The idea came to me while I was in detention. I should stress that I had done nothing wrong. It was my wife’s fault – for being Australian.
So we can both be near our families, I spend half my life in Perth – the mining capital of the world – and the other half in the UK. As a global equity manager, I have always found this regular shift of geographical perspective helpful.
But then came Covid. For much of the pandemic Australians could not even move between states. International travel was banned. We were stuck in the UK, doing Zoom calls to family Down Under.
Then, in late 2021, a window of opportunity opened to fly from London to Darwin and spend two weeks in quarantine in the sweltering, humid heat of the Northern Territory before heading south to our Australian home.
The facility was a converted detention centre. We were met at Darwin International Airport by a team of people in hazmat suits, transported by bus to the centre under police escort and made to live in separate huts, called dongas. My wife was in the donga to my left; our son to the right. We could visit each other during daytime. Food was delivered each day. Alcohol was banned.
Confinement can be a powerful mental stimulant. In modern fund management our access to news and data means we can be overwhelmed with “noise”. With all that is happening in the US, we are at a particularly noisy point now.
Sometimes you need to switch off and focus on the long term. It is in society’s seismic shifts that investors will find the greatest opportunities. Understand the secular growth themes shaping our future and you can find well-placed companies enjoying powerful tailwinds.
Stuck in Darwin, I had the space to just sit and think. I had more time to tune into analyst calls. Ignoring the management chat about whether their companies had hit or missed short-term targets, I was listening for long-term insights.
One area I got to reflect on was the transition to a low-carbon world. An obvious growth area seemed to be nuclear. But how do you make money from this and, just as importantly, when do you buy? Anyone who bought popular hydrogen stocks in 2021 and is now nursing 50% losses in their share value will tell you good timing is essential.
One stock that seemed to be a potential beneficiary of a future growth in nuclear was Cameco, a Canadian-based mining company that extracts and processes uranium. Listening across an analyst call one evening, I heard chief executive (CEO) Tim Gitzel explain how attitudes to nuclear had changed dramatically in the wake of Fukushima. Here in Australia, from where I am writing, uranium mining is currently banned.
Cameco had been leaving uranium in the ground, waiting until it became commercially attractive to produce. Gitzel said that moment had now arrived. They had begun signing contracts for the long-term supply of uranium to utility companies and were going to increase production. To me that was a powerful buy signal. We bought the shares at about $21 in late 2021. Three years later the share pirce had nearly tripled.
At around the same time we began to look at Rolls-Royce, because it develops small modular reactors. This research highlighted the potential of the wider business. We could see its civil aerospace and defence divisions would generate better cashflows but also how this exciting nuclear power business might give the shares impetus further ahead.
We did not invest in Rolls-Royce at the bottom – shortly before new CEO Tufan Erginbilgiç took over in January 2023, memorably describing the business as a “burning platform”.
It may have been six months later when we could see recovery picking up speed. We began buying at £1.50 and more at £2.50. The shares are over £6 today.
We also bought Caterpillar – the digger and mining equipment manufacturer. It is a well-run business that had been snapping up under-pressure competitors during a cyclical slump. Its shares looked cheap. They were. They have also since doubled.
So that call with the CEO of Cameco was a eureka moment that had wider repercussions in the portfolio.
Of course, you might say, how do you identify the signal that is to be trusted? Experience helps, but experience also teaches you humility. Asked for advice, I would say do not play all your cards at once. Be prepared to invest as the theme is developing and increase your conviction as it really starts to work.
By the time we bought Rolls-Royce the shares had already risen 100%. It is easy at that point to tell yourself ‘I can’t buy at £1.50. I’ve missed the flight’. But these themes are seldom six-month wonders. They can last for years. Missing the bottom is a modest price to pay for avoiding lots of false dawns.
Recognise, too, that when take-off comes you will have points when the shares pause for breath or correct. Stock markets like stories. If we think they have got carried away and a company we own is overpriced, we will reduce our stake – even dispose of it altogether. But we will watch it – and if the price hits a point where it becomes attractive again we will rebuild the position.
These are techniques we use day to day as investment professionals. The lesson I learned in Darwin is how we often forget something just as important – the value of taking time to step back from buying and selling to reflect on the bigger picture.
I do not want to return to that donga, and I am not going on a Trappist retreat. But I do now advocate that all fund managers spend some time in self-imposed detention from time to time. Doing nothing can be remarkably productive.
Tim Gregory is a global equities manager at Goshawk Asset Management. The views expressed above should not be taken as investment advice.