Should you sell Cannabis stocks now to buy back later?
QUESTION: I’m a follower of your Cannabis Report Model Portfolio. You have said we are in a trading market and a bear market could follow. I have taken your advice on Khiron: (TSXV: KHRN), Sunniva: (CSE: SNN) (USOTC: SNNVF), Lexaria: (CSE: LXX) (OTCQX: LXRP) and The Green Organic Dutchman (TSX: TGOD). I will hold my shares for a long time.
What i don’t understand is why we don’t sell some shares from our portfolio and buy back when the moment is there to make our portfolio stronger and make some extra money? Khiron hit $ 2.00 and it went down to $1.20 due to the exercise of the warrants. This was a chance for us to sell some of our shares and buy back when the time is right. Also with Sunniva we bought heavily when it was trading around $6.00 to $7.00 but later went down to around $3.50 per share where we could have bought back. Lexaria also went down from over $2.00 before dropping to $1.30.
I’m an investor for the long term and I hope it will be fine in the future but I also don’t like that my portfolio goes slowly up and then sharp down. The next election in Canada could also trigger a bear market.
Yesterday our portfolio went up a bit but maybe today we will get a correction. In the short term, Khiron could reach $3.00 plus but I’m cautious now after I read your report on Seeking Alpha. Right now I can sell a portion of KHRN or TGOD because they went up without news. But maybe I’m wrong and not doing the right thing and have to keep them for the long term. I can sell KHRN at $1.60 and hopefully it will go back to $1.30. But maybe it goes to $2.00 instead and then I’m doing it wrong and if I have to buy back I’m doing it wrong two times. I was glad Khiron hit $2.00 but I didn’t like it when that it went back to a level of $1.20 because of the warrants. We could have sold in this period and bought back later. TGOD also went up after your email but then went down sharply after. Can you give also this kind of advice - sell a portion now and buy back later. You could do it on The Cannabis Report Model Portfolio by sending an email to everyone.
I believe you for the long term but I also want to try making my portfolio stronger when it is possible.
We all want to make profit on cannabis stocks by choosing the right model portfolio and person to follow but it’s hard to give your returns back to the market when the moment was there to sell a bit.
M. de G. from Netherlands
ANSWER: Your question reminds me of a quote by Will Rogers, “…buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.” Rogers was an American social commentator in the early 1900’s.
I selected it for the Question of the Week because you ask or refer to many issues our readers face every day in looking at their investments.
Here are some things I have learned from a lifetime spent making investment decisions.
Buying and selling stocks is decision making under conditions of uncertainty. In other words, if we knew exactly what was going to happen, we would know exactly what to do. But this is not the case.
Under conditions of uncertainty, the “right” decision is the more probable outcome. The “wrong” decision is the less probable outcome. If you manage your portfolio this way, you will have an outstanding, long-term outcome.
Under conditions of uncertainty, however, the “right” decision doesn’t always produce the most favourable outcome – at least not right away. You can make the “right” decision and get the “wrong” result in the short-term.
Some decisions under conditions of uncertainty are harder than others. A short-term decision is much harder than a long-term decision. It is more difficult to choose a stock that will go up tomorrow than it is to select a stock that will go up over the next year.
Mistakes are always possible at any time under any circumstances. To err is human and we are all human. Even under conditions of total certainty, people still make mistakes. Have you ever left the oven on after cooking?
The nature of investing in the stock market is such that the more inexperienced the investor, the more likely it is they will make the wrong decision because making or losing your money is a highly emotional decision and/or outcome.
An emotionally driven investor will tend to buy after stocks have been going up or have already gone up in price. Conversely, the same investor will tend to sell after stocks have already been going down or have gone down in price.
An experienced investor has learned these “rules” and is better able to make the “right” decision under conditions of uncertainty. But an experienced investor can still make the right decision and get the wrong outcome or simply make a mistake.
The reason inexperience investors should seek out the advice of experienced investors is not because the advice will be perfect. You take an experienced investor’s advice because they should be right more often than you will be.
Now let’s consider your questions in light of making decisions under conditions of uncertainty.
The main question you ask is why we don’t do short-term trading, that is taking profits when stocks are up and buying them back when prices are lower. As outlined above, it is hard to make decisions under conditions of uncertainty and it is harder to identify short-term events. Take into account the delays created by the reporting system on The Cannabis Report Model Portfolio: I have to wait to the end of the day since inter-day trades are not allowed, email the trade to the model portfolio service and they have to see my email and post in on the website. Finally, readers have to see the email and make the trade. This can take several hours and into the next day and the costs of making the trade (commissions, fees, taxes) means the profit opportunity will likely be missed or eaten up by costs.
Another time we can look at the problems investors have after making an incorrect decision. For example, an investor sells a stock expecting it to go down so they can buy it back cheaper. If it doesn’t go down, they won’t buy it back until it falls below the selling price. If that doesn’t happen, an outstanding long term profit can be lost.
In a trading market where I think we are now, it is possible sometimes to catch larger swings in stock prices. A very good example, for the Model Portfolio is Canopy Growth. I like Canopy Growth, I think it is a cannabis group leader and I have said many times it should be a core position in any portfolio. But given the big gain it posted after the Constellation news, I sold a little bit on two separate occasions. As a core position, I didn’t sell it all. Now that the price has fallen, I am thinking about buying a little back. Compare this to what the less experienced investor might have done. When the Constellation news came out and Canopy’s stock went soaring up in price, they were probably thinking about buying or were buying. Now that the stock has slumped back they are likely thinking about selling. I readily admit, I chose Canopy because it worked out and so helps me make the point. But the bottom line is an experienced investor tries to invest with their head while the inexperience investor invests with their heart.