The second half of 2022 has been busy. In addition, the market has been going sideways most of the time. Not the most inspiring environment for writing. I have therefore not written any updates for the last six months. Still, I want to share a year in review for my uranium investments in 2022.
My uranium investments have not performed great this year and have as of 22.12.2022 a return of about -17% . Still, even though I would have been a lot better off betting on coal and the oil market, it could also have been a lot worse. I could have had most of my money in ARKK type investments like Tesla or Peloton down around 63% and 74% year to date respectively. Even “Nifty Fifty” style companies like Amazon (-48%) and Disney (-45%) have struggled in 2022.
Inflation fear and increased interest rates can take a lot of the blame for the 2022 returns. After more than a decade, there is actually a time value on money for investors with interest rates going up. Investors have just lived without meaningful interest rates for so many years that many have forgotten all about them. Valuations and P/E ratios have therefore inflated the last couple of years.
The cooldown in the markets we have seen in 2022 has thrown a spanner in the works on the uranium bull market. Without this happening, and the market still being “risk on”, we could’ve been somewhere completely different than where we are now. (Rocket and moon emojis come to mind). I do however not like to speculate on where we could have been. We have to deal with the situation we are in today.
The uranium sector has had many great fundamental developments in 2022, but in the financial markets the sector has struggled. With sky high energy prices I have never seen the general public being more in favor of nuclear power. I will link to this post by @Yellowbull11 (Mart Wolbert) for more of an in -depth run through of the positive developments in 2022.
The question for me is what are the alternatives to holding on to the positions during drawdowns like this? Should I change my approach in 2023?
To start off, trying to guess the exact time Powell will change his course is not how I run my investments. A lot can happen before that happens and we see other sectors bucking the trend today. I position myself as to not get too hurt by tighter monetary policy and keeping some cash on the sideline for flexibility.
The first lesson I learned in the stock market was that I do not make money if I chase after all the hot sectors or companies. When I did that, I bought companies near the top, and sold them on the way down just to buy the next company near the top. In addition, this was also a very short term strategy, and guessing the direction short term was not my strong suit. I have made most of my money by positioning myself in something over time and waiting for it to move. This meant that during the first 1,5 years of investing, before the end of 2020, I was underwater on my uranium positions.
If I had been 100% allocated to uranium it would have been a lot worse. That would require a higher risk tolerance than what I already have, and I would not be able to function day to day. I do have some diversification to precious metals, oil, tin, copper and nickel, and investments outside the stock market. I have added to all of these in 2022 in addition to investments in the uranium sector. This is an approach I will continue in 2023.
Still, I am not a fan of too much diversification. I am closer to the “put all your eggs in one basket and watch the basket carefully” camp than the other way around. If you are spreading the net too wide, you lose the opportunity to get any meaningful returns. I have had one big investment outside uranium in 2022. It was a private placement outside the stock market and it has taken up more than 50% of my investable funds in 2022. This was a follow on investment of a position I have initiated in 2017. For most of the time it has struggled, but in 2022 the prospects of the company have changed for the better.
Moving forward I will follow the uranium market as closely I have done the previous four years. As long as the fundamentals or valuations do not change I will stay with my positions. During the last six years the price of uranium has seen a rise of 166%, from under $18 in 2016 to around $48 in December 2022. Still, we are at the beginning of the contracting cycle. For people worried about there being no interest for uranium I will direct you to the price of spot conversion and spot enrichment that have gone up 150- and 250% respectively in 2022. As a utility fuel buyer you secure these services before you buy the uranium. If you have millions of uranium pounds, but can not convert them to finished fuel, you will not be able to fuel the reactor. Therefore fuel buyers are perfectly rational in securing services before they secure uranium pounds.
We have seen a great deal of positive fundamental developments in the uranium sector in 2022, but I expect a lot more in 2023. If the market moves up with these developments I will be very happy.