Got Pot? We Say “Not”!

With marijuana legalization slowly spreading across the country, we are beginning to see a lot of advertising promoting investing in marijuana industry related stocks. We question the integrity of many of these promoters.  At this time, we recommend avoiding these issues for the following reasons.

First, many of these companies are in the start-up phase. They have very little in the way of revenue, and most are not profitable. We believe that it is too early in the business cycle to consider putting capital at risk in these types of companies.

Second, many of the legalization statutes enacted, Maine’s included, have provisions that all but exclude large corporations from participating in this market. This is most likely detrimental to the growth of the industry. While the rules may be good for local businesses, “staying small” has never been a good strategy in terms of properly developing an investment- worthy market sector. We believe that, once the major companies (read Altria Group, British American Tobacco, etc.) begin to develop brands around marijuana much like they did with e-cigarettes and vaping, it will be time to consider investing in the sector if one chooses to support that sector.

An argument can be made that one would want to be in the sector before the large corporations get in. In this case, with all of the variables surrounding the implementation (and legislative delays thereof) of the marijuana legalization statutes, we do not believe the argument to be valid.

Finally, and perhaps the biggest reason we recommend avoiding these issues, is that marijuana is still classified as a Schedule 1 drug at the Federal level. There has been no assurance from  the Federal government that they will continue to tolerate state laws concerning both medical and recreational marijuana.  The risk of the Federal government stepping in and enforcing the drug laws has the potential to destroy the semi-legitimate portions of this industry, almost overnight. Again, this poses what we believe to be an unacceptable level of risk on these investments. In this case, as in many cases in the investment world, this risk is best avoided.

1st Quarter 2017 Newsletter

Happy New Year from the crew at Eagle Financial Strategies! We hope you had a great holiday season.

Following please find some items of interest as we go into 2017.

For those of you who still have Master Limited Partnerships in your account, please be aware that you will receive a Form K-1 to file with your tax return. From past experience, many of these K-1s are not issued until the end of March. If you have any questions concerning whether or not you will be receiving a K-1, please email or call us.

We have done a full review of our models and selected investments. You will most likely see some activity in your accounts over the next few weeks as we realign your portfolios with the new models, swapping out selected investments for the new ones.

We expect some turbulence in the market going forward. The “Trump Rally” thus far has been based solely on analysts’ thoughts on “what might happen”. No one knows for sure. While President-Elect Trump has made some clear indications as to what he would like to do, he still needs a cooperative Congress and Supreme Court to fully execute his vision.

Interest rates should head higher throughout the year. The Fed has telegraphed the possibility of three rate increases during 2017. This will cause some volatility in the fixed income markets if the rate increases should materialize.

As far as to our thoughts on the market’s overall reaction, our crystal ball is still broken (I know, we need to get a new crystal ball repair man-we are open to suggestions). As always, we believe that staying the course and executing a properly developed investment plan based upon your individual risk tolerance is the proper action. Almost all of the accounts we manage are set up to be long-term investment programs. Therefore, it makes no sense to make short-term adjustments that could potentially harm the program over the long-term. An interesting study supports our belief that staying invested and not trying to time the market, even in poor market conditions, is the way to go.

According to the 9/5/2016 edition of BTN Research, the total return of the S&P 500 from 2011 through 2015 was 80.7%. The best 13 trading days in that five-year period (out of 1,258 total trading days) accounted for 55.1% of the 80.7% gain. Put another way, approximately 1% of the trading days over the five-year period accounted for approximately 68% of the total five year gain. If one had been trying to time the market by moving in and out in response to external factors, they stood a very good chance of missing the biggest gains from 2011 through 2015. (These figures represent past performance only, and cannot be used to predict future performance.)

This does not preclude a speculative investment once in a while (though only if it is indicated by your risk tolerance), but does lend credence to our belief that remaining invested over the long-term, adding to investments (especially in down markets), and reinvesting dividends and interest back into the account is the proper way to execute a long-term investment program.

We wish you all a Happy, Healthy, and Prosperous New Year.