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Cathie Wood is selling Tesla to go all in on two sectors that she believes will outperform Tesla by a huge proportion. She still believes Tesla will increase by at least 3 times in value, but she has found an opportunity that could return 10 or even 25X returns. A lot of people call Cathie crazy, but she never purchases stocks without proper research at ARK Invest. When she purchased Tesla at $40 per share post split, her conviction was backed by the clear transition to EVs and an undervaluation. Cathie is now in a similar situation where the entire backdrop is setting the stage for a massive rally in a few stocks. This is backed by her anecdotal evidence that points towards massive short and long term returns.

The majority of investors criticize Cathie for her recent performance, but short-term performance is not indicative of long term gains. Tesla stock dropped over 50% throughout the course of several years before going up by over 20 times in value. Ark has undoubtedly performed horribly over the past year, but the fund is still outperforming every single index on a 5 year time horizon. Cathie has been selling Tesla, Twitter, Palantir, and many others to buy heavily into two sectors: cryptocurrency and stay at home stocks. 90 percent of you probably want to click off the video, but the remaining 10% will be set to make enormous returns. Contrarian views tend to make outsized returns. While that might sound trivial, Cathie has some exclusive inside information from politicians that none of you have access to. First of all, let’s start with crypto. Cryptocurrencies have been under regulatory scrutiny for years. China and 8 other countries have fully banned cryptocurrencies (show Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China using a map animation) and 42 other countries have implicitly banned cryptocurrencies

A lot of countries are missing out on the potential benefits of cryptocurrencies in the economic system. That is the complete opposite for the United States. Recent statements and conversations from US regulators are showing that the US is set to fully adopt crypto. Cathie has noticed that plenty of politicians are changing their mind about crypto. Among these government employees are the chair of the SEC Gary Gensler, the secretary of treasury Janet Yellen, and president Joe Biden. Those are powerful politicians who can accelerate the advent of crypto with the snap of a finger. SEC chair Gary Gensler recently spoke about his new and upcoming initiatives to protect investors in crypto. Biden also signed an executive order telling government employees to examine crypto. But more importantly, Cathie’s anecdotal evidence is pointing towards an accelerated policy rollout on crypto. Cathie recently sat down with Michael Saylor to talk about the changing political dynamic with crypto.

Everyone knows that actions speak louder than words, and Cathie’s money is where her mouth is. She purchased almost a million shares of Coinbase within the past month, making it Ark’s third largest position. Coinbase is down over 50% in the past year, so you might be confused as to what Cathie sees here. As we talked about earlier, short term movements don’t always reflect long-term gains or losses. Coinbase generally trades in line with crypto prices, but we’ve seen a bifurcation occur. While Coinbase is down over 50% in the past 12 months, bitcoin is only down 26% and ethereum is actually up over 56%. This is because of overwhelming concerns for increased regulation and competition for coinbase. However, we know that there has been a sudden change in regulation sentiment, which allows for a price arbitrage opportunity. Coinbase is currently trading at a trailing PE ratio of 13 and Cathie clearly expects earnings to go up more from here. Cathie expects bitcoin to reach over a million dollars by 2030 which is almost a 25X from the current levels. If we assume Coinbase is undervalued by 50% relative to the crypto market, this could equate to a 50X return. Plenty of people are still skeptical of cryptocurrencies, but this is starting to change dramatically, especially in regulatory bodies and institutions.
Investing in stocks should never be emotional, which is why plenty of institutional investors use quantitative strategies, also known as symphonies. The sponsor of this video, Composer, is allowing retail investors to create their own symphonies without any coding knowledge. Take a look at this symphony that I created with 10 stocks that are purchased with inverse volatility, meaning that the less volatile stocks are weighted higher. If we run a backtest on this symphony, we can see that I would have achieved an annualized return of 24% since 2016. You can see how the allocations change as the volatility of each stock changes as well.