I’ve been told by a few people, “You need to have an exit strategy”!
What is an exit strategy? Basically some metric used to decide when to sell off your assets. This could be a certain time frame, dollar value, percent gain.
Like anything in life, it’s much easier to make a decision if you have a plan.
From the beginning of investing in the MJ sector, I wanted to be a long term investor. When else do you get a chance to invest in the very beginning of an industry. There have been challenges to doing the simple thing, holding.
I now have about $170,000 invested in the sector, this is a huge risk, I would like to be rewarded for taking on this risk.
We are about 9 months away from Canada legalizing MJ. The market is going to shift from black market to mainstream. Opening up a bigger market base for the current licensed producers.
I’ve been holding WEED.T for about 3 years now. I don’t really want to sell the minute legalization hits. It will take some time for the market to fully develop as there is a still a stigma.
A lot of investors today don’t hold for long periods of time. With the average now at 5 days?? Really?
As Canada rolls out its plan, the world will be watching. Other countries are already starting to legalize medical MJ. Canadian companies have a head start and good quality controls. If companies like Canopy, Aurora, Cronos Group, can expand quick enough they could become world leaders.
Beginning of an industry
Investing in the MJ sector now could be like investing in Automotive or Oil industry when they first started. There have been warnings about this, looking at the auto sector only a few companies survived when it started with hundreds.
One difference between the oil or automotive industry is the barriers to entry. As Warren Buffet would call it- economic moats, making it hard for others to compete. MJ companies need to go through a rigorous Health Canada application to become a producer. Compared to other the auto industry where it just takes money to producer cars.
As time goes by, small companies are going to get swallowed up or crushed by the big producers. A lot of the big producers are choosing to expand locations instead of buy out smaller companies. They can usually expand a current property for much cheaper than buying an overvalued small producer. Eventual they may be forced to buy the smaller guys in order to increase market share.
Changes as the industry matures
Small companies going out of business vs getting bought out would be the worst scenario for me. I would rather see Canopy or Aurora buy out a small producer like DOJA rather than it go under.
I also don’t think MJ stocks have really hit the main stream yet. Most of the companies aren’t even making a profit. Bruce Linton compares this period to the warming up period if we were in the baseball game. Looking at Bitcoin, it has hit the main stream and has shot up. If you had bought only $100 of bitcoin in 2011 it would be worth $500,000. 5000 times your initial investment.
I don’t know what kind of time frame would be a good plan. 5-10 years might be a long enough hold to see some really good return. In the end though if the value goes high enough for me to become financially independent before that time frame, I will cash out.
I would like to see my investments reach $1 MILLION! Who doesn’t want to have a million dollars. With that amount of money I could generate $40,000 by taking out 4%. Never eating away at the original capital.
This might be a crazy goal, especially since I have no control over it. Who knows maybe this is low goal, maybe I should hold on until 5 million! If the returns are anything like bitcoin it would be 850 million, so 1 million should be attainable?
The main idea with using a dollar value would prevent me from selling to early and also from getting to greedy. I don’t want to aim for such a huge value that I end up not cashing out and the value drops.
What would it take to get there?
488%- My portfolio would have to go up 488% in order to reach 1 million dollars. How man investors see returns of 488%.
It would be a stretch to expect a portfolio to go up this much in a year, but over 10 years it’s possible.
Apples best 1 year gain was 289%. But since 2003 it has gone up 7,838%, an average gain of 47% per year.
Gains Over Last Year
In the last year my core holdings have gone up
Even with a big pull back in prices since April, these are pretty decent returns.
The main question is, can these types of gains continue in this sector? Has all the real growth already been priced in?
So lets say WEED.T was to grow at 47% per year.
2021- 46.65 *171 million shares = 8 billion dollar market cap
If Canopy reached 47 per share I would be 1/4 of the way to my goal with just one stock.
Growth at Different Rates
Most investors are aiming for 6% growth. As this is a new industry the growth could be a lot higher. I doubt we will see 100% gains year over year. A 10% growth rate would mean reaching 1 million in 19 years.
As the growth gets higher and higher the time frame doesn’t change that much.
Aurora increased their revenue by 387% year over year. Right now most of the stocks are over valued so companies are catching up to their current valuations. If Aurora can continue growing revenue at this pace when international markets open up then I would suspect we could easily see 20% growth in the share price. This would mean having 1 million dollars in about 10 years.
If you have checked out my portfolio page you know that I hold a bunch of different companies. One of the good and bad things about that is if one company is going up another could be going down. This could mean your account doesn’t grow as the gains are offset by losses. The good thing is they can only go to 0, while the companies that “make it” could potentially keep on growing.
So my exit strategy will most likely be a mixture of time and dollar value. I will continue to hold long term as more and more countries start to legalize. If at some point before 5-10 years this account becomes life changing I will start to cash out and put the money into safer investments.