Answering Questions About Innovation and ARK's Research with Brett Winton | Big Ideas Summit 2019

TL;DR

ARK Invest's approach to disruptive innovation focuses on general purpose technology theory to identify macro economically impactful technologies that are often overlooked by incumbent companies and the investment community.

Transcript

so to wrap things up and with that as your real introduction not a bad segue we have with us Brett when who is arch director of research who previously was the founder of IMD consulting and worked with Kathy for over a dozen years including time at Alliance Bernstein as the analyst and so I think it's appropriate that we kind of start with the hard... Read More

Key Insights

• 😒 ARK Invest's research process is inspired by Clayton Christensen's theory of disruptive innovation but uses general purpose technology theory to identify impactful technologies.
• 👻 Their longer time horizon allows them to identify technologies with significant potential that may be overlooked by traditional analysts.
• 🚙 The electric vehicle space is projected to grow significantly, with electric vehicles becoming the preferred choice over traditional vehicles. Lithium production is not seen as a limiting factor.
• 📼 Crypto assets serve as an insurance product for wealthy individuals in emerging market countries who may face asset seizures by state actors. The value of crypto assets lies in protecting wealth in uncertain political climates.
• 😌 The future of video streaming services lies in vertical integration and investment in technology that allows for more cost-effective content generation.
• 😘 Digital wallets such as Venmo and Square Cash have strong network effects and are difficult to displace by traditional banks due to their low customer acquisition costs.
• 🥺 The decreasing cost of genome sequencing will lead to more clinically actionable insights and change the landscape of healthcare.
• 🏦 The presence of bank branches will become less relevant as digital wallets and online banking become more prevalent. The cost of maintaining bank branches outweighs their value in a world where banking services can be accessed through smartphones.

Questions & Answers

Q: How does ARK Invest define disruptive innovation and what is their approach to identifying disruptive technologies?

ARK Invest defines disruptive innovation as innovations that allow less well-capitalized companies to displace incumbents despite being better capitalized. They use general purpose technology theory to identify technologies that have steep cost declines, cut across sectors, and act as platforms of innovation.

Q: How does ARK Invest's longer time horizon in research differ from traditional analysts?

ARK Invest's longer time horizon allows them to focus on technologies with significant potential that may not manifest within three to six months. Traditional analysts are often not incentivized to do the research on these technologies. ARK Invest values companies over a five-year period, rather than focusing on short-term catalysts.

Q: Why does ARK Invest believe that lithium production will not be a limiting factor for the growth of electric vehicles?

ARK Invest's analysis shows that as the cost of electric vehicles decreases, the demand for lithium will increase. However, the current pricing of lithium suggests a shortage, but there is sufficient supply to accommodate the anticipated growth of electric vehicles. ARK Invest also focuses on companies with strong barriers to entry, rather than commodity producers like lithium mines.

Q: Why is Tesla such a polarizing company on Wall Street?

The modern media environment, Elon Musk's volatile personality, and the interests of industry participants who have a vested interest in seeing Tesla fail contribute to its polarizing reputation. However, ARK Invest believes that as Tesla proves its value and achieves significant growth, the sentiment towards the company will change.

Summary & Key Takeaways

• ARK Invest's research process is inspired by Clayton Christensen's theory of disruptive innovation, but they use general purpose technology theory to identify innovations that have significant macroeconomic impact and are overlooked by executives and investors.

• Their research has a longer time horizon of five years and values companies based on their projected value in the marketplace over five years.

• ARK Invest's analysis of the electric vehicle space shows that lithium production is not a critical factor and that the industry will see significant growth, with electric vehicles becoming the preferred option in the future.