In light of this, it’s tempting to consider shorting cannabis stocks, which are still as overpriced as they ever were relative to sales. Now their revenue growth is slowing down. Certainly, there are some opportunities to be had by shorting them.
Right?
Maybe — and maybe not. While most marijuana stocks appear overpriced right now, it’s probably not a great idea to short them. An irrational rally can last a long time, and the potential losses are unlimited. In light of this, you’re probably better off avoiding marijuana stocks rather than shorting them.
Shorting stocks is dangerous because of the potential for unlimited losses. When you buy a stock with your own money, your loss is limited to the amount of money you invested.
When you short a stock, you borrow it, which means you have to pay back the shares later. There’s no limit to how high a stock could go, so your potential losses when shorting have no theoretical limit.
While hedge funds frequently use shorting and other complex strategies, these are not generally recommended for retail investors. Even marijuana stocks, which appear poised for another dip, could rally unexpectedly. So shorting them could cost you some big money.
If you’re bearish on cannabis stocks, your best bet is to avoid them and invest your money elsewhere.
No way. Marijuana stocks are extremely volatile, and while their long-term trajectory is grim, they could spike massively in a bull market. Unless you have the intestinal fortitude to hold on during something like that, you’re likely to lose money.
Leave shorting to the hedge funds. In your own brokerage account, it’s enough to just avoid marijuana stocks entirely.
The post Should you Short Cannabis Stocks or Just Avoid Them? appeared first on The Motley Fool Canada.
Andrew Button has no position in any of the stocks mentioned.” data-reactid=”48″>Fool contributor Andrew Button has no position in any of the stocks mentioned.
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