Cale Flage, CFP®

Cale Flage, CFP®

Cale Flage, CFP®

Financial Advisor

A Canadian Cannabis Producer Offers a Harsh Lesson About Investing Frenzies

Amazon closed today at $1,934.36 per share. Wouldn’t it have been nice to have had the foresight to purchase this stock back in 1997 when it traded for less than $2 per share? A $10,000 investment at that price would be worth almost $9.7 million today.

Unfortunately, this kind of wishful thinking can get investors into a lot of trouble. For every Amazon, there are hundreds of other early-stage companies that either didn’t perform as well or totally went bust. Behavioral biases are hardwired in our brains and cause us to overlook these facts and focus on “what could have been.” If only we were able to buy Amazon in 1997.

These biases cause a lot of investors to get caught up in frenzies because they fear they are missing out on the next Amazon. They are seeing their friends get rich and are terrified of missing out on the action.

The latest example of this is Tilray, a Canadian cannabis producer whose stock shot up nearly 200% to $300 per share in just 5 days. Investors went scrambling after the stock that was posting massive double-digit gains each day. According to Bloomberg, this small company of 330 employees was suddenly worth more than American Airlines, Clorox, CBS, and Hershey Co.

Unfortunately, the ride didn’t last long. After peaking at $300 per share during the day on September 19th, the stock rocketed down to $99.50 on September 24th, only 3 trading days later. Any investors that bought in at $300, expecting another day of double-digit returns, would see their investment worth only a third of what was invested. At this point, it would take over 14 years at an 8% return just to get back where you started.

I offer no predictions on what happens to Tilray in the future. This is simply a reminder of how dangerous it can be to your investment dollars by getting caught up in frenzies and manias. As Warren Buffett said, “People start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t.”

7/1/22 update: Tilray is currently trading at $3.10 per share, down from its peak of $300.

**This is an education piece and not a recommendation to buy, sell, or hold or securities mentioned.**

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