Are marijuana stocks for you?
Ihave been asked about investing in marijuana stocks a few times recently by people who have shown no previous interest in the markets or the investment world.
It would appear I am not the only adviser fielding these queries either.
Many people who don’t pretend to know anything about the stock markets or investing are suddenly taking interest in the shares of Canadian cannabis companies as they repeatedly make front-page and prime-time news headlines.
Investors have been flocking to this hot sector lately and many have been making quick money on their trades.
Shares of companies such as Aurora Cannabis Inc., which have doubled in value in the past three months, are climbing rapidly while investors speculate on the future growth prospects.
As the various provinces roll out their recreational marijuana plans, the ongoing news stories are continuing to fuel this speculation and many investors can imagine nothing other than continued growth of these stock prices. How could they possibly go down right? The last time we saw a sector-specific buying frenzy like this was during the dot-com bubble in the early-2000s.
During this period, we saw excessive speculation of internet-based stocks and everyone from your hairdresser to your babysitter seemed to be offering stock tips. What happened after is well known. During the collapse, many companies lost a significant portion of their market capitalization and many others failed completely and shut down.
Will the cannabis sector suffer the same fate?
Most likely, a few companies will survive and carry on with business, but many startups will disappear as quickly as they came onto the scene.
There won’t likely be a massive increase in the number of marijuana users and the industry won’t take over society in the same way that the internet and technology has done.
So, should you be investing in cannabis stocks?
Let’s consider the above example of Aurora Cannabis Inc.’s stock.
If you had put $1,000 into the stock at the start of the year you would have roughly doubled your money and have $2,000 today.
The risk of that trade was very high and much like flipping a coin.
You could have just as easily lost your original $1,000.
And if you continue to hold that stock instead of selling it tomorrow morning, it may still be worth nothing.
Do you know where else you could invest $1,000 and double your money with similar risk? The roulette table at the casino. You see, if you went there last night and put $1,000 on red and won, you would also have $2,000 in your pocket today.
Hopefully you would take your winnings and walk away instead of doubling down and hoping that red comes up again.
If you do, you’d be making better investing decisions that continuing to hold the cannabis stocks.
If you time things just right, you can no doubt make a lot of money in cannabis stocks.
But ,without a crystal ball, that is very hard to do.
So, if you do decide to invest in them, just be sure to only invest what you’re willing to lose and make sure you fully understand the risks you’re taking with your hard earned savings.
You also risk to your retirement dreams, if you lose it all.
Brett Millard is the owner of SPEIR Wealth Management in Kelowna. Reach him at email@example.com.