Unpredictability leads to Unpredictability

Carbon pollution, national security, politics, an earthquake, a tsunami, and a radioactive metal all combine to remind us how unpredictable investments can be.

I am always amazed at how predictable most people think the financial markets should be, especially when these very same people freely admit the unpredictability of other events.

In particular, I think the Uranium trade that went bad on March 11, 2011 is a great example.

First, there were a lot of very reasonable, learned, logical arguments for why investing in uranium or uranium mining companies made a lot of sense. Remember that both political parties had been mentioning more nuclear power as a solution for our energy problems. We wanted more domestically produced energy as a matter of national security. Environmentally, it increasingly looked like fuels that release carbon would likely be taxed more and might be slowly fazed out. All the experts told us that nuclear power can be made much more efficiently and safely than 30 years ago. It all seemed to point to more nuclear power which meant an investment in uranium was a smart move.

At the time, I even thought it made sense, but I didn’t actually place any money on it. The only reason I didn’t – I know that a “sure” bet is never as sure as it seems.

Then the earthquake and tsunami hit Japan, causing meltdowns in the reactors at the Fukishima Daiichi Nuclear Power Plant. The World Uranium Index fell 16.92% from March 14 to March 17. That is negative 16.92% in three days over fears that the meltdown would squash political impetus to move to more nuclear power.

Below is a chart of an index of global uranium mining companies for those three days.

Uranium since 2011

Remember that the power plant withstood the earthquake just fine. It was the Tsunami that caused the damage.

Anyone – especially seismologists – will agree that earthquakes are unpredictable. A Tsunami from an earthquake would be even more unpredictable, and yet these events can heavily effect financial markets. And on top of this, with the financial markets you are dealing with the fact that it is comprised of other investors, all trying to out predict each other.

One other point. Here is a much longer chart of the World Uranium index since October 31, 2007. Again, this is a time when investing in uranium seemed to make a great deal of sense. The losses are much more widespread than just the drop in 2011 from the Tsunami. This is how investors inadvertently ruin themselves. A “good” investment idea can wipe away an estate in a puff of smoke. The losses here are -69.24% since October 31, 2007.

Uranium since 2007


Photo by Marcin Wichary