Cryptocurrencies and Marijuana

Since stock markets are roughly 40% above their 100 year norms, the action has switched to the next hot markets, cryptocurrencies and marijuana.  Both of these high risk gambles (note, not investments) will end up badly for those who play either. 

It all started with Bitcoin.  Now it is one of at least 2,600 digital currencies.  Anyone with a computer can start their own version.  Sadly plenty of fraud is going on and there is no one to police this market.

A month ago I was in Thailand.  Bitcoin traded over $20,000 (equal to U.S. dollars).  Meanwhile, in North American it was about $16,000.  When it climbed above $20,000 a week later it was around $18,000 in Asia.  The year-end price was reported to be $14,292.  The point I am making is that there is not one price at any given moment and it is volatile. 

South Korea has recently made it illegal to trade in any cryptocurrency.   Now China is thinking of doing the same.  America for now will allow it because Wall Street started trading cryptos and will make a lot of money from all the inexperienced players.

If you buy a share in any company you can easily find out managements track record and what earnings are.  Investors can find out what assets the company owns.   With crypto-currencies there is no information available or assets backing the currency.  This is the Greater Fool Theory.  Just like the tech-bubble, everyone will sell the day before the collapse arrives - even though only a very few actually do.  Most will ride the price down to zero because they dream it will bounce back.  As one Bitcoin investor in Thailand told me the value can only increase.  He could not give me one reason why.  All cryptocurrencies are backed by absolutely nothing.   This is the modern day version of the Tulip Mania.

Canadian investors have also been on a massive high throwing their savings away on marijuana stocks.  One employee of one of the Big Five banks told me recently they are behind in opening new investment accounts.  All these new accounts only want to buy marijuana stocks. 

The industry will be successful but it will take time.  It’s guaranteed there will be overproduction at first.  This will result in a cheaper market price than what is expected and force most companies out of the market.  Colorado is a perfect example where prices average $7 per gram for recreational use, compared to the initial $12 the market was hoping for. 

This is a small and very young market that is substantially overvalued.  Very few of the companies have any profit, let alone revenue. Marijuana is an accident waiting to happen and there are going to be plenty of regretful investors.  There will be a time to enter this market but not until proper legislation is in place and the hysteria is gone. Give it time to see who sinks and who swims.  

If your broker suggests investing in marijuana or cybercurrencies ask if his firm is doing underwriting for the investment they are touting.   The brokers’ sole job is to unload all those new shares rather than to make you money.   We are avoiding both high risk gambles.  Both might go substantially higher for a while but the end result will be the same.  Reality always wins out.   We will stick with the dividend paying shares.