Your Spring issue of Cabot Marijuana Investor will be delivered in two weeks.
But the recent action of many of the stocks in the industry merits an update today.
In short, they’ve been selling off. The stocks of the five marijuana growers in the portfolio are now 25% off their recent highs, on average.
But this should come as no surprise.
Looking back at my update of January 8 (just one day before the sector peaked), I wrote, “My rule of thumb is that any major advance (such as these stocks have had) can easily be followed by a correction that erases half the advance.”
Looking at these five, all have come close to achieving that “half the advance” retracement—many just a few days after the top—but none have quite achieved it.
And they don’t need to; it’s only a rule of thumb, not a law.
But just as important as the depth of the correction is the length.
You see, a large part of investing is about perception, and it takes time to change perceptions. That big sharp dip earlier this month, which ended on January 12 for most growers, was likely too brief to give investors time to change their minds. The rebound came too quickly.
But now the stocks are retesting their lows from that selloff, and with every passing day, the perception that these stocks are actually sinking is growing in investors’ minds. Today, the sector is bouncing as new buyers hop on board, but they’re being supplied by sellers, who are getting out with either losses or profits.
Long story short, odds are the correction is not over and will continue until traders’ enthusiasm for the sector has truly cooled. Happily, the more time passes, the more the fundamentals of these fast-growing companies get to catch up to the stocks!
Short-term, admittedly, a correction like this is not fun. But long-term, it’s all normal. Long-term, I continue to believe that we’re still in the first inning of a great new investment sector, and that if we can hang onto some of the best companies in the industry, we could wind up just as profitable as investors who bought MSFT in 1986 and AAPL in 2002 (and held on).
Back on January 8, I recommended taking profits (at least partially), and I continue to recommend that today, particularly if you’re overexposed to the sector and/or if the action in these stocks is keeping you up at night. (An old maxim says you should sell down to your sleeping point.)
Also, taking profits can give you cash to use when new opportunities arise—such as I hope to identify in the next issue of Cabot Marijuana Investor. I’m working on it right now, and I look forward to sharing it with you. The progress these companies are making is simply amazing.