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Passive Investing Has "Gone Too Far", Elon Musk Tells Cathie Wood In Wide-Ranging Spaces Interview

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by Tyler Durden
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Potentially one of the biggest beneficiaries of indexing in public markets was railing against it yesterday when Elon Musk took to a Spaces conversation with ARK Investment Management’s Cathie Wood.

It was one of a number of topics that a wide-ranging discussion covered, including Twitter, the regulatory demands placed on public companies, shareholder scrutiny, artificial intelligence and Tesla.

Talking about public reporting, Musk told Wood: “There’s a lot of pressure, like immense pressure on a public company to not have a bad quarter. So this can actually result in a less efficient operation where you’re going to great lengths at the end of the quarter to not disappoint people.”

He added that the “time horizons do not match between investors versus a company’s long-term vision,” a Bloomberg recap of the call noted.

On the call Musk also advised Wood against companies going public unless it is absolutely necessary. Claiming that Tesla has "created more millionaires than any other company", he also lamented the "millions of strings" that can be used by regulators to keep companies tied to the ground. 

Musk said that privatizing Twitter enabled him to implement significant alterations at the company, free from the scrutiny of public investors. Twitter's co-founder, Jack Dorsey, had also consistently maintained that the company faced challenges due to its public investors and supported Musk's decision to privatize it as a means to revitalize its operations, the report said.

Speaking about the future of X going forward, Musk told Wood he wanted to create a "giant brian": "We want to create a group mind or collective consciousness where each person is reporting information to the system, and giving their opinion. Think of it as a giant brain."

"Now, with the internet and a fast-moving platform like X, you can get all the people out there reporting information and distilling it down through the experts," he said. 

From there, he talked called the media "desperate", talking about how they are forced to create controversy: "They [the media] don't have much of a choice. Any media not focused on controversy loses clicks in what is clearly a declining legacy market. Desperate times lead to desperate measures."

"X is actually growing in traffic. Traditional media is down, but X is up. Of course, the media won't write that. Instead, they say X is dying. That headline is a little tedious."

Musk finally praised Jack Bogle for introducing the world to passive investing, but then also said the trend had "gone too far".

He told Wood: “The percentage of the market that is passive is simply, is too great at this point. At the end of the day, somebody actually has to make an active decision. The passive investors are riding on the decisions of the active investors.

"You get essentially massive movements of the stock, based on the decisions of maybe four or five active major stock pickers,” he concluded. Tesla is an S&P 500 component. 

You can listen to the entire discussion here:

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