weed spliff 3
Image: © Martin Alonso via Wikimedia Commons

Cannabis investors’ high might be in for a come down

Bloomberg says pot stocks are a bubble that will eventually burst.

What it means: There are lots of arguments for legalising weed. ‘Marijuana stocks could make me rich’ isn’t the first one that springs to mind. But that’s what a lot of people are getting really excited about.

In places where cannabis is legal (which now include Canada and some US states) companies that sell it can issue shares (or stocks, which is just a different name for the same thing). A share is a little bit of the company that someone can own if they buy it. Companies sell these shares to raise money to invest in stuff they think will make their businesses better - new products, advertising campaigns, another warehouse, whatever.

The idea is that people buy shares in companies they think are going to make lots of profit, because then they get some of that profit. The more people that want to own shares in a company, the higher its share price will be (because new buyers think it's worth splurging out on something so valuable, and existing shareholders don’t want to sell their cash cow).

But lots of people instead try to make money by speculating on the share price. Basically, they make a bet about what the share price is going to do. The simplest way to speculate is to buy shares at a lower price and sell them at a higher one, but you can also do lots of other complicated things, like bet the share price will go down (FYI, this is called shorting, as in the film The Big Short).

Because nobody can actually know how much profit a company/product/industry will make or what its share price will do, people often bet wrong. Sometimes, when lots and lots of people all become convinced a company/share is going to become ever-more profitable/expensive the shares rise much more than they should (because the company/product/industry will never make enough money to make it worthwhile to buy their shares at that high a price). This is called a bubble. And bubbles burst.

Eventually, some shareholders will realise their stocks are overvalued and sell them. As the share price falls, other shareholders panic about losing money if they can’t sell shares for more than they bought them for. That ends up in a mass selloff and a plummeting share price. Investors who were not quick enough on their feet lose all the money they put into that stock.

So, no matter how good a buzz you think you might get from pot stocks, sometimes it’s best to Just Say No.

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Reader Comments

  • RW

    Your right to a degree. You mentioned “the wandering Jew”.

    I elaborate that the Jewish people, historically have tended to migrate almost exclusively to locations that are economically and culturally vibrant already. I would speculate that Jews have thrived in these places and have often improved the bounds of their economies and knowledge base.

    You can also ask; how many massive entertainment conglomerates, Nobel winners or billionaires has Isreal developed? If Jews are so capable, why isn’t Tel Aviv the Rome of our time?

    Jews are successful because they value education, maintain a strong social cohesive, they actively monitor and have a good sense for Zeitgeist wherever they are and they carefully choose the places they settle and congregate themselves heavily in these choice locations.

    But most importantly (haulocaust increased the importance of this aspect), they actually designed their culture for success. They not only attend Harvard, they use what they learned to better the group as a whole. With as much, they studied intricate networking systems, adapted to it and in many cases improved upon them. (See how Japan acquired Aegis warships and made them better).

    Of course there is nothing wrong with any of this. It’s when you elaborately gain disproportionate power in any society where you would stand out, you must take care when attempting to make a society better (Civil Rights movement) and rewriting that society all together (mass immigration). Ask blacks in China, Mexico, Philippines or India how much opportunity they have? Go to businesses owned by their American diaspora and see how many blacks they hire. Go to Silicon Valley and see how many East or South Asian tech workers wish they could work with more black people. California might work as a state, but as a nation, I think your rolling the nuclear dice here. I hope we can succeed as a tolerant pluralistic superpower but at this stage in human societal development, it’s a pipe dream.

    And if Jews really are the icon for success, they would see that fundamental human successes happen over generations. Just look at the rest of the planet? Are we ready?