I’ve been having a difficult time figuring out how I want to approach the marijuana stocks as of late. The surge in the share prices was not anticipated. In my opinion, the markets are complacent. With no major market crashes since 2008, we’re nearing 10 years of market bliss. In fact, the past year, with the explosive surge of Bitcoin, there seems to be more appetite for regular investors to jump into the next hot item in hopes to hit the next jackpot. In the last two weeks, I’ve overheard more and more people whispering to each other about how they bought some weed stocks or are looking to get in. I’ve sat at Starbucks and listened to a middle-aged woman ask her financial advisor on she’s envious of her friends making these huge gains and wants to take on more risk, specifically, weed stocks. I’ve overheard coworkers calling their banks asking if they can sell some mutual funds to clear up space to buy weed stocks. Heck, even within my own social circle, the financial discussions have increased tenfold, and a large part of it is discussions of weed stocks and updates on prices.

Last week, I scaled out of a lot of my positions and I even bought PUTS on WEED and ACB. Other than the generous profits gained from the massive run-up in the marijuana stocks,  I didn’t like the price action from a long-term investment perspective. Essentially, if I thought to myself if I were a very logical smart hedge fund, would I be buying at these prices with these valuations. No. On a major pullback, I’d have my fund and my clients money in jeopardy. Then again, I’m an engineer and have absolutely no clue how these fund managers do their job, so perhaps I’m being naive.

BUT… with all the hype with new investors who with varying degrees of experience being in the market, it changes the dynamic quite a bit. And professional traders will exploit this as much as they can. In my opinion, I think the odds are more in favor with the professional traders than the retail investors. And we can’t all win. There are buyers and there are sellers, and someone will be on the wrong side of the trade.

So, is there more room to run? NO IDEA. Can we go higher from here? Possibly. But the faster and more vertical the price action, the more I warn of a steep pullback. I watched Bitcoin soar to $20,000 (US) while every step of the way you scratch your head and go, who’s buying? But as I write this post today, Bitcoin has come back down to $12,000 (US).

What is important that your expectations are kept in check. The realization that markets don’t go straight up. You can lie to yourself and come up with all sorts of future numbers to prove that eventually, these companies may have the earnings to justify these valuations, BUT, not everyone is going to wait until that day comes.

So before you decide to rush your entire savings into weed stocks (at their current prices), remember to do some risk management, consider the potential that if you’re going for the long multi-year investment plan, there may be a potential that all these stocks may pull back 50% from whatever the high will be. And if that high was last week, well, you may be in the water 50% for a while.

For myself, I think we’ve hit a temporary high and I think volumes will stagnate for the near-term future. I’m still buying and selling if I see opportunities arise, because like I mentioned earlier, I think we’re going to get some volatile swings as the market tries to find a base for all the weed stocks. However, I keep myself positioned so that if the run continues, I’m not sitting completely on the sidelines.

Just like everyone else, I am also a little bit greedy and plan to milk this run as much as possible. I just make sure that I’m doing it with a solid contingency plan so I know what to expect when the party ends.

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