Nubeva is a silicon valley based company, which is listed on the TSX Venture Exchange with the symbol NBVA. Nubeva has developed a novel, groundbreaking solution to dealing with ransomware, a massive global plague. Their technology – an endpoint software that detects and captures ransomware keys, enables fast, immediate and complete reversal of a ransomware attack – is a very big deal. This isn’t another prophylactic defensive layer of IT safety. There are plenty of those. This is a patented, low cost, broadly deployable, breakthrough solution – cure – to ransomware infection that will save companies, governments, institutions – millions if not billions of dollars in lost capital, time, and data. It looks like a game changer. And the share price currently sucks.

I first blogged about the company in December 2021. And since then it’s been a roller coaster ride! Please use the search feature on my blog if you’d like to review previous commentaries on the company.

The purpose of this post is to dive into the age-old question that all investors with a strongly held thesis eventually have to deal with – If a company’s prospects are so good, why is the share price so bad?

Let’s start with the basics. The share price of your convicted position may suck because your thesis or trade idea is wrong. And it could be wrong for a whole lot of reasons. So, the first step in evaluating a sucky share price is to go back to your original trade / investment thesis and determine, as objectively as possible:

1. What has changed. And be honest with yourself. Take off the rose coloured glasses and observe the facts.
2. How do changes affect your thesis / trade? Don’t fight change, or make excuses for it.
3. Ask yourself the tough question, ‘Am I wrong?’. Being wrong is very easy, and there are a multitude of ways.
4. And then ask yourself the final, most important question, How can I do better?

Now this is where mental models come into play. I really enjoyed the book ‘The Scout Mindset’ by Julia Galef. The author talks about our innate need to defend the mental positions we’ve taken, even if that defence is objectively counter productive. (Galef calls this ‘the soldier mindset’). That defence of our positions can often be an impediment to seeing the reality of the situation. It is human nature. Her guidance is to adopt a ‘Scout Mindset’, and approach things with the intent of making a map – learning the geography of things – to better inform decision making.

The great swordsman Miyamoto Musashi knew this, and told his students ” Truth is not what you want it to be; it is what it is, and you must bend to its power or live a lie.“

I try to use this approach to both existing and potential holdings. Every time I feel like I’m trying to prove (defend) something, I try to check my ego and switch my attitude to understanding (scouting) instead.

So back to Nubeva. The share price is down approx 70% from its high at the beginning of January. So far, 2023 has been a relentless grind.

NBVA 1 year stock Price

So, what do I think? Well, my investment in NBVA (and all DTM5 investments) are based on the following principles:

• Merit – The fundamental evaluation of the management, capital structure, product or service, amongst other things
• Asymmetry – The size of the opportunity relative to the risk
• Price – The valuation of the company at acquisition and projected
• Time – The timing of the investment, relative to price trends, market cycles and anticipated investment duration

Lets apply a scouting mindset to the company using these parameters.

I still think the company still has Merit. NBVA has stumbled with a few basic things (such as market communication inconsistency), but is still well managed, adequately capitalized and making meaningful progress. I also still think NBVA is Asymettric – That is, the investment has much more opportunity than risk. Simply put, with a break-through software solution, massive TAM and very scalable, efficient business structure, the downside is losing 45 cents per share. The upside is exponential. However, I think the Timing of my ongoing investments could have been better. And I think i was reasonably wrong about the Price I’ve been paying for the stock. (valuation).

Back on December 19, 2021, in my first blogpost about Nubeva, I wrote the following about Price and Time in relation to starting an investment in NBVA:

(Nubeva’s) Price. This one I’m not so sure about. The company has basically no revenue, a small balance sheet and a market cap of 83 million dollars (CAD). Now, software is an amazing thing. If this technology proves legitimate and novel, 83 million may end up looking like chump change. Software development and sales can be an incredibly lucrative business.

And as for Time – I’m also 50 / 50 on this one. It could be a great time to invest if revenue comes on strong or perhaps if their technology is so good that a much larger company does a major licensing deal or acquires them. If not, and if we are a long way from any major development, owning this, especially from current price levels, is risky. I prefer making my investments before the stock starts its move, not during.

Turns out my concerns back in 2021 were valid.

Now I’m not saying I was horribly wrong on either my price paid or the timing of my investments, as I’ve been steadily acquiring more shares over the past 22 months. However, if I apply a scout mindset to this journey, I think I could have done better in managing the price and time parameters of this investment.

I mitigated some of the risk to time and price by averaging into the stock over the past 22 months. But in hindsight, I recognize that I had a modest case of FOMO at the beginning of my investment venture with NBVA, which made me deliberately choose to put aside some valuation and timing concerns.

I think if my mental performance around NBVA was better, my average cost would be approximately 20% lower and my breakeven cost would be 20% lower than that, based on opportunistic trading which I did not take enough advantage of. It may be the case that NBVA’s share price doesn’t suck. It may actually be going through price discovery and becoming efficient, and, to the chagrin of NBVA enthusiasts, fairly valued.

Now, all that being said, investing isn’t a game of perfection. No trade or investment will ever turn out as good or bad as it could have. But, having a scout mindset, as opposed to a defensive soldier’s mindset, can help you improve your outcomes.

And, to be clear, I remain long and super bullish on NBVA with a meaningful position and optimism about the future of the company. It is a great story, making excellent progress, with a breakthrough software solution, solid management, in a critical, rapidly growing sector.

GLTA!