It’s difficult to see a stock you recently bought go down. But as those who sold during Canopy Growth’s three significant declines dating back to 2015 would attest, now is not the time to lose our resolve.
We get a lot of calls at the National Institute for Cannabis Investors during times like these, when markets are down for a few days in a row. With all the promise of the cannabis industry, we know people wonder why stocks are going down.
In fact, there are two common stories I hear as I travel around the country talking to current and former cannabis investors.
- “I invested some money, but the stocks went down so I sold them.”
- “That was a wild ride, but now I’m sitting pretty.”
It’s up to you, and every investor, which of those stories you’re going to tell a few years from now.
I understand that it’s difficult to see a stock you recently bought go down day after day. There is a certain amount of risk tolerance you must have to ride out these declines if you want to be a cannabis investor.
There are three things I recommend to help you get through the tougher times…
No. 1: Keep your eye on the future
The stock market is finicky and prone to selloffs for reasons that have nothing to do with the long-term prospects of the industry or company you are investing in. Right now, cannabis stocks are down because the whole world is selling “risk assets.” That is, any asset with a fair amount of risk attached to it is under pressure.
Stocks generally fall in that category, and stocks based on future events like the cannabis industry and the tech industry are seen as even riskier than other stocks. These actually have little to do with the quality of cannabis companies or their actual market prospects, but there’s a lot going on that’s causing temporary collateral damage:
- A trade war with China.
- Global growth appears to be slowing.
- The housing market seems to have peaked.
- The tax cuts are already included in everyone’s estimates of company earnings.
- People seem to have finally tired of buying a new phone every two years, dragging the technology sector down.
- Higher wages are threatening corporate profits.
- The debt markets are nervous about all the debt in the world.
Again, there’s nothing there that would directly affect the cannabis industry. I promise you that no cannabis will be imported from China or exported there anytime soon.
An investor who succeeds is the investor who keeps his eye on what is really happening, now and in the future.
Legendary investor Warren Buffett has a great quote about this…
“Volatility caused by money managers who speculate irrationally with huge sums of money will offer the true investor more chance to make intelligent investment moves. He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times.”
As such, “true investors” like ourselves can see the positive writing on the wall in cannabis in all of the following:
- Today there is a line around the block to buy cannabis in Massachusetts’s new retail shops.
- Next year, there will be similar lines in Michigan, New York, and New Jersey.
- Seniors and soccer moms will continue to discover that cannabis can alleviate their pain or take the edge off their day without calories, without addiction, and without judgment from their neighbors.
- Scientists will continue to discover new applications for the cannabinoids in the plant.
- The cannabis market in the United States is still going to grow to at least $23.4 billion in just four years, to $50 billion if a few key states legalize adult-use cannabis, and over $100 billion after the federal government legalizes cannabis on that level.
- The cannabis market will also continue to grow globally. Canada’s market is just getting under way; the U.K. just started a medical cannabis program; Germany’s insurance actually pays for cannabis; and Mexico will soon have cannabis too.
We’re just beginning to scratch the surface of marijuana’s incredible potential. Right now, we’re barreling head first toward an explosion of marijuana opportunities for smart investors who go all in on this lucrative industry. In fact, if you move on these three opportunities today, they could make you a fortune – practically overnight. Just click here to take a closer look.
Nothing will stop these trends. Nothing threatens the future of the cannabis market. We didn’t buy into cannabis stocks because the stock market liked the tech sector. So we don’t need to sell because the stock market suddenly hates tech stocks.
The outlook for the cannabis industry is brighter than it has ever been, and the smart long-term investor is buying right now, not selling.
No. 2: This too shall pass
Markets rise and markets fall. They rarely stay down for long, and when they are down they often come roaring back. From its bottom in March of 2009, the Nasdaq composite went up 73% in just one year.
Let’s look at an example from the cannabis industry:
This is a price chart for Canopy Growth Corp. since mid-2014. The green line is the stock price. The blue arrows are some of the times the stock has declined significantly (there are others, as you can see).
In September of 2015 Canopy stock was down 60% from its high. Plenty of investors were ready to throw in the towel and find another investment. Many did.
The stock price on the worst day was $1.81. An investor who held on to his stock that day instead of selling has endured a 45.4% decline in June of 2017 and a 42.3% decline to November 20 of this year. And that investor is up 2,249% from the lows.
If you had invested $10,000 at the peak, your stake would have dropped $4,000 on that September day in 2015. If you sold and bought an ETF tracking the S&P 500, you’d have $5,442.
Now, if you instead held the Canopy stock through a rough patch you would have seen your stake shoot to $93,966.85 – an 849% return in just over three years.
Investor who realized that markets go up and down got rich off Canopy.
The investor who quit has a sad story to tell and not much more.
No. 3: You’re getting a bargain right now
Imagine that you were buying towels for your home. You buy a few big fluffy towels for $20 each, but you want some more. So, you go back to the store, and there’s now a sale going on. Are you mad that you can buy those now at $12.50 each, and would you sell the towels you bought yesterday?
Of course you wouldn’t. You might mentally kick yourself for not waiting, but you’d mostly be thrilled that you can buy the rest of your towels so cheaply.
Stocks are not much different. You are buying that stock for future value, not today’s price. The lower the price is today, the better return you will make over time as the stock eventually races to that future value. That Canopy investor above who might be ready to sell now can kick himself over the 40% decline he just saw, or he can be happy about the 849% he made because he held the stock when it declined back in 2015. Or he could be especially happy because he bought more stock on that depressing day – he’d have made not only 849% on his initial investment at the stock’s high back then but also the full 2,249% on the new money he put in at the low.
There’s a theme across all three of these tips: The future is bright for the cannabis industry and its best stocks.
That future hasn’t changed by a few panicked traders with too much money and not a ton of perspective on this still-young industry. The bigger investors who can push the market around in the short term essentially make stocks you want cheaper for now.
That will only increase the rewards if you’re willing to ignore the noise and trust in our assessment that cannabis continues to be the greatest investment opportunity of our lifetimes.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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November 21 2018