Marijuana, Unicorns and IPOs

One of our favorite things to do is to discuss investment ideas. As a member of our investment policy committee, I have the opportunity to hear topics presented all of the time. Often, these ideas come from our clients, and sometimes I feel the need to address them. Two of the more recent hot investment ideas this year are marijuana and Unicorns/IPOs.

I appreciate the insight from a money manager named Jeffrey Bronchik, who we follow. On Marijuana, Jeffrey Bronchik says:

“However “sexy” one aspires to be in their personal life, investing in a sexy sector historically has produced decidedly unsexy returns to the buyer, but pitching such things remains a wealth enhancer for the seller and promoter. And to paraphrase my mother, if everyone else is doing it, it’s probably not a great idea.” (1)

If you take two steps back, you might view marijuana as just another crop, like tobacco. Yes, it is a fad right now, but marijuana is likely to follow the path of many commodities. It will likely find a groove and sit in it. Is anyone all that excited about tobacco?

Initial Public Offerings (IPOs) are hot these days. Regarding IPOs, we turn again to Mr. Bronchik:

“Things like Uber and Lyft always go public at tops and are NOT signs of market strength. In fact, they are signs that very smart people who receive very high fees and aggressively use leverage want to take money off the table.”

Again, with a little perspective, sometimes stocks go up at the offering, sometimes they do not. And sometimes the opposite of what we think is a good investment might be the better decision.

During this IPO craze, many companies are choosing to stay private longer. There are clients of ours who talk about investing in unicorns, private companies with valuations over $1 billion. Sounds like a fantasy, doesn’t it?

Perhaps a person will come along and tell you a great story, certainly more convincingly than I could tell, about the bright future of a technology company sure to change the world. But I’ve had countless experiences with start-ups and tech firms that humble me in the face of massive uncertainty and disruption.

Instead of placing a bet, we encourage you to diversify. Learn more about what you have already and you (likely) will be impressed. Brilliant people are already investing in companies—known and unknown to you and I both—and we all benefit from their efforts and our humility. Let’s focus on what we can control: your plans and your budget and your goals. Spend time in meaningful relationships and invest with your values in mind. These actions pay dividends not measurable by dollars.

 

Disclosures & Resources:

*This is not an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. Nothing in this Periscope should be construed as a recommendation to buy, sell or hold any investment or security or to engage in any investment strategy or transaction.

(1) http://covestreetcapital.com/wp-content/uploads/2019/04/CSC-Strategy-Letter-35-April-2019-1.pdf

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