Advisor says investors must understand fundamentals behind fast-rising new sectors
Investors are being urged to understand the fundamentals before piling money into marijuana and cryptocurrency stocks.
The sudden return of volatility to the markets, in particular the US, was not only an overdue correction in many people’s minds, but also an overdue reminder that speculating comes with risk.
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Matthew Bishop, investment funds advisor at Bishop Wealth Management, admits he’s a boring investor who “diversifies and keeps it simple”. He agrees with the general consensus, which Monday’s market swing added fuel to, that we are due a major correction or recession, although says that could be “one year, two years or three years away”.
Bishop has sensed a level of complacency and a return of greed, with people “chasing the last great thing” before a significant downturn hits. He warned investors against “gambling” with marijuana and crypto.
He said: “Canada is only 3% of the world’s economy. We need to spread our wings out to all different parts of the market. But buying marijuana or crypto stocks? That is not investing, that’s speculative gambling. It’s a great place to go play and I would encourage people to go do it but that’s not investing at this stage, it’s gambling.
“We don’t really know all the facts yet. It could be terrific and I’m sure there are parts that will be, but I certainly don’t see it, at this stage, as being part of someone’s financial plan. It’s speculative investing.”
Bishop said that investors should understand that traders in this space work on moving in and out of the market, speculating on technicals.
“It’s just trading for the sake of trading,” he said. “And that’s an area that’s truly a different business than investing for your client’s retirement.”
Instead, he urges people to back companies that have the ability to withstand headwinds similar to the ones that have blown through the indexes this week.
He said: “We’d come back to focusing on fundamentals. So now, more than ever, if you are buying something, you had better darn well understand what is fundamentally underneath it and, therefore, the reason you own it.
“Also, what are you paying for it? You have to understand that and whether you see it as having a really long runway to continue to appreciate. I would put Canadian banks in that category and say look, still having an allocation there makes sense.
“They have a long, long runway to withstand big headwinds but a marijuana company or cryptocurrency? They aren’t real yet, they are start-ups. They certainly could form a place in people’s portfolio because the potential is massive for them but you had better darn well understand what the fundamentals are.
“Cryptocurrency? I don’t understand the fundamentals behind that, so I would never touch that. On the marijuana side, I can appreciate the fundamentals. There’s a large market there and it’s going to be regulated so there is good potential, but trying to understand how these companies are going to execute that is still so, so new. It would form a part of people’s portfolio that would be considered, in my view, speculation.”
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