Nancy Graham June 7, 2018 Personal Wealth Holy Smokes, Another Hot Stock? Toothpaste? Vitamins? Check. Birthday card for your mom? Got it. Cannabis? Aisle 4, next to the chocolate bars. Uhh, okay, let’s get real. This scenario for distributing recreational marijuana does not – and almost certainly will not – exist … whatever may come on the legislation front. But I wouldn’t blame you if you thought otherwise. The recent hoopla surrounding cannabis stocks might lead you to believe anything is possible. You might also be wondering whether you’d better invest in some of this hot stock right now, in case it takes off as wildly as many an active trader is hoping for. In today’s “No Dumb Questions,” I’m going to give you 5 reasons you can get burned chasing high-flying market trends, whether it’s in pursuit of cannabis, Bitcoins or some other sector that’s hot. Let’s get started! So, have you been thinking of participating in the latest three-ring circus of a market frenzy? Last year, it was bitcoin. Lately there’s been much ado about cannabis stocks. By the time this video airs, maybe the din will have died down on that one, but either way, it’s likely a new bandwagon will roll in soon enough, tempting you to jump on and join the parade. Before you do, I’m going to give you 5 reasons why you’re best off keeping your feet firmly on the ground, with your investments staying put in a well-planned portfolio. Reason #1: Investing is about you and your goals. First and foremost, remember why you’re investing to begin with. It’s not for entertainment. It’s so you can accumulate, grow and protect your wealth, so you can afford to live the life you choose. Embracing a stay-put, evidence-based strategy is the best way I know of to achieve this greatest goal. It may not be as glamorous as riding the cannabis-powered bandwagon. But it’s a route that offers up a lot more control over where you will ultimately end up. Reason #2. Picking stocks is tricky. Pick a stock. Any stock … Or, actually, don’t. The evidence is clear: Instead of wasting time and money trying to predict individual winners, you’re better off building an efficient portfolio, optimized to capture the market’s broad expected returns. No forecasting required! You can earn these returns just by showing up, staying in your place, and keeping your costs down. Reason #3: Exciting news is already baked into the price. It’s true – analysts and insiders alike can point to exciting possibilities in our budding cannabis industry. For example, a recent Financial Post piece proclaimed that Canada’s cannabis is “conquering the world.” It quoted a spokesman from a Smiths-Fall-based medical marijuana firm explaining why “all eyes are on Canada right now.” Heady stuff, right? Well, maybe they’ll be right and maybe they won’t. Either way, the market has already has priced in their optimism. So if you buy cannabis stocks after hearing the news, you’ll probably pay a higher price than before the news. And “buying high” is hardly a recipe for success. Don’t believe me? Here’s the five-year Toronto Stock Exchange track record for the firm mentioned in the article, as of the day the article ran. Looks like a lot of positive information has been factored into the price. Reason #4: Hindsight is a lot more accurate than foresight. This same chart illustrates another good point: Just because a stock is riding high today, it doesn’t tell you whether you’ll profit from it tomorrow if you pile in now. The stalwart few who bought this particular stock back in 2014 are reaping the rewards for holding it over the longer-term. Those who buy in today? It’s hard to say. If you do decide to buy in after an upswing is already in motion, just remember: You cannot profit from past returns. Reason #5: You can have your hot stocks and manage them too. So far, the news I’ve been delivering is a buzzkill, right? Now listen up, because here’s some upbeat info. I’ve got a strategy for buying those hot stocks before they’re overpriced, and managing their downside risks while you’re at it. It’s called evidence-based investing. Remember: “The Market” is comprised of all publicly traded stocks – the good, the bad and the ugly. So if you’ve bought “The Market” and stayed put through the years, guess what? You already invested in cannabis stocks along with all the others. And – good news — you probably did so back when they were still a wonderful bargain. That’s why we turn to tools that focus on capturing market returns efficiently and effectively. They offer a rational method for including an allocation to the latest hot trends. So to the extent you’re willing to take on market risks in general, you can expect to reap the complete arc of available rewards. At the same time, by diversifying broadly and globally, you can avoid getting gob-smacked by the risks … especially the risk of a single holding, industry or sector can blow up in your face at a moment’s notice. So, there’s five reasons to avoid getting too caught up in chasing hot stock trends, including whatever the future holds for Canadian cannabis stocks. If you must indulge, might I suggest you partake in a good dose of “No Dumb Questions”? Share: Facebook Twitter LinkedIn Email CIRO Advisor Report
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