It’s been only eleven days since my last update, but circumstances compel me to write another. What circumstances?
First, I’ve been getting a lot of questions from new subscribers who missed the blastoff but still want to invest in the marijuana sector.
And second, as all U.S. citizens interested in marijuana are aware, Attorney General Jeff Sessions announced last week that he would reverse the Obama-era directive for leniency toward the industry, thus raising the specter of increased federal prosecution, even in states that have legalized marijuana.
I’ll deal with that issue first, because that’s the easy one.
In fact, it’s easy because of one simple fact, which applies particularly well to growth stocks, and that fact can be stated as this:
A stock’s chart reflects all the knowledge and expectations and hopes and fears of all the investors who have an interest in that stock.
That means, basically, that to understand the effect of Sessions’ announcement—in the context of the big picture—all you need to do is look at the charts. When you do, it’s easy to see that the market’s opinion is that Sessions is not going to be a problem.
And that makes sense to me. The trend toward legalization, in both the U.S. and Canada (not to mention Uruguay!), is too strong for one man to thwart. So the trend will continue.
(Note: you may disagree with that conclusion on fundamental grounds, but we have on our office mantel a quote by ace investor Jesse Livermore that says, “Markets are never wrong; opinions are.” and it’s generally worth heeding.)
And that brings me to the other circumstance, the fact that the charts have been so strong that new investors can’t find a comfortable place to jump in.
These charts, as a whole, remind me of the strength in semiconductor stocks in the 1980s, internet stocks in the 1990s, and Chinese stocks in the 2000s. Those were long and strong trends. So my game plan is to play the current strength in marijuana stocks the same way that we successfully played those trends.
For the record, here’s the state of the portfolio today:
At the same time, it’s important to be aware of the risks. 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. If you’ve enjoyed the advance, you might be able to sit through such a correction, but if you bought near the top, you definitely don’t want to lose half your hard-earned money.
Thus, if you’re just getting started, your best general strategy is to start slowly, ideally on a small correction, and average in as your stock moves higher. Never average down with growth stocks (because they can go lower) but reward strength instead.
Of the ten stocks, nine have hit new highs in the past week, with many hitting new highs today. The five Canadian growers remain the strongest of the group. It’s not my policy to pick favorites, but I will say that if forced to choose between buying a leader (like TWMJF) or a laggard (like CRBP), I’d choose the leader.
One more generalization: Since the New Year started, volume has been falling off a bit, and it’s possible this is one more phase in a topping process—but possibly not. Price is paramount.
If you’ve already got some fat profits (congratulations if you started with me back in August), my general advice is this: traders should take profits now—especially in the most extended stocks—and plan to get back on board when heads are cooler and risks much lower. Or, if you don’t sell now, at least use a trailing stop, either real or mental.
Investors, assuming you invested no more than 10% of your assets in the sector, as I originally recommended, can take partial profits in the biggest gainers and then sit tight. Somewhere ahead is a pause, a base or a serious correction, and I want you to be able to hold your best stocks through it.
You’ll receive the official February issue of Cabot Marijuana Investor, complete with updates on all stocks, charts and new recommendations, in mid-February. I’m looking forward to creating it!