diverse and had this notion of I want to do something that makes a difference. I didn't know I was going to think about the financial world that what you're doing is interesting.

[00:48:07]

They also were hungry and ambitious in the good sense, the really good sense. They saw a place at Ark where because of collaboration, they actually would have a voice that was as strong as mine. Certainly when it came to research and investing, you know, they would have a voice if they thought that I was doing something wrong. And this was in the early days. They would tell me and I always ask those questions, you cultivate that kind of culture by saying, OK, tell me where I'm going wrong.

[00:48:48]

We do not want to make a mistake. This is too big a call for us. And I think there was extra urgency in the early days, too, because I funded the company myself for three years, three more than three years. And so everything takes on a sense of urgency then. So I didn't want to be wrong and I wanted to be called to the mat for any mistake that I was making. And I think and that's how the culture started and that is still how it is. And you'll you'll find immigrants. There's a lot of self selection there because we have been willing to sponsor people who wanted to work in the United States and live in the United States. So we have immigrants and we have if you go to our website, diversity, probably unlike any other investment firm, asset management firm, financial services firm out there. Now, we're only twenty eight. Twenty nine people. I've been asked the question, was it your objective to build a diverse organization?No, it was not. This is what has happened and it is accruing to our benefit. The one thing that has surprised me as we've scaled in these years was what I just described is true, still very true. Lots of immigrants. But what I'm finding on the research side, the investing side, the research side is and we've remarked about this saying what can we do to change this? Ninety seven percent of the applicants for positions in research and we have three open now or soon to be open are from men and we don't understand it.

[00:50:34]

So let this be a call out there for women who have domain expertise, love the innovation that we've centered the firm on. Read our research, see if it excites you. And come on, sign on.

[00:50:54]

Well, another part of the diversity piece is the diversity of feedback, and you guys are out there open sourcing your research, putting it on social media and attracting a lot of attention in that way, which is great. But, you know, sometimes social media can become an echo chamber. Right. So I'm wondering, how do you account for that? How do you sift through the noise to find high quality feedback as opposed to something more pedestrian?

[00:51:19]

What's been fascinating about and this has been much better than what I envisioned when I first thought of this open research ecosystem in August of 2012, I never dreamed that there would be so many innovators out there. We didn't know Twitter was going to be our most prolific social network at that time. It was tweens, teens and celebrities. So I really didn't think it was going to be I thought maybe LinkedIn and media and some other social networks that were evolving. But Twitter has been the biggest social network for us. And we have found professors who weigh in on our research and say and often it will be with a D.M. because they want an answer. They want to engage with us. So we've had professors from on the battery front from Carnegie Mellon. He questioned Sam Chorus's work on batteries for autonomous trucks or electric trucks, but autonomous as well. And he thought we had made a mistake in our model PDM, Sam.

[00:52:35]

And now he has become one of our team developers and they engage regularly. So we often will see DM's as these are people who are serious about research and want to understand how we arrived at some of our conclusions, because first we will put out blogs. There are models to go with each one of them, but we don't publish the models. We publish more the conclusions, which is what we think most people want anyway. And so anyone coming to us asking a modeling question, we do want to hear from them because they are battle testing our assumptions.

[00:53:10]

And as it turns out, we were right on that particular one and we informed the professor about something he hadn't or an angle from which he had not thought to approach the problem. That's all it was, was a different angle. And he's helped us get through chemistry and all the other nuances with battery. So I think DM's are a big way. What I love about it is if your feed starts getting clogged with political and other, just don't follow them.

[00:53:42]

They're wasting time. That's the beautiful thing. You don't have to follow them. And around the time of our, I guess early twenty nineteen, when Tesla was cascading, you know, I got the question, how can you deal with all of these people insulting you daily? And you know, to be honest, I didn't even I don't even pay attention. And in fact, sometimes when that happens, when we know we are on to something big in research and the barriers to entry at Tesla being battery technology, there are artificial intelligence chip, the miles of data. They've collected their software over their software updates to change performance. And each one of these gaps is growing. Those insults basically tell me that these people are not doing the research. So why would I want to have anything to do with them? It is the ones who are really trying to understand where we're coming from, who will DMAs and actually ask very intelligent questions because they, too, are seeking the truth.

[00:54:52]

Well, Kathy, I cannot thank you enough for coming on the show and talking to us about your ETFs. Everyone should check out Arek Dash, invest Dotcom and look at the ETF, see for yourself. They've been outperforming by a wide margin over the last year. Very fascinating. I really appreciate your approach. I really gained a lot of value out of this, and I think our audience will as well. So thank you. I hope we get to do it again soon.

[00:55:16]

Thank you so much and thank you for doing all the homework you did I. I was thoroughly impressed. So thank you.

[00:55:25]

My pleasure. All right, everybody, that's all we have for you this week. Be sure to check out next week. Preston will be back with Stig and Hari and Toby for a quarterly mastermind discussion that you won't want to miss if you haven't already done so. Please subscribe to the feeds so that you get these episodes automatically right into your app on a weekly basis. We now have the Tipi Sundays and the Bitcoin Wednesday shows. So until then, we'll see you next time. Thank you for listening to. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence to access our show notes, transcripts or courses, go to the investors podcast. Don't come on. This show is for entertainment purposes only before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network written permission must be granted before syndication or rebroadcast.