He Bet The Farm On Weed Stocks And Won. Then Watched It Burn To The Ground

The following story is from Nick, whose investing journey began when he bet the farm (and won) on weed stocks, then watched in horror as that same barn burned to the ground several months later. You can follow his portfolio and journey for redemption at LateCycle.com – or on Twitter (@latecycle_nick).

It’s one o’clock in the morning. The bar is rocking. Three and a bit drinks deep — embracing the euphoria only a Saturday night buzz offers — you sense the crowd forming around you, cheering and chanting while your friend ensures the blindfold covering your eyes isn’t compromised.

Bullseye.
Sixth in a row.

“This is unreal!” bellows a voice behind you.

Seven. Eight. Nine.

Every soul in the place is vying for a view of the action. Even the bartenders are gazing in awe. You’ve never believed in miracles, but you do now. And yet, dwelling beneath this magical aura, you sense it’s too good to be true.

It was too good to be true.

Winning with Weed Stocks

Recreational cannabis became legal in Canada on October 17, 2018. Until that point, you could have blindly thrown money at any “weed stock” and hit the bullseye. I was one of those people. Not only did I throw money at weed stocks, I threw all of my money at them. As a matter of fact, I borrowed money to amplify my earnings.

I was already planning next steps: “Just 20% more and then I’ll sell. I’ll buy a house, car, and a stack of blue-chip dividend stocks to keep me generating cash for life!”

Just 20% more. It was a naive mentality, but not far-fetched given the circumstances.

Up in Smoke

In a cruel twist of fate, the global stock market “crashed” just after legalization. It culminated in the worst December on record since the Great Depression, and the worst year for stocks since 2008.

50% losses in the cannabis sector were rationalized as “part of the pack.”

Instead of taking profits at the first sign of trouble, I stood by like our bartender, frozen in disbelief as the market dragged me to the depths of my personal hell.

I panicked and sold everything, right at the very bottom.

Rising from the Ashes

This experience called for deep reflection. I devoted most of that dark, bitter winter to absorb everything I could about investing: books from the library, dissecting financial statements, reading through analyst reports, watching lectures, etc. My learning hasn’t stopped. I developed a genuine interest and respect for the power and unpredictability of the market. It can make or break you. It broke me.

As I watched from the sidelines, weed stocks led the market roaring back to life just as quickly as they collapsed, posting near 100% gains from the tail end of December 2018 until peaking around April 2019.

It was from atop this peak the cannabis hysteria took its final puff.

For now, at least.

A New Leveraged Bet

In March 2019, after missing much of the rally, I felt determined to dive back in.
My strategy changed for the better. But my risk tolerance…
Well, I guess I enjoy taking risks. Calculated risks. Without the blindfold.

I leveraged 60% of my portfolio into a mixture of blue chip and high-yield stocks. My portfolio returned 13% last year.

So, I learned a few key things along the way—the hard way.

The stock market is a lot like a game of darts.
You can throw 10 and hit the bullseye each time.
You can also miss the board entirely.
Most people fall somewhere in between.

Investors, like dart players, must:

  1. Manage risk
  2. Make calculated decisions
  3. Be grounded in themselves

You’ve heard it all before. This is Investing 101.

Yet, many of us fail to implement even the most basic principles — such as diversification — in our portfolios. I know many people who are clutching their weed stocks at a 60% loss, praying for the next catalyst to spark Cannabis 2.0.

The same analysts who stoked the $100 Canopy flame are calling the bottom at $25. Sometimes life defies logic. What doesn’t defy logic are fundamentals.

It’s OK to take risks. In fact, you should. Invest in your education, switch careers for longer-term prospects, ask that person out on a date. This is how progress is made.

Have a prosperous 2020!

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6 Comments

  1. Joseph Sadovia on January 9, 2020 at 10:07 am

    Hi Robb, I am aware that in 2019 you switched some of your investments into Vanguard’s VEQT, an all equity balanced portfolio. Can you advise me whether i Shares has an equivalent to VEQT and under which name and Ticker symbol ? Thanks !

  2. Robb Engen on January 9, 2020 at 10:12 am

    Hi Joseph, they do now – it’s called (no surprise) XEQT – https://www.blackrock.com/ca/individual/en/products/309480/ishares-core-equity-etf-portfolio-fund

    They launched this ETF in August 2019, so you won’t see the full performance and fee data until it has been around for one year. The management fee is 0.18% but the full MER should be 0.20%.

  3. Mr Fundamental on January 9, 2020 at 3:23 pm

    Ouch! Getting burned on weed stocks would be tough.
    You said “60% of my portfolio into a mixture of blue chip and high-yield stocks.” Where did you put the other 40%?

    Why not put 100% of your portfolio into index funds/ETFs? Not exciting enough? 🙂

    Cheers!

    • latecycle_nick on January 12, 2020 at 9:33 am

      Hi— all of my portfolio was in blue chip+high yield. I leveraged 60% of it in a margin account and through various lines of credits I had. I made sure the dividend yields covered the interest costs so that in a worst case scenario, none of the carrying costs would be paid out of pocket.

  4. Maria @ Handful of Thoughts on January 10, 2020 at 4:37 am

    Wow what a roller coaster. I don’t think I have the stomach for the rise and fall of individual stocks. I much prefer to invest in a broad based fund and set it and forget it.

    Thanks for sharing your story Nick.

  5. Steve Bridge on January 13, 2020 at 9:12 am

    Thanks for sharing your story, Nick.

    Seeing investment gains releases dopamine, kind of like being high on cocaine. This is likely the reason you couldn’t sell your weed stocks as they were rising. This is also the reason people generally make bad investors -it’s too hard to ‘Sell High’ (pardon the pun). Same for selling low – investment losses are processed in the part of the brain that is responsible for being in extreme danger. When we see investments go down, our brain tells us to sell, even though it too goes against the adage of ‘Buy Low’.

    I hope things get better for you from here forward!

    Steve

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