There always seems to be a ‘shiny new object’ for retail investors to obsess over. Most recently, that shiny object has been crytpocurrencies, before that was investing in anything that was IOT, before that was 3D Printing, before that we had marijuana stocks and before that I think it was anything with FOREX in the name. I am sure there were other investing fads, but that is all I could come up with in the past few years.
I originally looked at publicly traded marijuana stocks in January of 2014 and came to a conclusion that I had absolutely no chance at picking the winner. It wasn’t that I believe that marijuana consumption will lead to a viable business mode, but rather, that I have zero chance in picking the right penny stock to come out of the fire. It was/is a view not too dissimilar to Buffett’s now-famous 1999 presentation highlighted in the book Snowball:
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.
Luck for me (and the tens of people who will see this post) I took a screenshot of some of the most popular marijuana stocks at the time:
Now I have to wonder how have they done since January of 2014. My guess? Not great.
The problem with penny stocks is that you don’t know when, not if, the demand/interest will plummet. I thought they would be down, but I didn’t expect these numbers:
- MJNA is down 73%
- GRNH down 91%
- HEMP down 97.79%
- POT down 91.26%
It made me wonder what the chart looks like for Google Trends – keyword ‘marijuana stocks’ 2013 to 2018:
Wow, look at that initial rise and plummet in interest. Someone better with charts could probably lay these on top of each and find the correlation between the other spikes and eventual fall off. If I had to guess those spikes and falls probably have to do with other States legalizing marijuana and multiple retail investors thinking, ‘hey I should get in on this.’
It feels like the only way to jump into this market is to research the sector and know that you may be wrong for years and years until your pick emerges on top. That doesn’t really match my investing style, so I’ll probably stay away for now.