The advice you're about to read may seem contrary coming from the Seed Investor.
After all, this site was created back in 2016 when the weed boom was just getting started.
But it is something absolutely essential for investors to understand.
Especially those who want to really hit it big when the next weed stock rally hits.
Here it is.
The Worse The Better In Weed Stocks
Reminiscences of a Stock Operator is essential reading for anyone with a brokerage account.
The book is officially written by Edwin Lefevre.
But everyone knows it’s about legendary stock trader Jesse Livermore.
Livermore made and lost multiple fortunes in stocks throughout some of the most volatile markets in history.
He was there for the Panic of 1097, 1929, etc.
The lessons he learned throughout these massive swings are timeless and they’re all featured in Reminiscences.
One of the key lessons he learned is particularly applicable to weed stocks right now.
The lesson is summed up in Reminiscences as:
“Speculators buy the trend; investors are in for the long haul; ‘they are a different breed of cats.’
One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.”
One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.”
The emphasis is added so you focus on the differentiation between a speculator and an investor.
Speculators ride the trend while investors are in for the long haul.
Simple enough right?
Well, the difference is critically important for weed stocks.
Because only one of the types will ever win big in weed stocks.
How To Be “The Cat” That Gets Rich In Weed
Anyone who wants to make any money in weed stocks must be a speculator.
There is no “investing” in weed stocks.
The reason?
Weed stocks are just too expensive.
Investors buy based on value.
Speculators buy on expected future prices being higher.
And there’s not much value in weed stocks out there (even after another long decline in weed stocks this year).
There will come a time, however, when weed stocks are going to soar again and speculators will walk away with another fortune though.
Consider this.
We featured Acreage Holdings (CAN:ACRG.A.U / US:ACRHF) in how to get in on Acreage Holdings IPO back in 2018.
Acreage was going to raise more than $300 million in its IPO and become the biggest IPO in U.S. weed history up to that time.
It was going to be a hot stock. No doubt about it.
The stock ran from about $12 per share when we featured it to around $24 per share in a few weeks.
But we weren’t recommending “investing” in it at the time.
It was just a trade. A speculation that it would rise significantly.
The reason for that being merely a speculation is because Acreage Holdings had a market cap of about $2 billion when it went public and eventually passed $4 billion at its peak.
That valuation was totally disconnected from the fundamental value of Acreage’s core business.
Even today, three years after its IPO and hundreds of millions of dollars of capital invested into it, Acreage posted revenue of just $114.5 million last year.
And that’s top-line sales. Just revenue.
Profits are non-existent.
Acreage wasn’t worth $2 billion when we featured it.
It definitely wasn’t worth $4 billion when it peaked.
But it did offer a simple, stratforward, and ultimately profitable speculation.
Acreage isn’t alone in this situation either.
The entire weed industry is and has always been overvalued.
Here’s a chart of the Global Cannabis Stock Index from New Cannabis Ventures over the past five years:
The chart is an investor's nightmare…
It’s volatile and the long-term trend is nowhere.
It’s a speculator’s dream though.
It’s volatile and the long-term trend doesn’t matter.
The Greatest Weed Rally Is Yet To Come
The key here and in the future is that weed stocks are an “event-driven” market.
There have been three major cannabis catalysts.
First, there was legalization in California and a few other states in 2016 that got everything going.
Second, there was complete federal legalization in Canada in 2018.
And third, there was the latest round driven by hopes of complete federal legalization in the United States leading up to and through the last election.
Each one of those events sent cannabis stocks soaring.
And this pattern is why we continue to believe there is still one more big move to come...but we’re not “investing” in it just yet.
The last great run for cannabis stocks will come when the U.S. fully legalizes it.
This will be the biggest catalyst of all as access to the complete banking system, loans and leverage, will cause a fundamental (and much higher) revaluation of the entire cannabis sector.
And based on the history of weed stocks, the larger the catalyst, the greater the run-up in weed stocks.
So there is still probably one more big run in weed stocks.
However, history has shown that without a catalyst, weed stocks trend down.
That’s why we can’t and won’t “invest” in them.
We’ll just speculate when the trend is in our favor.
And if you do that too, you’ll make a lot more money and with a risk less than staying in for the long-run.
Even Wall Street Legends like Livermore will tell you those are the times fortunes are truly made.
Stay ready for it in weed stocks because when the next run starts, it’s going to probably be well worth the wait.
Good investing,
The Seed Investor