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We’re in a new paradigm of investing. Before this year, investors looked for things like cash flow, the balance sheet, p/e ratios, payout ratios, etc. Those days are gone and now we have meme investing thanks to reddit’s Wallstreetbets. Here’s what’s going on with Cannabis stocks.
If you’ve been keeping up with what’s happened recently with Dogecoin and Gamestop, you’ll know by now the infamous subreddit community that is WallstreetBets which has grown to 9 million people and at this point, there is so much money in that subreddit – its now a retail version of a hedge fund. Except this time, the focus has shifted from Gamestop to Cannabis. This is because of speculation of nation wide legalization. While it’s not for sure, states won’t want to miss out on the $73.6 billion industry.
The stocks that people are super concentrated on right now are Sun Dial (SNDL), Tilray (TLRY), Aprhia (APHA), Village Farms International (VFF), Canopy Growth Corp (CGC) and Cronos (CRON) just to name a few. And they have grown by several hundred percent. So how do you know which of these you should buy? Here is the meme investor mindset.
First, go to Wallstreetbets and see which memes people are talking about the most to determine which sector of the stock market is going to be on the rise next. Second, buy a stock that sounds like it has a memorable name, if there’s nothing that sounds memorable, pick the cheapest one because that’s the one everyone else is going to buy, and the last step -profit. When you hear the news of some big partnership or earnings report – dollar cost average out of the position. If you can do that before everyone else, you’re almost guaranteed to make some money. This next part is all about short term thinking – that is the key to “meme investing”.
If you’re not sure where to invest, look at stocks in the Russell 2000 index which you can think of almost like a basket of stocks that need to meet a certain criteria and the Russell 2000 index tracks small companies – that will give you some ideas on where to look next. You can also find the rumors of which stock is going to be the next hot pick on fintwit or the financial part of Twitter using hashtags like stonks, stocks, wallstreetbets, investing, or money.
Focus on ticker symbols that sound like they have potential. One study found that stocks with a cool ticker symbol perform better than ones that don’t have one. Stocks like: Cake, Cash, Baby, Bud, Luv, Fun, Fizz, Pzza, Woof. Those are memorable and when you have a ton of uninformed retail investors trying to pick a stock, they’re much more likely to go with the ones that sound more memorable. Between 2006 and 2018, the study concluded that stocks with fun memorable names grew by 13.22% average per year, versus, the total market index of over 4,000 stocks throughout the same period, which returned only 4.9% on your money (https://www.pomona.edu/news/2019/09/27-stocks-clever-ticker-symbols-outperform-plain-names-new-pomona-college-study-confirms)
If you’re still not sure which ones to start investing in, there’s a third method which is through an ETF. One of these ETFs is called YOLO (ironic). Think of this as a proxy for all the stocks that are related to that category, in this case it’s the cannabis industry so this ETF is one stock, that tracks companies that make at least 50% of their income through the cannabis industry. The only downside is that it also has a really high expense ratio of .75% (most cannabis ETFs start in the .7% range). The tradeoff is you now own most of the industry with just one stock.
Should you do this at all and speculate? Yes and no. Set aside a limit, and make sure to take your profits. Many people will lose money trying to chase these speculative investments so I would be very careful and I’d stick to traditional forms of investing by DCA’ing into the market over a long period of time consistently.
*None of this is meant to be construed as investment advice, it’s for entertainment purposes only. Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.