Living on the Nuclear Edge – Don't Worry, Not That One
One of the certainties of life is that neither good times nor bad times last indefinitely. Another certainty is that companies, as well as individuals, will experience ups and downs.
Dealing with good times isn’t a problem. Regardless of whether you’re steering a ship or whether you’re merely a fortunate passenger on a luxury cruise, a gently rising tide engenders feelings of serenity verging on smug self-satisfaction.
The thing is, rising tides never last. Eventually, the seas will get rough, the ebb will succeed the flow. You’ll either make navigational errors or you’ll be sideswiped by events and factors beyond your control. When that happens – it’s not a question of if it will happen – hard times will return with a vengeance. You don’t necessarily know when it will happen, or what the trigger will be, but you should be fully cognizant of the threat.
How you deal with adversity provides a full measure of a person as well as an organization. It’s easy to enjoy success, there’s nothing unpleasant about it. How you contend with failure, or hardship, reveals your true character. Of course, you should make contingency plans when you’re riding high, but it’s surprising how many of us fail to do so. Do we think the good times will never end, even in the face of incontrovertible evidence that they always come to an end. Yes, it would seem so. Silly humans, we never learn.
Markets administer a justice, and sometimes an injustice, all their own. I know. I’ve learned the hard way, at the hands of that stern taskmaster known as experience. I've taken the lessons to heart, and now I take precautions.
The Nuclear Power Thesis
I recently made an alteration to my investment portfolio on the basis of a seemingly iron-clad cautionary precept: If something appears too good to be true, it usually (invariably?) is too good to be true. Allow me to explain, albeit in a succinct, broad sweep that respects your indulgence and time.
About 18 months ago, give or take a few months either way, I bought some shares (not a prodigious sum) in a company that is involved in the development and sale of nuclear-energy technology. The modest share purchase was motivated by my thesis that the profligate electricity demands of AI workloads in cloud datacenters would necessitate a search for alternative forms of energy that could supplement what is conventionally provided by energy utilities and electrical grids.
The investment did extremely well, dear reader. You will be surprised to learn that, during a recent six-to-nine-month stretch, the stock that I purchased outperformed, in percentage terms, high-flyers such as Nvidia. It was riding high, so high, in fact, that I put myself at considerable risk of suffering from an intoxicating, reality-distorting delirium. I was up where the air was thin, and where self-delusion – namely the conceit that I actually possessed a transitory omniscience – flatters mockingly.
But even as I gazed approvingly at a computer screen showing significant gains on this particular investment, I felt a sense of foreboding. Although the company’s stock kept rising, its successive quarterly earnings results did not furnish evidence of meaningful commercial traction. The company’s stock was rising entirely because its market narrative was compelling. Now, there’s nothing wrong with a stirring market narrative that promises success and prosperity, but I feared a parting of the ways between the allure of gauzy perception and the immovable solidity of reality. When that happens, reality ultimately wins.
Perception is important; it has its uses. Indeed, perception is infectious, and its virality can serve as a booster rocket to the stratosphere.
At a certain point, however, banal reality intrudes and gives perception a harsh interrogation. Sometimes perception endures the grilling unscathed, going on its merry way and returning to sunlit uplands, but sometimes the interrogation results in perception entertaining culpability or self-doubt. If that happens, all bets are off. Viral public perception is almost always buoyed by a defiant unreality, a refusal to accept the strictures of rigorous analysis and reasonable doubt. It’s a little like a religious cult without the suicide pact.
When perception’s bubble is burst, the resulting fall from grace can be precipitous and crushing. Splat.
Getting back to my stock play, the truth is that I lost my nerve, fearing that the surging share price had reached giddy, indefensible heights. (Digressive question: In market manias, is it possible for adherence to reason and logical thought to be, at least for a certain snapshot in time, both a blessing and a curse? This is like the question about whether the glass is half full or half empty.)
Could I have held onto the stock a bit longer? Sure, absolutely. I didn’t retreat without some misgivings. My problem, if I can frame it as such, is that my mind can just as easily imagine risk as reward – perhaps I can more easily imagine risk than reward – and I had come to believe that the company in question and its stock, lacking underlying fundamentals that might suggest tangible traction with paying customers, had entered a danger zone. In my opinion, the stock was at least as likely to plummet back to earth as to continue on its mind-bending ascent. (It has gone up and down since then, but – I admit – mostly up, including today.)
I believed it was time to bail, but – here’s the plot twist – only on that particular stock and not on the thesis that led me to make the initial investment.
I took my gains and reinvested them. As noted, I remained true to my original thesis and stuck with my presumption that nuclear power will emerge as valuable supplemental energy source for electricity-slurping genAI workloads running in the world's rapidly proliferating cloud datacenters.
Risk Mitigation: When There's Too Much Excitement
My meager capital was redeployed, put to work on two new investments, one related to datacenter buildouts and efficiencies, and the other an upstream nuclear-energy play: uranium mining. You can’t go nuclear without uranium, and uranium at volume is mined by a limited number of companies in a limited number of countries.
In its past reports, the World Nuclear Association (WNA) has indicated that 80% of the world’s uranium is produced by five countries: Kazakhstan (more than 40%), Canada (north of 13%), Australia (12%), Namibia (10%), and Niger (6%). With that data in mind, I carefully considered geopolitical risk as well as each country’s economic and political stability.
I also reviewed the world’s leading uranium miners – three companies reportedly account for about 60% of the world’s uranium output – paying particular attention to where and how much uranium each company mined in each of the uranium-yielding countries.
I was performing what I saw as due diligence, specifically in the service of risk mitigation. Risk cannot be eliminated – so many factors are beyond one’s control, in investments and in life – but it can be limited and perhaps minimized. The smart investor will always attempt to mitigate risk, even as he or she acknowledges that risk never goes away; it’s always out there, lurking in the shadows, often striking in the most unlikely and untimely circumstances. That’s life. You live with it. You have no choice.
So far, however, my recalibration of accounts is working out well, however tentatively. The stock I sold remains mercurial, up sharply some days (like today) and down other days. It’s a rollercoaster ride, and I can’t take the excitement. I would be more amenable to the ride if I saw evidence that customers were buying the technology, especially one or two cloud giants, but there’s no confirmation of that happening yet, and the P/E ratio causes vertigo. I can imagine scenarios where the stock goes higher, at least a little higher, but it’s much easier for me to envision a horrific plunge down the market’s elevator shaft. That’s the sort of ride I’d like to avoid.
Did I leave money on the table? One word answer: Yes. But my new investments are doing well, particularly the market-leading uranium miner, and my risk-reward calculation, replete with a SWOT analysis, suggests that the uranium-mining company I chose is stable and well-positioned for long-term market growth, assuming that my underlying thesis remains valid.
A word about investment theses: Never assume they’re evergreen, that they’re eternal. Everything in life, except death, is subject to change. Every now and then, you have to review and reassess your closely held theses to see whether they still pertain. You’ll probably have to change tack at some point. Keep your eyes and ears open and your brain on alert. You’ll know when you need to sprint for the exit, and you might even have an inkling of where you should go next.