Let’s focus on the story type we all know intimately: the hero’s journey. Upheaval threatens our existence. The hero-to-be accepts a call to action. Aided by wise mentors, he or she gathers allies and enemies, and finally slays the monster.

This is why we cry at the same points in The Lion King and Hamlet. Pick your favourite hero, and some version of the hero’s journey applies.  

So, people are moved by hero stories. But the question was how to invest in hero stories. Well, we do it naturally. David Tuckett runs the Centre for the Study of Decision-Making Uncertainty at University College London. He has mapped the way that even the most quantitatively minded hedge fund hotshots use narrative to make investing decisions. As he puts it, “the currency of financial decision-making is narrative”. We draw on data, then conjure and compare stories of what companies will do in the future. We act based on the most compelling story.  

I’m puzzling over two potentially investible hero stories among UK shares. First, consider hedge funds as an asset class. There’s a hero’s journey there. Being alternative assets, run by people so good they can bet against the market, these near-mythical beasts are super-smart free thinkers challenging everything boring and conventional about stock exchanges. At least, that is how they’re played in popular culture. And there is value in that.

Legendary American “hedge fund guy” Bill Ackman is the face and brain of FTSE 100 firm Pershing Square Holdings. For me, the outspoken, chisel-jawed billionaire Ackman is the arch hedge fund hero.

Second, a different shape of hero, Tim Martin. I learned the cult of the Wetherspoon founder and chairman while tending a ‘Spoons bars on my gap year. Martin’s arresting shock of hair, embrace of public transport, and apparent relish for outspoken stances on the most controversial topics certainly make him an intriguing story.

Martin’s heroic journey may be partially apocryphal. The Ugly Duckling plot says one Mr. Wetherspoon, a geography teacher who told a young Martin he’d “never amount to anything”, thereby inspired the precocious lad to prove the world wrong and helped inspire him to become a qualified barrister turned quirky business genius on the Clapham omnibus.  

That this signature tale may be embellished doesn’t break the investment thesis. Every story is a flawed representation of the truth. But this principle flags a caveat. “How to invest in stories” demands also “How not to invest in stories”.  

Bernie Madoff’s Ponzi scheme was all narrative, no reality. More common are shadowy blends of facts and falsehoods. For many, “bright-eyed, female Stanford dropout develops blood testing technology that will change the world” was a compelling reason to buy into Elizabeth Holmes’ Theranos. The true half of that story eventually collapsed under the myth that the machine worked.

The post How to invest in hero stories appeared first on The Motley Fool UK.

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Ian Macleod has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The good

Sylvania Platinum (LSE:SLP) is a producer and developer of platinum group metals (PGMs), platinum, palladium and rhodium. It has enviable low-cost operations in the element-rich Bushveld Igneous Complex and stellar recent performance. It got back to full production rapidly after the severe initial lockdown in the first half of 2020. Its third-quarter results to 31 March 2021 boasted net profit of $41.3m, more than double the prior quarter’s $20.3m. Fantastic cash reserves also enabled a once-off windfall dividend of 3.75p per share in April.

Moreover, Sylvania interests me as a bet on commodity prices and a hedge against inflation for investors in UK shares. The likes of UBS reckon platinum undersupply will continue while demand grows for the metal in catalytic converters and jewellery. With chatter about global inflation, commodities are a good defence against losing value to rising consumer prices.

The evergreen caveat with commodities is that prices can dip for extended periods, and even the best producers won’t win when that happens.

The bad

My “bad” stock is Old Mutual (LSE: OMU). Established in Cape Town in 1845, the insurance and financial services giant is a pillar of South African commerce. That makes it less of a bet on the business itself than on prospects for “South Africa Inc.”.

South Africa’s output growth has declined steadily from just over 3% in 2011 to zero before the pandemic. The economy shrank 7% in 2020. Covid-19 responses have depleted an already creaky fiscus. And politicians aren’t helping.

A planned constitutional amendment to allow land reform, likely in the shape of confiscation of land without compensation, is a frightening reminder of Zimbabwe’s violent farm takeovers and ensuing economic collapse. If this goes ahead, my outlook for South Africa and businesses that rise and fall with it turns dour.

I retain some hope that political haggling will scrap at least the “without compensation” part of the plan.  

The ugly

Mediclinic (LSE:MDC) runs private hospitals in South Africa. It serves a small elite who pay for private medical insurance. The harsh truth is that an unfortunate majority of people in this unequal society have no choice but to use the poorly resourced public system. However, that already regrettable status quo could change disastrously.

The proposed National Health Insurance (NHI) Bill would establish nationalised universal healthcare. A single, taxpayer-financed NHI Fund would buy healthcare services for the entire population from both public and private providers.

We don’t need the minutiae of the plan to calculate its potential for calamity. This redistributive system would spread too few medical resources among too many people, just as the wealthy tax base is fleeing. Doctors and nurses are departing, too.  

Owners of Mediclinic International’s UK shares can take solace in the company’s operations in Switzerland and the United Arab Emirates. But I won’t be buying while nationalisation is on the cards.

The post Good, bad and ugly: 3 UK shares with South Africa exposure appeared first on The Motley Fool UK.

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Ian Macleod has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Nickel is fantastic at strengthening metal alloys. That makes it a big part of my life. It is present in everything from guitar strings and dental implants to coins and mobile phones. Some two-thirds of it goes into stainless steel.  

For now, let’s look beyond these established uses. They have well-known investment cases.

Nickel as a component of the lithium-ion batteries that power electric vehicles (EVs) sparks my imagination.

First, nickel is part of the efficiency conundrum still holding back EV uptake. A higher ratio of nickel (relative to other ingredients like cobalt and manganese) adds energy density and storage at lower cost. This means, above all, more range per charge.

The political story for EVs is also positive. British Prime Minister Boris Johnson announced earlier in 2021 his policy to end sales of new combustion-engine cars and vans by 2030. And in the US, President Joe Biden is pushing for $174 billion of pro-EV spending, including installation of charging stations and tax incentives for EV buyers – although Republicans have countered with an offer to support just $4 billion of this.

In the private sector, General Motors and Volkswagen are targeting 2035 to sell only battery-powered vehicles.

In 2020, despite the pandemic, a record three million new EVs were registered globally. That is a 41% bump from 2019.

Tesla boss Elon Musk translated this demand into relevance for nickel with a comment in a July 2020 earnings call. Asked about the biggest hinderance to EV growth, the mercurial Musk said Tesla would give a “giant contract for a long period of time” to any company that could produce nickel “efficiently and in an environmentally sensitive way”.

Musk’s latter criterion is an important warning. Mining nickel creates substantial environmental pressures. This requires that nickel-bugs monitor related green technologies and signals of government regulation.

Two UK shares that provide exposure to nickel are London Stock Exchange-listed BHP Group (LSE:BHP) and Johnson Matthey (LSE:JMAT).

BHP sells three-quarters of the nickel it mines to battery manufacturers. Its Western Australia operations cover exploration, mining, smelting and refining for a complete mine-to-market package. Once its delayed nickel refinery at Kwinana is up and running (now set for the second half of 2021), it will produce 100kt of nickel sulphate (the high-grade form used in EV batteries) per year, making it the largest project of its kind in the world.

A deal to source half of its electricity for the Kwinana facility from solar speaks to the environmental element of Musk’s offer.

Johnson Matthey’s angle on EVs lies in the scientific corner, making the nickel-enriched battery materials that are critical to commercialisation of these cars. I am monitoring its ability to ramp up this portion of its much larger business.   

Johnson Matthey committed earlier this year to net-zero emissions by 2040.

The marker I am using to anchor my thinking on a potential injection of nickel to my portfolio via UK shares is “$100kWh”. That is reckoned to be the US dollar price per kilowatt hour where EV battery packs can compete with petrol and diesel engines.   

The post 2 UK shares with exposure to nickel appeared first on The Motley Fool UK.

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