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March 28, 2019, 9:12 a.m. EDT

Creeping complacency in marijuana-stock investing is a possible warning sign

Volatility is down, which more often than not leads to lower stock prices

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By Nigam Arora

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Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.


The chart shows the relative rankings of the five select popular marijuana stocks. These rankings are based on the six screens of the ZYX Change Method. (Please click here to learn about the six screens.)

Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.

What to do now

It is important for investors to understand that significant complacency has creeped into marijuana stocks. Due to this complacency, marijuana stocks are experiencing significantly less volatility than before. This often occurs before a major change happens — change can be to the upside or to the downside. In this case, the probability is 60% of a downside move, 20% of an upside move and 20% of these stocks staying range-bound.

Consider using the foregoing probability information to assess your marijuana portfolio to make sure that you are holding only those positions that you want to hold for the long term and the total investment in marijuana stocks is in line with your personal risk preferences. If you are still holding positions in marijuana stocks for the short term, consider taking profits. To be clear, this is not a call to sell long-term core positions that are properly sized.

Arora’s 14th Law is directly applicable in this situation: To be successful at investing and trading, become a master of position sizing. Position sizing is critical to investing in marijuana stocks. In addition, using techniques such as trade-around positions is especially important.

Those not in marijuana stocks may consider waiting patiently for signals to buy select marijuana stocks. There is too much risk in buying these stocks today. Of course, there is an exception in buying new special situations in marijuana stocks as they develop.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

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