Cathie Wood, founder and CEO of Ark Invest.
Ark Invest; Insider
- Meme stocks like GameStop and AMC don’t fit with Ark Invest’s focus on disruptive innovation, Cathie Wood said.
- But the star investor won’t criticize retail investors for their decision making in buying those stocks, she told Time.
- “This is what makes a market. We’re all taking calculated risks,” she said in an interview published Sunday.
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The Reddit army behind last year’s meme stock frenzy has been lambasted for trying to bully Wall Street — but don’t count star stockpicker Cathie Wood as one of their critics.
The Ark Invest CEO justified the behavior of amateur investors who banded together to go after hedge funds that had bet against their favored stocks.
“Meme stocks are not our kind of stock,” Wood told Time Magazine, in an interview published Sunday. “But I was watching the calculated risks that the people buying those stocks were taking.”
“What they were doing was asking, ‘Hey, which stocks are the most shorted out there? Maybe those people are going to be wrong,'” she said.
In January 2021, retail traders collaborated on Reddit forums like WallStreetBets to lift the price of GameStop, AMC, and other highly-shorted stocks, with the aim of taking a profit as hedge funds covered their short positions. Video-game retailer GameStop, at the center of the saga, soared 2,000% within just a couple of days.
They largely believed that a combination of fee-free trading platforms, easily accessible margin, and enough allies with the same vision could beat the funds that dominate Wall Street. Their coordinated moves had an impact, as their trades drove losses worth billions of dollars across short-seller hedge funds.
But some industry experts have described that trading strategy as very speculative, and said it creates a new type of casino. They argue that many meme stock investors don’t have real depth and experience in the markets.
But Wood suggested everyone takes risks and decides their own investing strategy.
“We tend to base all our investment decisions on our research,” she said, likely referring to Ark’s trading plan. “Some people base their investment decisions on technicals.”
“These individuals were simply taking a look at how incredibly shorted these stocks were, all by the same kind of hedge funds. I’m not going to criticize it.”
Some notable hedge funds impacted by the short squeezes, such as Gabe Plotkin’s Melvin Capital, sought additional funding. Others signaled abnormal losses to their investors as a result of moves in the heavily-shorted stocks. A year later, Wall Street remains cautious of the power of retail traders.
Ark funds — whose disruptive-innovation investment strategy has faltered recently — invest in five major disruptive tech themes, including artificial intelligence and blockchain. The firm’s research, which is publicly available, is targeted at techno-pessimists.
Wood explained this is done to expose retail investors to the opportunities that investing in innovation provides.
“We wanted to bring transparency and democratization into investing in innovation; we consider ourselves the closest you’ll find to a venture capital firm in the public equity markets,” she said.
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