Cheat Sheet Q&A: Investing in cannabis & future technologies:
Today's entry: Good morning Brian, looking for information on a couple of stock/mutual fund investments…I am aware this is nothing you are probably looking to buy, but I think they are worth a look.
Have you done any research on Virtual/Augmented Reality and Cannabis stocks, I realize these are speculative at this time. I do think these both are going to be very lucrative industries and now may be a good time to invest in these high(no pun) risk industries.
Bottom Line: You're right that I wouldn't be looking to personally invest in these types of speculative investments but there was a time in which I did a great deal of speculative investing and I have general guidance that might be useful.
First with regard to the cannabis industry. This industry is in a category unto itself beyond speculation (it's completely illegal). In every state and in every form (medical/recreational). Due to the federal government's recognition of marijuana as a schedule 1 drug, every company operating in that space is doing so illegally. While I understand it's more likely that marijuana becomes legalized and regulated than having the law fully enforced...the fact remains. No credible person could recommend any investment in a federally criminal enterprise. Otherwise my guidance will apply to both the cannabis and VR/AR industries.
- The three most important ingredients to look for in any emerging industry are:
- Important/highly effectual proprietary product(s)/process(es)
- Clear Market opportunity (not all good ideas equal successful consumer adaptation to them)
- Highly competent management teams to execute
The biggest mistake I've seen investors make over time is the the belief that being first or early is best and therefore makes a good investment. The truth is almost always the inverse. It's extraordinarily rare to find an early opportunity that has proprietary product/process, is on trend in an emerging market and has outstanding management execution. I could literally write a book on the companies that were first/early to viable industries that lost every dollar investors invested. Here are just a few modern examples to illustrate the point:
- First to consumer internet: Prodigy
- First to the smart phone: Palm
- First to social media: Myspace
The best investments are rarely companies that are early to emerging industries. They're the companies that make it better. I remember a few years ago during the hysteria surrounding 3D printing I received a number of inquiries about which company or companies would be the best to invest in. I stated that I wouldn't consider investing in any of them. Today, just four years later with the industry still very early in the emerging mode, most of the original companies are out-of-business and even the industry leader Stratasys (Makerbot), has ruined more investors than not. Four years ago Stratasys peaked at $135 per share and today in a record market it's worth less than $25 a share and again that's the most successful example.
My 2 cents. If you want to speculate on cannabis - you should buy Reynolds American, Phillip Morris and Vector Group (they're South Florida based). Why? Because here's what'll happen. If it's legalized the existing tobacco companies will instantly dominate the market. They have the infrastructure, manufacturing, distribution and the resources to instantly crush the existing players. After the initial crushing of these entities, you'll have certain "craft" players in the industry emerge, a la, the craft beer industry. As for the VR industry...I don't believe there will be a mass market for it for the foreseeable but if one does develop in coming years it will be in Asia and the likely winners would be Japanese players.
I understand this isn't likely what you wanted to hear but it's want I feel compelled to say. Happy investing...
If you have a topic or question you'd like me to address email me: email@example.com