Marijuana stocks popped today, erasing some of the huge gains they saw over the past week.
One stock that I wrote about last week was up over 700%, but has since declined. Still, it’s up 400% since I first mentioned it almost a year ago.
But, I want to be honest: The majority of marijuana stocks will not survive the coming years. Many of the cannabis companies that have gone public over the past year are simply ‘pump-and-dumps,’ raising money from investors looking for the next big thing.
In reality, these fraudulent companies are built specifically for taking the money of those investors who want to make huge returns from penny stocks.
As I mentioned before, my investing strategy does not consist of buying up penny stocks with the hopes of having at least one of them succeed. A strategy like that will quickly drain your bank account.
However, if we can see a specific reason to invest in a certain area because of an upcoming event, then it’d be silly to just ignore the opportunity. This is exactly what is happening with the cannabis space, as many states are voting on recreational legalization on November 8th.
If we, as investors, can buy before the crowd comes we can profit simply from the wave of enthusiasm that will engulf the market. The trick is selling before the craze settles down.
Today (November 3rd), has seen a significant decline in almost all marijuana stocks. This could cause panic for most investors as they see their profits disappear, but we have to remember that the average investor doesn’t even know that cannabis is on the November 8th ballot.
Once the news makes the headlines (which is currently flooded with US presidential banter), then the ‘average’ investors will start to enter the market. The huge decline we are seeing today could just be the shake out of early investors taking profits on their investments that they could have been holding for years.
That’s not to say that you should feel confident that cannabis stocks are headed for the moon. While I personally believe that we’ll see another march higher over the next couple of weeks, the opposite could be true.
Don’t invest more than you can afford to lose. Assume that most marijuana stock investments are a pure bet.
The few pot stocks that are legitimate (like the one I wrote about here) are more properly priced and not experiencing wild swings.
The next few weeks will be very interesting, as the 6th largest economy in the world – California – could be making recreational marijuana legal. This will create an impact that none us can fully understand.
