Marijuana is one of the hottest growing trends in the US. With more states opting for legalization every year, the saturation of the marijuana stock market continues to increase. While investing in cannabis stocks could be a smart choice for many, there are 5 stock market cliches to avoid for success.
Don’t Catch a Falling Knife
This phrase warns investors not to purchase stocks because they are cheap. However, just because you can purchase stock at an affordable price, doesn’t mean it will always stay that way. As marijuana companies continue to grow, you can expect growth in many areas.
However, it is important to do your homework to find out why a company’s stock is so low. It is possible that the business isn’t doing well, so it’s essential to learn more about the markets in which you choose to invest. However, this doesn’t mean that every stock being sold at a low price is doomed to stay that way.
The January Effect
Attempting to make predictions about the marijuana stock market is important and could be the key to your success as an investor. The January Effect is an attempt to predict future market movements using January’s performance as a base and implying that if January is doing well, the rest of the year will do well, or vice-versa. However, this simply isn’t true.
You can’t always predict an entire year’s performance based on one month. Marijuana companies are changing and growing from month-to-month so as they create new products, recreational and medicinal, stocks will both increase and drop each month.
Dead Cat Bounce
When a stock that has dropped in value temporarily goes up before falling further in price, this is what investors know as dead cat bounce. Many investors will buy the stock as it temporarily increases only have the stock fall further in price than before. Because marijuana stocks are such a new market, it’s important to watch a certain stock before deciding to purchase. While you can’t always predict every stock’s value over time, the dead cat bounce can happen to any marijuana investor.
Don’t Fight the Tape
This is a financial phrase which means that investors should not bet against trends of the market. While it is tempting to expect the worst, this phrase means that if the market is moving up, don’t bet that it will go down.
If you are inexperienced when it comes to the stock market, it may be tempting to “don’t fight the tape” however, if you follow your gut, you could be right, and stocks could drop. It’s important to know when to both follow this cliche and avoid it for the best outcome.
Sell in May, and Go Away
This is one of the most popular cliches on our list. It speaks to the seasonality of the stock market and believes that the majority of the stock market’s price movement has historically come from November through April, so you should sell your holdings in May and buy back in November. Historically, this cliche has proven to be mostly true, but in the last couple of years, the May through October period has outperformed the November through April period which followed.
It is very possible that an investment from May through October can grow more than an investment from November through April. Many investors also find success staying invested throughout the entire year. While you can think about this cliché when investing in marijuana stocks, also consider that the past couple of years have actually proven this cliche wrong, so it’s essential to follow your gut and knowledge rather than a cliche that could negatively impact your success.