Sell a Little, Buy a Little
As we enter the final month of the year, market volatility has increased, and with it, investor anxiety. But the main trend of the market remains up, so I remain confident that intelligent investors who follow proven investing disciples can make money—which brings me to an email I received from a reader just today.
He writes: “The stocks are dropping like stones. CGC is now a 75% loss with others not all that far behind. You recommended to continue holding. Still the case?”
My answer: “Yes, CGC is still a hold for the CMI portfolio, because we have a profit, and have taken profits out earlier and the remainder is a small position. But one of the cardinal rules for growth stock investors is that you should cut losses short and let winners run, so if your loss in any of these stocks is above 20-30% (the level I use for aggressive stocks) you should get out (and should have done so some time ago), and I apologize if I have not made that clear before.”
Turning to our stocks, yes, they are still dropping—though not precipitously.
Three are hitting new lows for the year: Canopy (CGC), our lone Canadian holding, GrowGeneration (GRWG), our hydroponics supplier: and Village Farms (VFF), the grower added to the portfolio less than month ago.
None of these are pure U.S. vertically integrated multistate operators (MSOs), and all of these are stocks in which we are significantly underweight. In other words, their weakness is no surprise.
By contrast, the six MSOs we own are all holding above their lows of four weeks ago, while our strongest stock is Innovative Industrial Properties (IIPR), which is now on a normal correction, trading above its 50-day moving average.
My conclusion, optimistic as ever, is that the pure marijuana stocks have bottomed and are waiting for buyers to take charge—though we may have to wait for year-end tax-selling forces to pass before buyers can take charge.
So, what, if anything, is to be done here?
In general, you should accentuate the positive and eliminate (or at last minimize) the negative, which generally means, as mentioned above, that if you have a big loss in any one these stocks, you should sell.
In the portfolio, we will now sell Village Farms (VFF) (which we made good money on last time we owned it), because our loss is now 22% (the larger of our two losses) and the stock is hitting new lows.
But instead of holding the cash, we will roll it into TerrAscend (TRSSF), which is the strongest stock of the MSOs, and which we last took profits on in July when it was trading at 8.3 (it’s now 6.2) and in which we are now underweight.
And we won’t panic. This industry remains very strong, with these leading MSOs increasing market share through both internal growth and acquisition, and there’s little doubt that the best-managed of them will be very profitable operations going forward. But with institutional investors still mainly on the sidelines, volatility will remain the norm for a while. In 2021, the volatility has been mainly to the downside since February, and thus frustrating, but the odds are good that 2022 will be very rewarding.
I appreciate your patience—but again, you’ve got to cut those losses short.