Thematic Investing in Uncertain Times: James van Geelen Navigates AI Bubbles, Election Betting, and Regulatory Disruption

Catrini Research founder James van Geelen explains his thematic investing approach, from Apple's AI advantage to election-driven baskets and Supreme Court disruptions.

Key Takeaways

• Thematic investing requires both compelling narratives and price momentum to generate meaningful returns, combining story with mathematical opportunity
• Apple's privacy-focused ecosystem and on-device AI capabilities position it to lead consumer AI adoption through mandatory hardware upgrades
• Election-themed baskets allow asymmetric exposure to policy outcomes, with Trump trades focusing on tariffs, prisons, and deregulation beneficiaries
• Second-order effects create non-obvious investment opportunities, like weight loss drugs benefiting plus-size clothing through size transition purchases
• Supreme Court's Chevron doctrine elimination disrupted water filtration thesis by creating regulatory uncertainty around EPA microplastics enforcement
• AI capex spending likely includes wasteful excess similar to railway mania, but remains necessary for technological progress and infrastructure development
• Diversification at security level while concentrating thematically allows capturing themes without single-stock risk that could derail investment thesis
• Uncertainty kills thematic momentum because investors need clear narratives to execute trades, making regulatory ambiguity toxic to theme development
• Current market concentration in mega-cap tech reflects longer IPO timelines preventing public equity access to emerging AI use cases

Timeline Overview

• 00:00–18:45 — Introduction and AI Investment Evolution: Discussion of current market uncertainty around elections, AI bubble concerns, and van Geelen's transition from picks-and-shovels AI investing to consumer applications
• 18:45–32:20 — Apple's AI Advantage and Consumer Adoption: Analysis of why Apple will lead B2C AI transition through privacy, ecosystem integration, and potential iPhone replacement cycle driven by AI capabilities
• 32:20–45:15 — Election-Themed Investment Baskets: Explanation of Trump vs Biden exposure strategies through tariff-sensitive companies, private prisons, and biomics infrastructure plays with asymmetric risk-reward profiles
• 45:15–58:30 — Second-Order Effects and Creative Positioning: Examples of non-obvious plays including plus-size clothing during weight loss drug adoption, storefront glass replacement for post-election unrest scenarios
• 58:30–01:12:40 — Water Investment Thesis Disruption: How Supreme Court's Chevron doctrine elimination created uncertainty around EPA microplastics regulations, demonstrating how legal changes can derail thematic narratives
• 01:12:40–01:26:25 — AI Capex Bubble and Historical Parallels: Discussion of whether current AI infrastructure spending represents wasteful bubble or necessary technological progress, comparing to railway mania excess
• 01:26:25–end — Investment Philosophy and Risk Management: Van Geelen's approach to position sizing, rotation strategies, and the importance of finding better opportunities rather than timing market peaks

Apple's AI Consumer Revolution Through Hardware Lock-In

Van Geelen's most compelling current thesis centers on Apple's unique positioning to drive AI adoption through consumer applications, leveraging its privacy-focused ecosystem and hardware integration to create the first genuine iPhone replacement cycle in years through on-device AI capabilities.

• Apple's consumer trust and privacy emphasis makes it ideal for AI assistants that "know everything about you" because users believe data stays secure rather than being "stored on a server in Cupertino"
• The transition from business-to-business AI applications toward consumer adoption requires companies that can "get it done" through seamless integration, with Apple's closed ecosystem providing crucial advantages over competitors
• On-device AI inference represents the next technological miniaturization trend, requiring "your phone doing inference" locally rather than relying entirely on remote server processing for personalization and responsiveness
• Van Geelen predicts potential "replacement cycle where Apple comes out with a new phone" with AI capabilities creating productivity advantages that make older devices genuinely obsolete for competitive users
• The scenario resembles "sci-fi movie Gattaca where if you're left out you're just left behind" as AI-enabled devices provide genuine competitive advantages in productivity and information access
• This creates new "picks and shovels" opportunities in "system on chip names" and semiconductor companies that enable on-device AI processing capabilities rather than just data center infrastructure

Election-Driven Asymmetric Investment Strategies

Van Geelen's approach to election uncertainty demonstrates sophisticated thematic basket construction, creating asymmetric exposure to policy outcomes while avoiding single-stock idiosyncratic risks through diversified long-short positioning across multiple probable scenarios.

• Election preparation began in January when "odds of Trump even being a nominee were like 20%" allowing early positioning in asymmetric trades before consensus recognition
• The Trump basket targets companies vulnerable to trade policy including "Five Below, Restoration Hardware, Floor and Decor, Best Buy" that rely heavily on Chinese imports facing potential tariff exposure
• Long positions focus on companies with pricing power during inflationary periods, including "Costco, Walmart" and automotive parts retailers like "O'Reilly" that can maintain margins despite input cost pressures
• Private prison companies like "Axon, GEO Group, Core Civic" represent direct policy exposure bets, though van Geelen notes these reflect "orphan equities" that move on narrative rather than fundamentals
• The Biden counterpart emphasizes "biomics" infrastructure spending themes that benefit from continued fiscal expansion and industrial policy, providing offsetting beta exposure
• Position weighting shifts based on narrative development, with initially underweighted tariff exposure gaining importance as "Trump said more about trade policy" throughout the campaign cycle

Second-Order Effects and Non-Obvious Investment Opportunities

Van Geelen's investment philosophy emphasizes identifying second-order consequences of major trends, finding profitable opportunities in unexpected places that arise from primary thematic developments but avoid the crowded consensus positioning in obvious beneficiaries.

• Weight loss drug investments extend beyond pharmaceutical companies to include "Torid, which is a woman's fashion for plus-size clothing" because patients "don't teleport your weight" but buy new clothes during size transitions
• The clothing thesis recognizes that overweight individuals maintain "closets full of various sizes of clothes" and exhibit buying behavior during weight fluctuation cycles, including rebound effects from stopping GLP-1 medications
• Van Geelen's portfolio construction emphasizes "diversification at the security level but very concentrated in these themes at the thematic level" to capture thematic exposure without single-stock risk
• Creative election positioning included companies making "storefront glass for retail stores because no matter who wins this election there's going to be people that are angry"
• Historical examples include sawdust shortages affecting dairy production after housing collapse, and gummy bear supply chain disruption during automotive production shutdowns affecting gelatin availability
• The goal involves "applying second order thinking to capture a theme in not just the most obvious way because that's going to be the most crowded way"

Regulatory Uncertainty as Thematic Investment Killer

The Supreme Court's elimination of Chevron doctrine demonstrates how regulatory ambiguity can destroy otherwise compelling investment themes, showing why legal and policy stability matters more than fundamental thesis validity for generating investment returns.

• Van Geelen's water filtration thesis targeted companies benefiting from EPA regulations requiring "control the level of microplastics" in drinking water, creating persistent demand for remediation technology
• The investment approach avoided apocalyptic water scarcity narratives, instead focusing on "non-apocalyptic parts" driven by specific regulatory mandates rather than general resource constraints
• Supreme Court's Chevron ruling eliminated judicial deference to agency expertise, creating uncertainty about EPA's ability to enforce microplastics regulations without explicit congressional authorization
• This regulatory ambiguity proved "toxic to a thematic investor" because successful themes require clear narratives that investors can confidently act upon without legal uncertainty clouding implementation
• Despite continued fundamental thesis validity, the legal ambiguity means "the risk is not worth the reward here" until appeals processes clarify regulatory enforcement mechanisms
• The example illustrates how thematic investing depends on both fundamental drivers and narrative clarity, with legal uncertainty capable of derailing otherwise sound investment logic

AI Capex Bubble Debate and Historical Infrastructure Cycles

Van Geelen frames the AI infrastructure investment debate within historical context of technological revolutions, arguing that apparent capex bubbles often represent necessary but wasteful progress that enables future breakthroughs despite immediate financial inefficiency.

• Historical precedent suggests "there's never been a truly revolutionary technology that has not been accompanied by some excess capex that we look back and say well that was wasteful"
• Railway mania created infrastructure expansion from "1,800 miles in 1843 to 6,000 miles in 1850" representing 200% growth in seven years, financed through "equity sales at extremely elevated prices"
• The inefficiency question becomes whether "you need this capex bubble in order to progress the technology" with excess investment enabling faster advancement than careful capital allocation would permit
• Cell-side electricity demand projections from 1998 predicted internet adoption would require "trillion dollars of spending on computers" and "13% annual electricity demand growth" that never materialized
• Current AI infrastructure spending may similarly overestimate power requirements, with actual electricity demand remaining "flat over the last 20 years" despite massive technology adoption
• Van Geelen acknowledges areas of likely waste while emphasizing that infrastructure buildout enables legitimate technological advancement, with data center construction potentially revitalizing regional electric grids

Thematic Investment Philosophy and Risk Management

Van Geelen's approach balances thematic concentration with security diversification, emphasizing rotation between opportunities rather than timing market peaks, while requiring both compelling narratives and mathematical price advantages to generate sustainable returns.

• Investment decisions prioritize finding "better opportunities elsewhere" rather than attempting to time thematic peaks, with constant portfolio rotation reflecting opportunity cost considerations
• Position sizing involves "discretionary aspect where something matters more" based on investor attention and narrative development rather than pure mathematical weighting
• The framework combines fundamental analysis with thematic positioning, ensuring "if I'm shorting a company that it's a bad company or if I'm buying a company that it's mispriced"
• Successful themes require both story and price momentum, as "price is a number today multiplied by a story tomorrow" with neither element sufficient independently
• Van Geelen's approach recognizes that "themes are stories and stories translate into momentum very easily" but requires underlying fundamental support to sustain performance
• Risk management involves avoiding pure "story-based trend following" through security-level analysis while maintaining thematic concentration to capture major structural shifts effectively

Van Geelen's thematic investing approach demonstrates sophisticated understanding of how narratives drive market behavior while maintaining disciplined risk management through diversified positioning and fundamental analysis, creating asymmetric exposure to major structural changes.

Practical Predictions About the Future World

Based on van Geelen's thematic analysis and investment positioning:

• Apple AI Replacement Cycle (2024-2025): iPhone upgrade cycle accelerates as on-device AI capabilities create genuine productivity advantages, driving semiconductor demand for mobile processors
• Election Market Volatility (2024): Trump basket continues outperforming Biden positions through November, with tariff-sensitive companies declining while private prisons and deregulation plays advance
• AI Infrastructure Buildout (2024-2027): Data center construction continues despite efficiency concerns, with regional electric grid improvements necessary to support power demand concentrations
• Chinese Import Diversification: Retail companies heavily dependent on Chinese manufacturing face margin compression, accelerating supply chain shifts to Mexico, Vietnam, and other alternatives
• Weight Loss Drug Secondary Effects (2024-2026): Plus-size clothing retailers benefit from size transition purchases, while traditional diet industry companies face continued structural pressure
• Water Filtration Regulatory Clarity (2025): EPA appeals processes resolve microplastics enforcement questions, potentially reviving water treatment infrastructure investment theme
• Semiconductor Market Evolution: Mobile AI chip demand creates new investment opportunities beyond data center focus, benefiting companies enabling on-device inference capabilities
• Thematic Investing Institutionalization: More institutional investors adopt basket approaches for thematic exposure, reducing single-stock volatility while maintaining theme concentration
• Technology Bubble Parallels (2025-2027): AI capex spending reveals areas of waste similar to historical infrastructure bubbles, but enables genuine technological progress and productivity gains
• Election Aftermath Positioning: Post-election policy implementation drives second-order effects in infrastructure, trade, and regulatory sectors regardless of winner
• Consumer AI Adoption Acceleration: Business-to-consumer AI applications gain mainstream adoption through smartphone integration, creating new software and services investment opportunities
• Regulatory Theme Disruption: Supreme Court decisions continue affecting investment themes through reduced agency deference, requiring closer attention to Congressional authorization for regulatory themes

The convergence of technological disruption, political uncertainty, and regulatory change creates both opportunities and risks for thematic investors who can navigate narrative development while maintaining fundamental discipline.