Marijuana Bubble May Have Burst…But That Doesn’t Mean Run
We all know the cookie-cutter, shallow truisms in investing like “buy low, sell high” and “don’t follow the trend.” While these are clichés due to their ubiquity and overuse, it doesn’t mean they don’t hold some wisdom. And in the case of marijuana stocks, let’s examine how investors can use these tried-and-true methods to beat the marijuana stock bubble.
The Pot Bubble Burst…Now What?
Pot stocks have taken a beating recently, as many new and existing weed stocks have underperformed.
This isn’t exactly unexpected. After all, when an industry is fueled by hype the way marijuana was since its huge surge in 2016, it’s bound to face a correction at some point, bringing the stock prices back down to Earth.
Many of the big names in marijuana stocks, like Canopy Growth Corp (TSE:WEED, CVE:CGC) and Aphria Inc (TSE:APH, CVE:APH), are down roughly 15% to 20%. Obviously, that’s not good news for weed stock owners.
Chart courtesy of StockCharts.com
A lot people (myself included) have written about the possibility of a marijuana stock bubble. After all, any industry as fresh and as exciting as legal weed lends itself to overeager investors and feverish excitement, both of which tend to be bad news for the market.
Let’s say for the sake of argument that the bubble has popped (versus this being just a blip in marijuana’s steady growth). Does that mean investors should run away? It’s certainly an option, but it might not be the best one in the long term.
Here’s the thing: Yes, weed stocks are taking a beating, but that means they can be purchased at bargain prices. Much like those old truisms I mentioned earlier, if you follow the herd, you probably won’t be last, but you certainly won’t be leading the pack. Being a reactionary investor is usually not how one beats the market.
So, investors are faced with a choice: Do they reinvest in marijuana stocks and stick it out for the long haul, or do they bail and cut their losses?
The answer depends on how much they believe in the product.
We’ve all seen the gaudy numbers promising billions of dollars in revenue once marijuana hits the open market, with Canada’s federal legalization coming up in the summer of 2018.
If investors believe in those numbers and trust the product, then there’s no reason that this stock price dip should scare them away. Stocks ebb and flow, and this was bound to happen, due to the huge growth run-up that many marijuana companies have experienced.
If investors believe the analysts, the figures, and the projections, now might be the time to reconsider marijuana stocks, knowing full well it’ll be a bumpy ride. The end result could well be worth the journey.
On the other hand, if investors think the current situation is a total collapse, and that there’s just too much uncertainty surrounding the drug, they might be better off staying away and saving themselves some stress.
Ultimately, it comes down to each person’s investment philosophy and what they feel comfortable with in terms of risk. Do you go big and aim for long-haul returns? If that’s more your style, then right now might be one of the better times to consider marijuana stocks, while the bubble has burst and they’re recovering. Just know that it’s not a sure thing that this is the bottom of the market.