7 Keys To Investing Profitably In Cannabis Stocks

If you’re considering a jump into the booming world of cannabis stock investment, you should find my tips on the subject pretty helpful. Take a healthy look at this advice before you make any financial commitments in the cannabis market.

1) Keep Your Expectations Realistic

The world of legal cannabis is full of exciting overnight success stories. I’ve been investing for nearly 20 years and I’ve never seen quite so much bullish confidence. The danger of confidence, of course, is that it can always turn into overconfidence. Yes, it’s true there are some amazing examples of giant short-term profits reaped in the cannabis market. Canopy Growth Corp, for example, experienced over 350% growth in the past year (TSX: WEED.TO). It’s important to keep in mind that these sorts of speedy windfalls are the exceptions rather than the rule.

2) Look For Solid Long-Term Potential

Analyzing potential investments calls for a lot of tools. Sometimes you need to slide companies under the microscope to ferret out every last detail of their operations. When it comes to cannabis stocks, though, I recommend keeping your telescope handy. The emergent nature of the cannabis industry is causing a lot of inevitable volatility in the short term. I want to look past these brief month-to-month up and downs and pick out the cannabis stocks that will provide real long-term growth for their investors. Don’t worry about short-term volatility; keep your eyes focused on the big picture. As an alternative investment, this industry could be a good one.

3) Cannabis Stocks Aren’t Built For Day Trading

Some inexperienced investors believe that higher profits require more trades. This isn’t how any sort of investment works, and it’s particularly inaccurate when it comes to cannabis stocks. This is one field where the total opposite is true: More trades equals less profit. What I’m doing with cannabis stocks – and I urge other investors to think similarly – is divining the picks that are going to pay off huge in the long-term, not pay off modest in the short-term. I’m looking for the cannabis industry’s first “100 baggers” = stocks that double a hundred times like a premium tech stock (e.g. Apple or Microsoft).

4) Diversify Wisely

While I spoke above about the importance of singling out the cannabis stocks that represent the best long-term growth potential, the truth is that it’s impossible to predict accurately how such a young sector is going to grow. There are already 250 different cannabis stocks trading on global markets today. Some of those companies are going to turn into international leaders, while others are going to be history five years from now. I urge you to build a diverse cannabis portfolio so that the failure of individual companies cannot wipe out your holdings.

5) Invest Sooner Rather Than Later; Don’t Wait For The Pullback

A lot of investors believe that buying on a high is a mortal sin, but that’s simply not the case in a market like the cannabis sector. You don’t want to strand yourself on the sidelines month after month while the stock you want to buy surges ahead to greater and greater heights. That pullback you’re waiting for may never come. Don’t lose sleep over the wair for a weekly or monthly low. Remember that time is your greatest ally in investing. The sooner you buy, the more time your stocks have to gain value in your portfolio. With a long-term investment strategy stretching out for years, your entry price plays a much smaller role in determining your return.

6) Take Advantage of Limit Orders

The spreads between bid and ask prices are wider on cannabis stocks than they are in other sectors. That means taking on a certain amount of price risk when you invest. I strongly recommend using limit orders when you trade in cannabis stocks. I have more information on limit orders available here.

7) Use A Roth IRA To Limit Your Tax Burden

The one problem attached to earning big profits through investing is that they give you a big tax obligation. Roth IRAs are ideally suited for managing your cannabis stock investments. This shields your profits from undue tax liability as you invest. Remember it’s a good idea to review your ta obligations with a professional to verify that you’re paying neither more or less than you have to.

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