Why I Haven’t Bought Any Marijuana Stocks Yet

Unless you have been under a rock you probably heard that Colorado became the first State in the nation to legalize marijuana for recreational purposes and WOW there has been a pent up demand.  Huffington Post reported that there was $5,000,000 worth of marijuana sold in the first week!  The stocks associated with the industry has grown appropriately (w/ some nice volatility to boot):

Growth of Marijuana Stocks

So why am I so Weary about Marijuana Stocks?

Unsurprisingly, the world’s greatest investor was able to express what I felt in my gut better than I would have ever been able.  The following quote is from a book I recently finished, The Snowball, the authorized Warren Buffett biography.  In 1999 he was speaking in front of a group considered by some to be the smartest and brightest in the business and investment world (Sun Valley Conference).  The topic of his speech/slideshow  was about how he didn’t understand the dot com valuations (If you read the chapter you have to chuckle at the foresight he had):

This is half of a page which comes from a list of all the auto companies in the Unites States. He waved the complete list in the air. There were two thousand auto companies: the most important invention, probably, of the first half of the twentieth century.  It had an enormous impact on people’s lives.  If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, ‘This is the place I must be.’  But of the two thousand companies, as of a few years ago, only three car companies survives.

***

Now, the other great invention of the first half of the century was the airplane. In this period from 19191 to 1939, there were about two hundred companies. Imagine if you could have seen the future in the airline industry back there at Kitty Hawk.  You would have seen a world undreamed of. But assume you had the insight, and you saw all of these people wishing to fly and to visit their relatives or run away from their relatives or whatever you do in an airplane, and you decided this was the place to be.

As of a couple years ago, there had been zero money made from the aggregate of all stock investments in the airline industry in history.

Italicized the speech / non-emphasized is the author describing the scene

Forget the long term, I can’t figure out the short term with the marijuana stocks.  It seems that any of these over the counter stocks could double or drop in price by 75% in one day! I don’t think I have the risk tolerance to try figure out which marijuana stock is going to the Ford or the Boeing.   Maybe someone in my investing club will do some research for me!

 

Have you bought any of these stocks? what about other marijuana stocks?

6 Responses to Why I Haven’t Bought Any Marijuana Stocks Yet

  1. Can’t blame you on that one. The list of companies that always flock to any new industry is always staggering and trying to pick one of the few winners is akin to finding 3-5 needles in a haystack. Great odds! My guess is that big tobacco will gobble up the winners in that space in a few years time.

    • I don’t know if there will be consolidation into a big conglomerate until after the federal gov’t bails on the uphill (and not working) battle against Marijuana

  2. Agreed – the volatility and number of companies makes it difficult if not impossible to know what’s going to stick for the long run. Who knows if the industry will even stick around for the long run?

    • It isn’t even the long run, but short run also. Even if you were going to do a few months in and out who the hell knows which will be up 50% or down 40%?

  3. I tend to be leery of things that are currently “hot” or popular. On the other hand, prob’ly if you’d bought stock in Seagram’s in 1933 (when Prohibition ended), you’d be a happy camper today.

    But the Seagram’s name existed a long time before Prohibition, and because the company was founded and headquartered in Canada, it not only weathered the great American drought, it profited mightily between 1920 and 1933. It’s hard to figure out a short-term prospect when there’s never been a long term!

Leave a reply


− 3 = 5