I recently received the following letter about marijuana stocks.
“I came into the marijuana sector in January, got thrashed in February, bought back in and am getting trashed a second time.
“It’s apparent the trend in these marijuana stocks is no longer ‘strong’. Two of the “big 3" are below their 200-day average, the largest, CGC, is below its 50-day; all trading on very high volume. KSHB and OGRMF at their 200-day, CRON below its 50-day. You say these are long-term investments but the market is saying they are practically junk at this point. My portfolio is currently down 24%. APHQF is down 57%.
“We are closer to legalization in Canada yet the market is decidedly pessimistic. It seems my money could be working better for me in other Cabot investments.”
On the other hand, back on January 10th, I talked with a subscriber who’d been a subscriber to Cabot advisories since the ‘90s. Back in August 2017 he put 10% of his portfolio in some of the marijuana stocks I recommended, and that portion was up 160% when we talked.
The man who bought at the bottom was successful (at least temporarily), while the man who bought at the top has failed (at least temporarily).
And the sad truth is this: despite all our efforts, it will always be so!
And it’s not just in marijuana stocks.
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All About Market Timing
If you’ve been investing for a while, you’ll remember that the last big optimistic peak we saw was in January 2000, when we had escaped serious damage from any Y2K trouble and investors were glorying in the fat profits piled up in 1999 as dot-com stocks soared to the moon. Those were easy days for investors.
On the other side of the coin, the last big pessimistic bottom we had was a decade ago, in 2008, as the Great Recession impacted pretty much every sector—banks were failing!— and even high-quality stocks were discarded in the flight to safety. Investing then was rough.
But anyone who bought stocks in January 2000 lost money. And anyone who bought stocks at the bottom in November 2008 and held on made money!
In other words, buying at the most terrible, awful, horrible time worked out great, while buying at the most wonderful, glorious, fantastic time proved to be a big mistake.
So if we remember that and look at the chart of the marijuana index, what can we conclude?
Marijuana Index from July 2017 to July 2018
We might conclude that this is a bottom, especially when we consider last week’s news that the Canadian health authorities are considering a proposal to charge marijuana growers and sellers an annual regulatory fee of 2.3%. Whatever you call it—I call it a tax—the market didn’t like it.
But does that mean marijuana stocks are at a bottom?
Well, only time will tell, and we do have time.
And we also have available the wisdom of the ages.
You may have noted that the investor in the example above who bought my marijuana stocks last August had been a Cabot reader since the 1990s. This isn’t his first rodeo. He knows about buying low—and presumably selling high.
An even wiser investor was Sir John Templeton, whom I was fortunate to hear speak, many years ago, at my brother’s alma mater, Babson College. It was one of the most memorable speeches of my life.
Templeton, though never as famous as Warren Buffett, was not only one of the most successful investors in the world, he was also one of the most kind and optimistic men I have ever met.
Templeton believed that free markets in capitalist economies were capable of great long-term returns.
He believed in investing in emerging markets, where economies were growing faster and undervalued stocks were more likely to be found.
He was a great stock picker, with Money Magazine in 1999 calling him “arguably the greatest global stock picker of the century.”
And he believed in market timing, noting that thanks to human nature, markets peak when the news is best and bottom when the news is worst.
He wrote, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
And because he didn’t limit himself to making money—he spent the second half of his life in spiritual pursuits for the benefit of humanity—in 1987 he was knighted by Queen Elizabeth II.
Good Time to Buy Marijuana Stocks
So today, keeping in mind the wisdom of John Templeton, it occurs to me that investors in general are fairly optimistic (though not euphoric), with many broad indexes hitting new highs last week, and that investors in marijuana stocks, having suffered a six-month decline, are becoming skeptical.
Which suggests that buying marijuana stocks now and selling stocks that have recently hit highs might work out quite well.
If this makes sense to you, and you want to consider investing in marijuana stocks now, while they are down, you can get my Cabot Marijuana Investor here.
For the record, as I write, the average profit in my Cabot Marijuana Investor is 99%.
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