The perils of 🚀 investing

Rocket Lab USA shares climbed more than 22% on Friday. This after the stock fell by nearly 20% in a matter of days back in September. Over the past six months the stock has been up as much as 40% but remains more than 30% below its highs during that period.

Here’s the punchline: Overall, the stock is flat during those six months. On June 25 you could buy a share for $5.45. Heading into trading Tuesday, Dec. 26, that share is worth $5.44.

Rocket Lab has traveled a lot of distance only to end up back where it started.

Rocket Lab is a fascinating stock to me. It is in an area I know well, which makes it more interesting than most stocks of similar risk/reward profiles. (Please read this completely before even considering buying, and understand I am not suggesting you buy Rocket Lab stock.) I’ve said before, this is the one stock among this new generation of space companies that I am willing to hold. I believe that if all goes well Rocket Lab could be a spectacular winner for investors.

There is a lot of hype surrounding space right now, but don’t let that hype distract you from the fact that there is also real opportunity. Increasingly, companies from all walks of life want to be involved in space. But most of these companies are highly unlikely to hire their own rocket scientists. Rocket Lab is set up as a one-stop-shop for these customers, able to provide satellite design, manufacture, launch, and operations. There is real potential value there.

Rocket Lab is also efficient in a delightful way. It is (relatively) easier to make rockets bigger and bigger. You just add more engines, more fuel tanks, bigger mass. Making things smaller is devilishly hard. But that is Rocket Lab’s calling card. And smaller in this industry can be massively more profitable. Every ounce of thrust beyond the minimum needed is lost margin. Taking small satellites to space on rockets well larger than what you need is inefficient.

All of that said, I think the odds favor Rocket Lab being a dud or a non-event for investors. This is a great company with a great plan, but space is hard, and the opportunity is uncertain and rapidly changing. There are a whole range of outcomes possible from here, and some of them are very very good. But blah to disaster is a definite possibility. And we won’t know for years to come.

Which takes me back to the stock movement from the last six months (and before, but six months is a nice, neat time frame to look at). So much drama, so many wild swings, resulting in nothing. Zero. Or, technically, about a negative 1% return.

Ironically, over the six-month term the market got this one right. Nothing has materially changed during that time period to suggest a need for a revaluation. Rocket Lab during that time had a high-profile launch failure, a big new contract from a government customer, and reports of one of its privately-held rivals raising money at an obscene valuation. Lots of headlines. But nothing that really tells us anything more about the company’s long-term prospects compared to what we knew six months ago.

We talk a lot around here about long-term investing, about keeping emotions out of it, about playing a different game than the markets are playing. Rocket Lab is a pretty good illustration of what we’re talking about.

I don’t know if Rocket Lab will be a good investment or a bad investment long term. I won’t know that for years. No one else will either. I have no idea whether you should buy, sell, or ignore Rocket Lab stock. For now, it is a bumpy ride, and potentially a gut-wrenching ride if you let the day-to-day explosions (pardon the pun) get to you.

You don’t have to ignore speculative stocks like Rocket Lab if you are focused on the long term. You might have to do a little more work than set it and forget it, but you don’t need to get caught up in the noise of the day. You need to avoid that noise.

It is more about mindset than stock type. If you can nail the mental aspect, the stock picking part offers a lot more room for error.

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