Since the legalization of marijuana in Colorado, I have been thinking of the ways I can profit on the historical announcement. You can buy a dispensary, grow the plant yourself, or buy a Papa John’s franchise (Peyton Manning did recently. Was he anticipating higher demand from stoners who have the munchies?)
Or, like I always tell my friends when you see a hot trend, you can just buy the stocks. Now, you could go on and on about your philosophical beliefs and predictions for where the pot industry is headed. But, you would just be spinning your wheels as a stock’s chart does not care what you think.
I will save you the time rambling about the fundamentals of the stock as well. They do not really matter here because obviously the industry is in its infancy and the future is uncertain; these stocks are trading on momentum and pure speculation.
Best of all, the legalization announcement is an unprecedented action-no one has ever legalized a drug, or something of this nature, since the stock market’s inception. That means there is no way to gauge or quantify what the stock price could potentially be, you just know it will be higher than where it’s at now (if the favorable legal environment continues).
Some traders are throwing real money behind these stocks (as the trading volume shows) betting that they will become the next Budweiser or other alcoholic beverage company that was established after prohibition; a fortune could be made in these companies. I currently own 8- and will begin coverage on the others when the time is right. For PHOT, a company that specializes in supplying grow materials, that time is now. I will add to my position Monday, putting a stop loss in below the 20 day mavg.
Update: March 14, 2014
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If you’re trading off pure speculation and/or charts, why not take your money to Vegas and bet on black (48% odds).
I realize you are pursuing an absolute return strategy, but how are you keeping score here? Betting that the tide will raise all these marijuana related firms at once? If you plan on covering some of these names, might be better to go long-short pair on 2 familiar names to eliminate most macro and bet company fundamentals. Personally, momentum trading is one of the last things I look at when triggering the buy/sell. There needs to be more triangulation of information that confirms the position than just the chart.
Cheers & keep it up
Granted, these names are risky with no track record or even an actual profit (for some companies). But, the risk/reward here is certainly better than Vegas and more calculated for two reasons: One, I get to use stop losses. Two- buying a stock with catalysts and on technical support is key. Thanks for the post!