Spinning off from a discussion on Tesla being viewed as a ‘deep value’ stock by Cathie Wood of ARK Investment, I’m interested to see people’s views on passive investing and its effect on the stock market.
Continuing the discussion from Elon Musk taking Tesla private?:
As a brief summary, Cathie and her team view Tesla as a ‘deep value’ stock due to their belief that innovation is a major inefficiency in the market, and therefore Tesla’s future earnings are far higher than investors are pricing in. If you want more detail have a look at her blog post (above link), or listen to her on a Recent ‘Invest like the best’ podcast.
They have this view on numerous other stocks, so try not to get too hung up on Tesla as an example piece (their numbers are debatable, check @CTE thoughts on MaaS in previous post^^) , but Cathie recently wrote an open letter to Elon urging him to keep Tesla public and part of her letter referenced passive investing leading to misallocation of capital, as well as the inefficiency of markets to price in the effects of innovation (listen to her podcast - Nvidia and chip makers is a great example of them getting something like this correct).
So - my discussion topic - do we agree/disagree/have any data that a rise in cap-weighted passive tracker funds is leading to a misallocation of capital?
i.e. that profitable and well run companies, or those with a disruptive edge/technology, are not receiving the stock price they should? And that money is blindly flowing into those who are already on top of indexes such as FTSE100 etc.