Can’t Trust CannTrust

Most people hate Mondays because it’s the start of the work week. Monday for me this week was waking up to see my CannTrust shares down 23% because they decided to grow product in rooms which were unlicensed. They did eventually receive the license for those 5 rooms but they just couldn’t wait.

When a story like this rocks your stock it’s like getting punched in the face. I was already down 7% before this scandal broke out. I don’t know why but I didn’t sell my shares even though I believed it would just keep going down and maybe even down next to zero. My mistake was not taking the time to think about it. When you’re down so much on a stock sometimes the automatic reaction is to do nothing because you feel as if the most of the damage must be done.

My book cost is $5000 so not the end of the world. Some people out there have well-in to the 5 digits and 6 digits. CannTrust was supposed to be one of the safer marijuana stocks and more well-liked by institutional investors but so was Aphria. I was lucky enough to pick up shares of Aphria the week before their scandal hit.

The sad part about this is that I was up 100% on my CannTrust shares late last year. It crashed 50% from the top but rebounded a few months later to about 80% in the green. So I was up $5000 and now I can potentially be down $5000 if it goes to zero.

I’m not expecting it to go to zero since the pesticide scandal with Mettrum and Organigram never materialized any great consequences. There’s some lessons here as usual when it comes to the stock market.

In the past year I have traded CannTrust here and there for a $2000 profit. I could break even after all is said and done. Earlier this year I held a bigger position in CannTrust but luckily I sold most of it. I had lost confidence in them already from a lack of disclosure on their part regarding the president departing and building permit issues.

  1. Don’t get too greedy. When I first bought CannTrust shares my plan was to sell at $13. When it hit $14 I didn’t do anything.
  2. When very bad news comes out the best idea is to sell your shares even if they’ve bled a fair amount.

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Easy Money

How you treat your parents might be related to how well you think your life has turned out. Once you’re near the pinnacle of your life you’ll probably ponder how you arrived there. You’ll realize your dad was grooming you for success and deserves much of the credit or sometimes parents tried their best but it wasn’t quite good enough. Sometimes their best was pathetic and should have been illegal. If your parents were unsuccessful in life then you’re at a disadvantage.

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If I had a dad or mom who had an interest in the stock market it would have at least given me an edge. The most common Canadian investments in the stock market are Canadian banks due to the oligopolistic banking system and conservative regulations. Even as a considerably safe stock they generate good returns.

In 1995 an 18-year-old could have about $1000 worth of Royal Bank stock or they could have bought a sound system for their car that went boom…boom…boom. Look at me…boom…boom…boom. If one could have delayed gratification that $1000 could be in the area of $15,000 today…BOOM! One could and probably would entertain the idea that a stock can go to zero. The odds of someone stealing your boom box within 1 year at 3 AM is about 1000 times greater though.

If I was someone’s dad I would say to my kid, “hey butthead, you want to spend all of your money looking cool to your friends for 5 minutes or do you want an opportunity to laugh at them forever?” Even better, I’d get them started when they’re pre-teen and buy them shares of a company to get their interest. 10 years will go by and they’ll be like, holy shit!You can’t tell kids anything, you have to inspire them.

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Above is a Toronto Dominion bank investment calculator. Just $1000 invested in 1973 with dividends reinvested would be $517,758 today. This beats investing in real estate on many fronts. You don’t have to mow your stock’s lawn or worry about your loser tenants plugging up the toilet.

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If this stock chart could go back to the beginning the line would be touching your feet. Sure, past performance is not a guarantee of future returns but if I had to invest my money this option looks promising.

No one in my family embraced the stock market which is why it was never included in the family curriculum. They probably heard you could make money in the stock market but more importantly to them you could also lose money. Humans are very uncomfortable with anything that involves risk especially if there is any possibility in their mind of their money going to zero.

I’ve learned that sometimes it’s too risky to feel safe.

Bad Stock Pick #2: LGC Capital(LG.V)

This one is the most embarrassing stock pick of them all. A classic penny stock pump & dump. At first I thought of this stock as such but they had some interesting projects, and then a reputable guy in the cannabis stock industry had some semi-supportive words for this company. This same guy had also been picking many winners that I had missed so I thought I found my guy. It’s very possible this guy was paid by LGC to mention some supportive words in an article because I don’t think any professional would semi-recommend this company for free.

The stock went from $0.12 to $1 then it fell like diarrhea — fast and disgustingly. I caught the falling piece of shit at $0.50. Once again, after having cashed out some big profits I became loose with my money. It fell back to $0.12 in no time.

Lessons

  • Don’t catch a falling knife especially if it has shit all over it. A falling blue chip stock ain’t so bad.
  • In a volatile hot industry it’s best to stick with the leaders.
  • 50% off a penny stock is not a great deal.
  • a CFA designation and a nice suit don’t mean shit much of the time.

I’m not sure if this stock is a lost cause but I’m going to have to quadruple from where it is to get back to even. I’ll cut my losses if I get 3/4 of my money back.

Would I have told my friends to buy it? Hell no. I should have asked myself that before I pulled the trigger.

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Bad Stock Pick #1: Grande West Transportation(BUS.V)

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When you’re barely out of the sophomore gates of investing you will make some rookie mistakes. After selling some marijuana stock that I made a nice profit on I became a little loose with my money. A few guys on BNN had no negative things to say about this one stock that had dropped 30% in recent months.

Without any good reason other than listening to so-called experts in suits, I bought stock in Grande West Transportation, a bus manufacturer in Canada. From $2.15 it kept falling steadily and is now trading at $0.95.

Lessons

  • Be careful with listening to the ‘experts.’
  • If a stock is falling for unknown reasons especially a largely unknown stock then there might be something you don’t know.

The company knew that it would not build and sell the number of buses that they said they would. Of course, people on the inside and close to the inside knew about this long before it would be made public. This was probably why the stock was falling.

It’s not a lost cause but the stock now needs to more than double for me to get back to even.

My Personal Opinion

  • Don’t bother with these small caps when you don’t have a good enough understanding of the industry.
  • Ask yourself before you buy a stock how you will feel if the stock goes down and you have to hold it.
  • Before buying any stock would you tell your friends and family to buy it?

 

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Buy, Sell or Hold Canopy Growth?

Marijuana stocks are all the rage lately although second to Bitcoin if I had to guess. Everyone I talk to has heard of Bitcoin but not Canopy Growth.

I’ve been a shareholder of Canopy Growth since the $2.75 range, and have sold almost half my shares on the way up. Some people say this was the smart thing to do but the numbers say otherwise. Every time it doubles I think to myself, there’s no way it can go much higher, and then it does. Now I just don’t know what to think anymore.

Most of the professional investors including Warren Buffett would tell me to get out completely but then again if I listened to them I wouldn’t have bought this stock in the first place.

What you will always hear is that Canopy Growth and all the other marijuana stocks are overvalued. They definitely are in conventional terms. Amazon though has been overvalued since 1997 and Netflix is always overvalued as well. $1000 of Amazon stock at its IPO is now worth over $1,000,000.

It’s easy to make a judgement on existing numbers and the short-term future but it’s much more difficult for most people to see what the longer-term future holds. Once the future becomes the present though it all makes sense.

The following is an excerpt from an article written by the CEO of Netflix 8 years ago regarding short interest in the company.

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You can replace “Netflix” with “Canopy Growth” and it would seem appropriate. As of right now Canopy Growth seems to be doing all the right things and would be the horse to bet on. I believe in the company and my only doubt is that shit happens. I realize Canopy Growth is not comparable to Amazon or Netflix in terms of size and market but the situation is similar — market leader in a huge new industry.

“Diversification is for idiots.”

Mark Cuban said this in a video interview. He also added that diversifying will diversify your profits away. Warren Buffett said, “diversification is protection against ignorance.”

If your priority is to see a modest return on your investment in the long term then you should diversify. If your goal is to make a large return in a relatively short amount of time then diversifying will likely not get you there.

Conventional investing advice has a way of altering your perception. People who would gasp at your 1 stock portfolio would at the same time congratulate you on investing your life savings in a new business venture — go for your dreams! Putting it all into your one business is the same as putting it all on one stock. Most people would have been better off putting their money with Jeff Bezos than whatever costly venture they got themselves into.

Diversifying is recommended for every stock portfolio while the status-quo for everything else is to put all of your eggs in one basket. Who diversifies their education? How often do you get the advice to diversify your girlfriends?

I’m not recommending that everyone have a 5 stock portfolio. Warren Buffett also said 99% of people should just invest in an index fund. Most people aren’t skilled or lucky enough though to come out victorious in the stock market without diversification.

Investing Snobbery

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Many financial bloggers and professional investors have a bias against speculative investing. Speculating is not investing it’s gambling, they say.

Gambling is going to the roulette table and hoping you hit the 1 in 36 odds of winning without any reason other than hope or I have a good feeling. Speculating is making an educated decision based on the information available, your knowledge and life experience.

If you had put $1000 into Amazon stock at the IPO you would have over $1,000,000 today. Even $1000 ten years ago would now be over $20,000. You won’t get those kinds of returns in 30 years from buying the index or through blue chip dividend stocks. That’s just the reality.

Since the beginning of time the one who was able to see further into the future with better accuracy has always been valuable. Picking successful speculative stocks or even blue-chip stocks is a play on being able to predict the future better than others. Some people believed online shopping was going to be a thing and others didn’t. People will never put their credit card information online! It’s not likely you’ll have a good understanding of multiple industries but once in awhile something comes along that might be in your field of competency.

The majority of people are really good at following conventional rules and only being able to see what’s in front of their face. To them, if a stock doesn’t meet the criteria of being under 25x P/E and having several years of profit then it’s not worth looking at — if the company’s vision is not producing the numbers yet then it’s garbage. Home Depot was a speculative stock until it wasn’t.

It’s not fair to give the advice to never buy speculative stocks. Saying speculating is not investing is just semantics. It comes down to a matter of risk vs reward. You have to be careful though and know your limitations.