I’m trying to come up with a plan, to help me stay on track to reach my goal of financial independence through investing in marijuana stocks. Reading Ray Dalio’s book “Principles” has made me realize I need have a plan laid out. While I do have an exit strategy, I should have a plan on how to get there. The plan should stop me from making mistakes, such as making decisions in the heat of the moment versus a planned approached.
I want to be successful in my approach, the fact that I can read books or follow other successful people on twitter gives me no excuse to not learn what other successful people have done.
Rays 5- Step Process to get what you want
- Have Clear Goals
- Identify and don’t tolerate the problems that stand in the way of your achieving those goals.
- Accurately diagnose the problems to get at their root causes.
- Design plans that will get you around them.
- Do what’s necessary to push these designs through to results.
To achieve financial independence through investing in marijuana stocks. This would mean reaching an account value of 2 million dollars.
Problems + Solutions
My goal may seem out of reach, whatever level you are at you may still come across similar problems while investing in this sector.
As an average investor, I haven’t been in the markets long enough to truly know how this will all play out. There is a constant barrage of news articles with bad news or warnings about investing in marijuana stocks. I’m not a financial analyst, I enjoy investing even if it means I might lose some money. I continue to learn and the longer I stick with the less unknowns there will be.
Edwards Jones- Report on Marijuana stocks (recommends not to invest in the sector) I still don’t get how wealth management companies continue to advise against investing in the sector. Is it because they prefer safe investments with less risk, but also less reward? Do they know something I don’t know. Am I going to lose all my money?
Keep following the sector in order to recognize when a single company may be over or undervalued vs its peers. Don’t believe everything I read, there are many articles published just as click bait. The Globe and Mail continues to pump out negative articles, which I believe is done as it usually gets people reading and talking about the article. Makes sense but doesn’t help the average guy investing.
As the industry matures it will get easier to see how these stocks are valued. What will the P/E be in this sector… 5/10/20. We don’t know yet as right now most don’t have earnings. Some have P/E ratios of 300 currently, but as production ramps up we should see the ratios come down to more realistic values.
This is part of the unknown, what effect will additional licensed producers have on the existing companies. Health Canada has sped up the process to bring on producers. There was recently an article on the globe and mail indicating that Health Canada plans to triple the amount of licenses. Not sure where they got this information other than the fact there is a large que of companies looking to get licensed. The other thing to not is that a lot of LPs which are currently operating are also bringing on additional facilities, so a lot of new licenses can be attributed to expansion plans.
The additional licenses does appear to be a problem, I can either invest in the new up an coming companies or assume that the big players will buy them. The other likely result, the late coming LPs just cannot compete with the big players who have low cost production. The newer players may have a huge issue trying to catch up and compete with the well established big guys. This problem may take care of it’s sell as the industry matures and companies merge or get bought out.
Market corrections/Panic Selling
With huge growth comes market corrections, stocks can only grow so fast. The entire marijuana stock sector has seen amazing growth recently. This can be very tempting to selling when we think were are at the “peak” with the plan of buying back in once the correction comes.
I’ve already been through one cycle of a major correction in marijuana stocks. Which lasted about 4 months and honestly made me thing about selling my positions as I was getting very close to having no profits. When the next correction comes I need to do what I did during this decline, which was to continue investing. This strategy helped catapult my account when the sector turned around.
Temptation to Sell Early
This is a good problem to have, but still a problem. Let’s say my account actually reaches 1 million dollars in value. That is easily a life changing amount of money. Being in my 30s, I could invest that money into safer stocks, which at a 6% average return would increase the account by 60,000 in the first year alone. Would not take long to reach 2 million at that rate and there would be less risk.
Still have a hard time with this. The solution will be to dollar cost average, I could sell off 5-10% to lock in some profits. Selling 10% at 1 million would take my initial investment out of the game. Allows me to take some profit while still having a huge stake in the game.
You can see in the trend just how much growth there has been recently. It can be tempting to selling during huge upswings. Over the long run, the sector should be a growth industry. The world is starting to open up to the ideas of legalizing, making even more opportunities for Canadian companies.
We are about 6 months away from Canada fully legalizing, as marijuana stocks move mostly based on news and emotion, any kind of delay would most likely see a sell off. It’s a pretty safe assumption that the market currently expects that the July 2018 date is going to happen. If there was major uncertainty, the sector wouldn’t be growing at the rate it is.
I don’t know if there is much I can do, this issue is basically out of my hands. I keep on news articles to make sure there are no signs that the government is going to fail to meet their deadline. The main reason I believe it will happen on time is the federal government has said many times, they will resort to the mail order system if the provinces are not ready in time. Seeing as the mail order system is already running for the medical market, it makes it very possible that they could sell this way for the rec market.
Temptation to go all in/ over confidence
It’s tempting to sell off other stocks I own and put it all into this sector. Why am I tempted, I’ve had positive feedback on my investments so far. With the exception of when the market declined, but I powered through it and came out the other side a winner.
This confidence boost could be killer, it could cause me to go “all in” and lose it all, just like in poker. This has actually been seen on the news where people have sold their homes to invest in Bitcoin. Seems crazy and I don’t want to go down that route. Sure I wish I had put more money into the sector a few months ago, but that was before the recent run. If I had know the future ya I could have put all my money in. Now that the sector has gone up a lot, also doesn’t make sense to put a huge amount of capital in.
I need to be ok with the amount I have invested. Trying to rush to reach my goals could end up causing me to never reach the goal. (betting huge and panic selling) I already have a huge amount invested luckily, why do I need to add more capital. The only reason to go all in is if I’m trying to accelerate reaching my goal, but this increases risk. Time in the market is much more likely to take me to the goal rather than betting it all. I’m not in a rush, hell I’ll be extremely luckily if I do reach my goal in the first place.
I don’t want to get greedy. What does that mean though. Is a goal of 2 million greedy, should I be selling at 1 million instead? I really have no reason to go past 2 million, the risk of having that much money in the market will no longer be worth the reward to me. My exit strategy was set at 1 million, why have I now bumped it up to 2 million? 2 million will be my maximum, with 1 million being a secondary as I can easily live with that amount.
The whole reason for having a defined goal should help me from getting too greedy. I don’t want my account to hit 2 million and start daydreaming about 4 million. Need to take some of the emotion out of it.
Push through to get results
I’m going to stick to what has worked for me.
- Dollar cost averaging I did a post about my buying strategy, I will need to review it every once in a while to make sure I’m sticking to it.
- Buying the dip- what can I say, I love buying the dip, especially on stocks I believe in. If WEED.T were to drop 50% tomorrow I would would treat it as a major sale and buy.
I’m going to stick with adding capital monthly, which indirectly forces me to dollar cost average. I will not use the huge margin available to me, well maybe a little bit, just what I can afford to pay back. So using margin to short term opportunities I see come up if I don’t have cash on hand.
So this is my plan, for now. I will come back and revisit it in the future to either see how crazy this is or maybe not. I may tweak this in the future as I evolve with the market.
Let me know what you think. Did I miss any problems?