Tesla’s Full Autonomy & Ride-Hailing, Google’s AI Breakthrough, and ARK’s HUGE Trading Week! (Ep 6)

[00:00:00.150]
Hey there. Alex, here, and this is Ticker Symbol: You, the channel that invests in you. This week, a huge breakthrough in Google's Deepmind could explode the knowledge base in genomics. And Elon Musk says level five autonomy is going to be ready for Tesla drivers as soon as next year. ARK Invest's Tasha Keeney doubles down on Tesla starting its human driven ride hailing network. And we analyze one of ARK Invest's busiest trading weeks in a long time. I put a lot of research and effort into each one of my videos and sources to everything I discuss can be found in the description below.

[00:00:32.340]
So, I'd appreciate the early thumbs up and let's dive right in. Welcome to Episode six of the Weekly Market Recap. My weekly series attempts to add context to ARK Invest's predictions of the future and active trading of their five thematic ETFs. To do so, I discuss the overall market's economic situation and of course, ARK Invest specific news. In my opinion, some of ARK's bigger predictions about innovation and the future of technology are already starting to come true and at a faster and faster rate.

[00:01:02.490]
Just this week, there was a big breakthrough in artificial intelligence, ARK Invest's central platform of disruptive innovation, which I covered in a separate video but will briefly go over here. These predictions of the future are reflected in ARK Invest's buys, sells and position sizes for this past week, ending Friday, December 4th, 2020. Sources for everything I discuss can be found in the description below, and time stamps for this video are enabled for your convenience. This past Friday, December 4th, ARK Invest released episode 10 of In The Know with Cathie Wood.

[00:01:35.190]
In it, she discussed a deep learning breakthrough with Alpha Fold, the protein folding application of Google's advanced artificial intelligence called Deepmind. This advancement moves deep learning forward about six years when it comes to protein folding, collapsing costs by staggering amounts from a lowball estimate of one hundred thousand dollars all the way to pennies, while increasing the accuracy of the AI's outputs by about 70 percent. One very fortunate thing about this breakthrough for protein folding is that it happened with so many proteins left to map.

[00:02:08.730]
Humanity has only mapped a small fraction of one percent of the roughly one hundred and seventy million proteins that exist in plants, animals and ourselves. Two very relevant things investors may not realize are that one, many of ARK Invest's top holdings rely on artificial intelligence and two, an advancement in one area of artificial intelligence can ripple through research communities and quickly lead to advancements in other areas. My video on deep learning explains this advancement and walks you through artificial intelligence and deep learning at a high level.

[00:02:43.140]
It was intended to be part of this weekly market recap, but then it just kept writing itself. So here we are. Maybe related to this topic and maybe not, ARK opened a twenty two million dollar position in Google, ticker symbol GOOGL last week. Google owns Deepmind and the Alpha Fold program. And just one quick point of clarification, because I see this question a lot. ARK Invest actually runs two websites, ARK-invest.com is where they post their papers, podcasts and other research publications and ARK-funds.com

[00:03:18.870]
is where they post the updated holdings for their financial products, including the five actively managed funds that this channel is dedicated to covering. I find that many people ignore one side or the other depending on their interests, and I feel that both are needed to understand the full picture. Speaking of the full picture, in the same video, Cathie Wood mentioned that ARK Invest would be doing their big ideas 2021 overview in early January. Big Ideas is a great way to get the big picture view of the disruptive innovations that ARK tracks.

[00:03:48.990]
Note deep learning's position on this list. This also seems to bode well for concerns about Resolute Investment Managers “hostile takeover of ARK Invest”, a question I'm seeing a lot in my comments. My stance on the matter is that Resolute just doesn't want to get out of the very profitable business of acting as the sole distributor for ARK Invest's ETFs, so they're exercising whatever options they can to stay in the picture and they will not make any fundamental changes to ARK Invest's trading strategies or research.

[00:04:21.390]
And speaking of research, Tasha Keeney, ARK Invest's Analyst covering autonomous vehicles and mobility as a service published a new article explaining the strategic value for Tesla, ARK Invest's biggest holding, launching a human driven ride hailing service in order to de-risk portions of its autonomous strategy. This adds to a long list of existing research that she's published over the years, which I've covered in recent episodes, not realizing that she'd publish another article so soon after. Your time is valuable. So I'll briefly refresh the relevant material from those episodes and then cover her latest article Tasha's work on autonomous ride hailing and mobility

[00:04:59.950]
as a service plays a central role in ARK Invest's famous seven thousand dollar pre split price target or fourteen hundred dollar post spot price target on Tesla. If I ever mentioned that seven thousand dollar number, please assume I mean pre split unless you want to land a model S on Mars, then all bets are off. As you can see, ARK Invest has ten price targets laid out for Tesla, depending on what comes true for Tesla in 2024. The success of Tesla's autonomous network plays a central role in these price targets, with the four best scenarios for Tesla all requiring that they launch their autonomous network.

[00:05:36.130]
Quick note here. Elon Musk recently confirmed in an interview that he expects to achieve a full level five autonomy and release it to the customer base next year. Rob Maurer of Tesla Daily covered it in his December 1st 2020 episode much better than I ever could, so I'll leave a link to that in the description below. For now, realize that it appears that Tesla may achieve these loftier price targets, maybe even earlier than 2024. Owning a car

[00:06:05.770]
can be a real bummer. I know it and you know it. Maintenance and insurance are almost never painless and don't even get me started on parking, let alone that cars are depreciating assets. Two things you may know about electric vehicles are: one, the fuel cost is much lower since electricity is usually much cheaper than gas and two, maintenance costs are much lower since battery electric vehicles have far fewer moving parts than those with internal combustion engines. And that's just what you're seeing in this cost per mile comparison here.

[00:06:37.540]
A third thing that's true about Tesla's in particular is that they can receive over the year updates. So one thing I believe this chart does not reflect is the sharp increase in potential value for all existing Teslas once full self driving is unlocked. That is, every Tesla that was purchased today was done so with full self-driving not priced into what they paid. But, Tesla owners can buy into over year updates that would immediately increase the value of the vehicle, since a vehicle that can drive itself is inherently worth more than one that cannot.

[00:07:11.260]
The cost of the full self-driving package versus the value it actually adds to the vehicle is not a one size fits all answer. But my personal opinion is that the depreciation component of this Tesla Model 3 bar will go down as more over the year updates are released over time. Not just for performance and feature enhancements, but to fix any issues that can be solved without physical intervention. Here's Cathie Wood talking about her experience with these updates.

[00:07:39.400]
So Tesla is still the only auto manufacturer, I believe maybe someone else is on the scene with it, but I haven't seen it, which can anticipate an auto problems and correct those problems with over the air software updates even before the owner of the vehicle understands there's a problem. I've mentioned too on a number of these videos that I have not taken my Model 3 into the shop, or I guess that doesn't happen with Tesla. They come to the house.

[00:08:21.100]
But because nothing has gone wrong, the only thing that did go wrong, which over the air software updates could not fix, was a nail in the tire, a flat tire. But other than that, nothing. And I'm beginning to believe that that this idea of over the air software updates is helping to anticipate problems and solve them before they occur.

[00:08:48.250]
This roughly 32 percent decrease in cost per mile allows Tesla to cut prices while still competing with Uber and Lyft today, even without full autonomy unlocked. Remember, these are costs per mile. So Tesla's ride hailing network could be many dollars cheaper than Uber and Lyft for the same many mile trip. And if you're a few bucks cheaper, one hundred percent of the time, you're winning the lion's share of all trips. And, as Tesla continues to win more trips, they would accrue more training data to feed the machines, crunching the numbers on full self-driving.

[00:09:23.830]
And if they unlock full self-driving first, we will see a big drop in autonomous miles around the world as people opt for cheaper trips and take more of them. Driving up the total amount of miles traveled in vehicles, but having most of them now be autonomous. And since you're not driving in an autonomous vehicle, you're now free to do other things, like catch up on sleep, keep up with work, or keep up with the Kardashians. Don't judge me.

[00:09:50.320]
So, you're paying less to ride in an autonomous vehicle than one driven by a human, and you're reclaiming that time for other tasks, since you don't have to focus on driving yourself. Saving a little bit of money and an hour of every day is a no brainer, which is why ARK Invest's Tasha Keeney says that Tesla can run over Uber and Lyft by launching a non autonomous ride hailing network first, leveraging the lower costs of battery electric vehicles to gain a competitive advantage while working out some of the potential kinks now, before autonomy goes live.

[00:10:24.730]
These first three figures just reinforce everything we've discussed about Tesla's mobility as a service, which are : one, today's taxis are about 90 percent more expensive and inconvenient than autonomous taxis, with optimized routes that minimize wait times; two, when you offer a service where customers pay less and win back time, the demand for your service will go up by a lot. And three, global auto sales will decline overall as more people opt not to purchase a car in favor of hailing an autonomous taxi when they need to travel.

[00:10:57.850]
In Tasha's words, you can think of this transition to mobility as a service, as a two car household going down to one car and a one car household going down to zero, which also aligns nicely with Tesla's overall mission of accelerating the world's transition to sustainable energy by removing a lot of gas powered cars from the road or adding fewer, safer, cleaner ones back onto it. Whew! Tasha's newest article highlights the fact that launching an autonomous ride hailing network actually has a lot of moving parts and not all of them are tied to autonomy.

[00:11:31.990]
Tesla will have to build a ride hailing business in addition to solving the autonomous self-driving problem. It sounds obvious when I say it like that, but it's actually a very smart thing to point out. Today, Tasha believes that Tesla could launch the ride hailing portion of their network and start overtaking Uber and Lyft. The left hand column shows you what steps Tesla can begin solving today instead of, for example, waiting until they solve the incredibly hard, full self-driving problem to start thinking about payment integrations.

[00:12:03.040]
Also, planning your route and navigating it in real time are actually different problems. Even though we say we humans tend to lump them all together into the act of driving, routing cars efficiently and matching them to the best customers are machine learning problems that are fairly similar to the content matching examples discussed in the deep learning video. So, if Tesla decides to launch a non autonomous robot taxi network today, it can begin cutting away all of these potential issues that would be roadblocks to their autonomous network, even if they perfect robot taxi software.

[00:12:38.740]
Otherwise, it's been a fairly quiet week in terms of new ARK Invest podcasts and publications, but holy smokes has been a crazy one in terms of trading activity. ARK Invest total assets under management rose by over 11 percent this past week. I used this assets under management number as a correction factor when comparing ARK's positions over long periods of time. For example, in my recent case study covering how ARK Invest completely sold out of Illumina, ticker symbol ILMN over four months, I used their assets under management to understand how big their Illumina position might have been if it continued to grow as ARK invested.

[00:13:16.720]
Instead, Slack, ticker symbol WORK, was in their number seven spot with even more cash behind it than I calculated with this correction factor, due to the fact that it was in three of ARK's funds as opposed to Illumina's two. If we look at bar charts of their top positions from Thanksgiving week and this past trading week, we can see that a lot has changed, including that Slack has moved out of their top holdings altogether. Last week, it moved from their seventh biggest holding to roughly their thirty fifth, which is a massive fall from grace.

[00:13:48.310]
One fun way to track this is by looking at changes in the ranks of ARK's total positions week after week. So what you're seeing here is a plot where the X axis is time, specifically each Friday's market close and on the Y axis, it's just the rank of that stock if you add up its value across all of the ARK funds that it's in. You can ignore the word median here since its overall rank inside ARK is the same no matter which fund you're looking at.

[00:14:15.370]
As you can see, Tesla has never left the number one position, meaning it's always been their largest holding. How large? Well, let's go back to the bar chart show quick. And you can see that just under 10 percent of all of ARK's money in these five funds is in Tesla, which is much more than their second biggest position, which was Invitae, ticker symbol NVTA two weeks ago, but is now CRISPR Therapeutics, ticker symbol CRSP.

[00:14:40.780]
And, Roku stayed in the number three position week after week. And going back to this line plot, that's what you're seeing here. CRISPR and Invitae switched positions between these last two trading weeks. Also shown here is Slack's massive fall from ranked seven to rank thirty five. There may be another “ARK just totally sold out” video in our future. Muahaha. Two trading weeks ago for the short trading week, ending Friday, November 27th, 2020, we saw that bullishness was nearing that 50 percent mark

[00:15:10.920]
again. What you're seeing here is a sentiment survey that the American Association of Individual Investors, or AAII, tracks weekly. Let me take a step back and have Cathie Wood explain why I cover this metric.

[00:15:25.830]
There is one indicator that gives me pause. And while I do not believe we're in a bubble, sentiment indicators for the equity market in particular. So this would be the bull bear ratios or the American I don't know if it's AAII, American Academy of Individual Investors. And that indicator is out to very high levels. And typically, when it gets to very high positive readings, we are going to have a correction. Now, not always. Not always. As I mentioned, not a lot of other indicators seem to be in bubble territory, but I wouldn't be surprised to see some sort of correction after this seasonally strong period that we're in.

[00:16:22.260]
This one indicator doesn't move the market, but it is a useful signal to keep track of, especially if you're trying to make comparisons over long periods of time and you don't remember specific news items and how they move the market. After all, people get bullish or bearish for a reason, even if it's not a very good one, and news doesn't move the market, the people who trade do. So, on Thanksgiving week, almost half of all surveyed market participants were bullish and I advised practicing caution because bullishness that far above average is pretty unsustainable.

[00:16:56.790]
This past week, bullishness actually increased by another two percent and bearishness dropped by almost five. Neutral market participants are almost in-line with historical averages. This is a crazy high amount of bullishness in the market. I am not a financial advisor, but I'm practicing even more caution. It's always nice to be participating in a very bullish market. Just remember that bulls still have horns. And of course, the S&P 500 reflected this bullishness this past week, rising almost the same two percent.

[00:17:27.960]
Here is our ARK Invest Trading Board for this past trading week. As you can see, there is a lot of dark green squares indicating position increases of 20 percent or more, and a few dark red squares indicating position decreases of twenty percent or more. For example, they sold out of sixty nine percent of their Slack position over the last trading week and almost seventy five percent of their DOUYU position, while more than doubling their Shopify position. I just use this graphic to get an overall understanding of what I'm getting myself into and this past week, that's a lot.

[00:18:01.830]
So let me first set the tone. As you can see, many of these squares are light green, indicating that ARK Invest had a very big buy week overall, increasing most of their position sizes by five percent or more. What you may not notice by looking at this is how exact some of these positions size changes are. Here is a table of just the position sizes that increased by roughly 10 percent. There's clearly some calculation or piece of software or model that they use to help distribute funds across their holdings in line with their convictions.

[00:18:33.870]
This is why videos that tell you ARK Invest just bought two million dollars in Company X make no sense. This is just an effect of their assets under management getting bigger over time. You're seeing the numbers we have to correct by to see the big picture, not the big picture itself. If we go back to the trading board, these dark green and dark red squares are, in my opinion, the big picture. They are the outsized buys and sells after accounting for the ones happening because their funds are growing so fast.

[00:19:04.740]
So let's take a look at the darkest green squares first. Here are their biggest buys in order of percent change in position size. Remember, ARK Invest can't control share prices, but they can control what price they choose to buy and sell a stock at. And these tables reflect those choices. Last week, they more than doubled their position in Shopify, ticker symbol SHOP, moving it from their fifty first biggest holding up to the thirty fourth and it closed at a little over a thousand dollars per share on Friday.

[00:19:38.540]
Longview, ticker symbol LGVW, is a position they recently started and have been increasing heavily since. This second green column shows you the percent change in shares ARK holds from the previous week and this fourth column shows you the percent change in dollars adding back in that price action of the stock. The fifth and sixth columns show you where this holding sits in comparison to all of their other holdings across all of their actively managed ETFs, where Tesla is ranked one and rank one hundred and fifty is pretty much as bad as it gets.

[00:20:13.550]
Sorry, Zscaler. And these last two columns show you the share price as of Friday's market close and the change from the previous Friday, just for your reference. ARK Invest opened two new positions this past trading week, one into Roche Holdings ticker symbol RHHBY, a pharmaceuticals and diagnostics company, which is now the 41st biggest position specifically in ARKG. In position 42, they opened a position in Google, ticker symbol GOOGL, which are the Class A voting shares of Google, the company that owns both YouTube and Alpha Fold or Deepmind. Wooo, spooky.

[00:20:52.460]
Below that we can see ARK Invest's biggest sells for the week, with the bottom one being the biggest sell. They sold almost seventy five percent of their position in DUOYU, ticker symbol DOYU; sixty nine percent of their position in Slack and twenty four percent of their position in Xilinx, and of course one percent of their position in Tesla, their only position over two billion dollars now, so my guess is they still have not lost faith. Here are my three short lists from two weeks ago, including the final sale that prompted that sell of Illumina case study.

[00:21:27.140]
This is actually not a sustainable way of showing you the stocks that I choose to follow. Just like machines are getting better over time, so too will this channel. I'm going to stop manually picking companies and just show you the biggest moves each week for now, while I figure out a better and more reliable way of presenting you these short lists. Thank you for your patience on that. Speaking of thank you's, I can't thank you enough for the amazing reception of this channel and the way I follow ARK Invest and disruptive innovation.

[00:21:55.430]
My promise to you is that I will always continue to value your time by presenting only the information I think is genuinely useful, limiting the ads in my videos and engaging in the wonderful discussions taking place in the comments below each video. So thank you to all 10000 of you and counting for investing your precious time with me. I am deeply grateful. This is Ticker Symbol: You. My name is Alex, reminding you that the best investment you can make is in you.