One of the market truisms that I learned long ago concerns selling stocks near the end of a strong run-up—and because the odds are growing stronger that we’re nearing such a situation now, I bring it up today.
Basically, the wisdom of the ages says that at such a time you should sell your weakest stocks—because if they couldn’t go up in a strong market, they’ll have no chance in a weaker market. Plus, it says that you should sell your strongest stocks, because as the bull run matures, there will be no buying power left to drive these stocks higher—and thus they will fall.
It’s a simple enough guideline, but as always, the devil is in the details.
First, what knowledge do we have that the bull run is maturing? Not a lot (our market timing indicators are still positive), but some. In particular, Mike Cintolo, Cabot’s market timing guru, says the action of growth stocks is increasingly suggestive of a top—perhaps not a long-term top, but at least a short-term top.
Second, the action of leading marijuana stocks has been terrific over the past six weeks, with the leading stocks (the four big U.S. producers we own) up an average of 62% in that time. And I know that strength can’t last.
In previous weeks I’ve suggested that you take some profits on the leading stocks, particularly if you weren’t keen on seeing your profits shrink at some time in the future. That’s still good advice. On the other hand, if you’re truly focused on the long term, and a major drawdown (presumably temporary) would not bother you, by all means, you’re welcome to continue holding.
For our portfolio, here’s what I’m going to do.
I’m going to sell our two weakest stocks, GW Pharmaceuticals (GWPH) and Tilray (TLRY), because they’ve both broken down in the wake of last week’s second-quarter earnings reports. Both were recent buys, and both were small pilot positions, so the losses in both to date are not big, and getting out now ensures that the losses won’t get bigger.
Additionally, I’m going to sell a fourth (25%) of our holdings in each of the four strong U.S. producers: Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb Industries (GTBIF) and Trulieve (TCNNF). We are overweighted in all four of these stocks and have substantial profits. After these sales, the portfolio will be roughly 20% in cash—and I intend to put that money to good use when the market presents some new buying opportunities. There’s no doubt that it will, in time.