investing Archives

We at marketfeed often derive inspiration from some of the best investors and traders across the globe. There are many renowned investors from Wall Street that you might have never heard of. We would like to introduce our readers to Catherine Duddy Wood, one of the most successful investors or stock-pickers in the world today. She is the founder, Chief Executive Officer (CEO), and Chief Investment Officer (CIO) of Ark Invest, which was the fastest-growing fund company in 2020. Moreover, she inspires millions through her social media handles.

In this article, we dive into the world of Cathie Wood and learn more about her investment strategies.

Cathie Wood – A Brief Profile

Upon completing her Bachelor of Science degree in Finance and Economics, Cathie Wood began her career in 1977 as an assistant economist at California-based Capital Group. She moved to New York in 1980 and worked as a chief economist and portfolio manager at Jennison Associates. After nearly two decades, Cathie moved to AllianceBernstein, where she managed a multi-billion dollar portfolio. She resigned from the firm 12 years later and began to work towards setting up her own company.

Cathie Wood established ARK Investment Management LLC as an investment adviser with the US Securities and Exchange Commission (SEC) in January 2014. It is based out of New York City. The firm covers securities across multiple sectors, market capitalizations, and geographies. Over the years, ARK has developed the ability to identify large-scale investment opportunities in the financial markets. This ability is a result of technological innovations centered around robotics, artificial intelligence (AI), energy storage, and blockchain technology. As CIO and Portfolio Manager, Cathie led the development of ARK’s philosophy and investment approaches.

Ark Invest’s total asset under management crossed the $60 billion mark in February 2021. Millions of dollars keep flowing into Wood’s popular exchange-traded funds (ETFs). According to Forbes, Cathie Wood’s current net worth stands at ~$400 million.

The ARK Innovation ETF and Cathie Wood’s Ideals

The ARK Innovation ETF (ARKK) is ARK Invest’s largest actively managed fund with over $17 billion (~Rs 1.2 lakh crore) in assets under management (AUM). The ETF primarily focuses on companies that create disruptive technologies. It has heavy weightage in companies such as Tesla, Zoom, Shopify, Roku, and is well-diversified and balanced. The ETF had delivered a staggering gain of ~153% in 2020, easily beating the return of the overall market.

Cathie Wood had a strong conviction that real value lied in companies that offered disruptive technology— which ultimately worked in her favour. She had a different outlook on innovations such as self-driving cars and genomics before it became ‘popular’. [Genomics is an interdisciplinary field of biology that focuses on the structure, function, evolution, mapping, and editing of genomes. A genome is an organism’s complete set of DNA, including all of its genes]. She strongly believes that people will constantly embrace new technologies that solve crucial problems in their lives.

In October 2018, she made a bold prediction that Tesla should be priced at a target of $2,000, and in a bull case, a target is $4,000. Tesla shares were being traded only around $50-70 at the time! Within just two years, Tesla saw an astronomical rise in its share price. Her analysis had worked to perfection. Electric vehicles are now getting more popular, batteries are getting cheaper and efficient, and production costs will eventually become lower. There will be a sharp rise in demand for EVs in the future.

Important Lessons from Her Life & Career

Cathie Wood and her firm’s approach to investing combines high levels of risk with high levels of transparency. She gives immense priority to in-depth or comprehensive research. Her calls on Tesla and cryptocurrencies (mainly Bitcoin) have made her a fortune. In her 40 years of experience in the asset management industry, she has dared to venture into new areas that had been grossly untapped. In her view, electric vehicles, autonomous or self-driving vehicles, and digital wallets will be some of the most important areas to keep a close watch on. If you believe in the growth of a particular sector, stick to your convictions and develop patience.

Through the power of social media, she has expanded her network and following. Wood often talks about the state of the economy, different innovations, and the stock markets. Wood’s ability to connect with individual investors and youngsters has made her one of the most influential investors in the markets today. In 2020, Forbes added Cathie Wood to their list of America’s Top 50 Self-Made Women.

In 2018, Cathie launched the Duddy Innovation Institute at Notre Dame Academy in Los Angeles. The institute offers a unique and challenging educational experience for young women who are eager to extend their learning beyond the boundaries of traditional methods of gaining knowledge. She continues to inspire many to learn the power of long-term investments in the stock market.

Key Terms Related to Income Tax

When you buy and hold shares of a listed company, you become a part-owner of the firm (even though it is a very tiny fraction). These stocks will be referred to as your capital asset. When you hold these shares for more than a year, it is known as a long-term capital asset. If you purchase shares and sell them within 12 months, it is known as a short-term capital asset.

When equity shares are sold within 12 months of purchasing, the seller may obtain a short-term capital gain or incur a short-term capital loss. Similarly, when equity shares listed on a stock exchange are sold after a year of purchasing, the seller may obtain a long-term capital gain or incur a long-term capital loss.

How are Gains from Equity Shares Taxed?

Long-term capital gain (LTCG) on the sale of equity shares is not taxable up to a limit of Rs 1 lakh. If the long-term capital gain received on selling shares or units of mutual funds exceeds Rs 1 lakh, you will attract a flat tax rate of 12.5%.

Short-term capital gains (STCG) that you receive from selling shares are taxable at a flat rate of 20%. This is a special tax rate that is levied irrespective of your tax slab. [This may be applicable to swing traders, who buy and hold shares for a few weeks or months]

Taxation on Intraday Traders

According to rules specified by the Income Tax Department, the profit or gain received from intraday trading is considered speculative income. While filing your income tax return, intraday income comes under ‘business income’ that you have received during the year.

Now, imagine that you own a business. At the end of a particular financial year, you have received a total income of Rs 15 lakh from it. You have also received a profit of Rs 5 lakh from intraday trading during the same period. Thus, the total business income for that financial year will be Rs 20 lakh, and income tax will be levied based on the applicable income tax slab. Since intraday profit is considered as a business income, you can claim expenses while filing income tax return. These expenses could be brokerage charges, broadband charges, purchase of personal computers or laptops for trading, etc. Claiming such expenses will help lower the amount on which you need to pay income tax.

Taxation on Derivative Traders

Let us look at how income tax is levied on profits obtained from Futures and Options (F&O) trading. The profits received from F&O trading are also classified as business income (known as non-speculative income). The taxation on derivative traders is similar to that of intraday traders. Thus, you will have to pay tax on income received from such trades based on the applicable tax slab/bracket.

Loss Incurred on Sale of Equity Shares

As investors or traders in the stock market, we are all bound to make losses. However, even if you do not belong to any tax slabs and have incurred losses while investing or trading during a particular financial year, it is always recommended to file your Income Tax Return. This is because such losses can be adjusted and carried forward to upcoming financial years. [Those individuals who receive an annual income of less than Rs 12 lakh are exempt from paying taxes] Let us understand this concept with an example.

Suppose you incurred a long-term capital loss of Rs 2 lakh in the financial year 2019-2020 (FY20). In the next financial year (FY21), you have obtained a long-term capital gain of Rs 5 lakh. Thus, the loss that you incurred in FY20 can be carried forward (or set off) with the profit made in FY21. Thus, you need to only pay tax on Rs 3 lakh during the financial year ended March 31, 2021.

The long-term and short-term capital losses that an investor incurs can be carried forward for up to 8 years. A long-term capital loss can only be set off against long-term capital gains. However, a short-term capital loss can be set off against both LTCG and STCG. Similarly, intraday losses can be carried forward up to 4 years, and losses from F&O trades can be carried forward up to 8 years.

Current Income Tax Slab Rates (Updated)

Tax Slab – New Regime	Tax Rate	Tax Slab – Old Regime	Tax Rate
₹0 – ₹4 lakh	Nil	₹0 – ₹3 lakh	Nil
₹4 lakh – ₹8 lakh	5%	₹3 lakh – ₹7 lakh	5%
₹8 lakh – ₹12 lakh	10%	₹7 lakh – ₹10 lakh	10%
₹12 lakh – ₹16 lakh	15%	₹10 lakh – ₹12 lakh	15%
₹16 lakh – ₹20 lakh	20%	₹12 lakh – ₹15 lakh	20%
₹20 lakh – ₹24 lakh	25%	Above ₹15 lakh	30%
Above ₹24 lakh	30%	–	–