Building Wealth
How I lost $10k trading weed stocks
The cautionary tale of an overenthusiastic trader
Nov 23rd was a tough day. I was drinking coffee next to my laptop trying to process how I lost $10K in a week. And all of it was my fault.
Making money is awesome. Making money by clicking just a few buttons — even more so. That’s what stock trading kind of feels like. Deceptively simple. Deceptive, being the key.
The year was 2017 and I had just started working for a Fortune 500 company in Toronto. I lived at home so there weren’t any real expenses to worry about and that meant I could look for ways to invest my savings. Interestingly, around the same time, weed in Canada was getting legalized. The proposition seemed clear. A brand new sector was going to be created. A pot wonderland if you will: beauty products, medicinal products, and of course, recreational products, all infused with cannabis. There were going to be definite winners in the long term and this was my chance to be first in line. If you invested early, it would be like getting into Microsoft in the 90s, getting rich overnight (maybe not quite overnight, but fast, overall).
Having minimal knowledge of finance (thanks, 4 years of college), it was hard to understand where to start. With the help of a few close friends, I went to my closest TD bank, opened a brand new TFSA account, and funded it with $2K. For the next few weeks, I devoured every beginner investing video on Youtube I could find. My recommendation feed might have been all dollar signs at one point. Here are a few channels that I can recommend if you’re looking to start out: Learn To Invest, KhanAcademy, and ProjectOption.
I started off the first month by placing a few small trades to get my feet wet. Pulling the trigger on the buy button definitely brings anxiety: what if this is the wrong time to buy, what if everything goes down right now and I lose all of my $50 in the process. How naive. The market was running hot. It usually is when speculation takes over. So I wasn’t super surprised when the profits slowly started rolling in. Albeit, it was only $10–20 dollars at a time, but it was definitely something.
By the second month, I had my cool guy shades on as I started entering into much more substantial swing trades, hoping to capitalize on the extended hype. My first big win came with a company called Namaste Technoloiges Inc (TSXV: N). I bought 1000 shares at $0.32 on Nov 13th, and by Dec 18th it had hit a $1.39 – 330% increase in price; my $320 had turned into $1390. The sheer joy on my face when I saw $1000 in profit was priceless.
This was “free” money that I could do anything with. I could spend it on anything I wanted without feeling guilty. Within seconds, I was browsing through expensive clothing brands to spend my newly earned cash on. A shiny new and very expensive MooseKnuckle winter jacket caught my eye and I immediately placed an order for it.
I would love to say that I knew what I was doing, that I was some sort of a whiz, but honestly, I wasn’t. Everyone can make money in a bull market they say. And they are right.
As my personal risk appetite started growing, so did everyone else’s around me. Soon, every coffee chat, Discord hangout, and watercooler conversation became a chance to compare notes on the gains and lament about the missed opportunities for the week.
Things that go up too fast tend to come down just as fast
It’s very tempting to say I’m going to continue buying the hype since it’s making me good money.
With speculation, you’re essentially banking on someone else in the market to pay more than what you paid for the same security. This works well up to a point. When prices get ridiculous and there’s no one to pass the potato to, it all comes crashing down. With markets running awry at questionable valuations, there was soon to be a massive correction. It’s just that I didn’t know it would be this fast. Within a few days, the markets started going red and I ended up getting caught at the wrong end of the trade.
Since N had made me so much profit earlier, I had decided to keep looking for other good performers in the weed market. Golden Leaf Holdings (CSE: GLH) caught my eye. On Jan 15th, 2018, I bought 11K shares of it at $0.44 and then 12K more at $0.42 to “average out”. My portfolio held a total of 24K shares at ~$0.43 (MV: $10K). From the graph, you can see the value never went above my average and I never sold.
I will be honest. I didn’t lose the money overnight. It was more of a slow roll. Not only did I buy at a horrible time, I decided to hold on than to cut my losses. Nov 23rd, 2019 when I was looking at my laptop, that was probably the first time I fully realized that I might never see my money again. It was tough. Very tough.
It has been 5 years and I’m still part of the HODL gang hoping for GLH to miraculously recover.
Turns out I wasn’t the only one burnt. Tons of my friends were too. Mistakes were made. Now we just reminisce about how we lost our savings while running quick games of Warzone.
Lessons Learned
Difficult experiences come with invaluable lessons. Here’s a few of mine:
- Don’t go penny stocks. Stick with blue chips.
- Pumps come with dumps. Make sure you know when you’re buying into the hype.
- Trying to get rich overnight sounds sexy, but it rarely works out that way. Building generational wealth takes time, patience, and a solid plan.
- It’s very easy to get overwhelmed with all the influx of information. Be disciplined in the way you do your trades.
- Learn. Everything. Youtube everything.
The mistakes I made
Reflecting back, it’s very clear to see that hype clouds judgment — not just mine but everyone in the markets. The best way to combat that is by correctly evaluating the underlying value of the security. Asking yourself — based on the public data, what is the fair value of the stock. This is what Value Investing is. A philosophy preached by Warren Buffet and his mentor Benjamin Graham.
I’ve pivoted to investing in low-cost index funds:
- 80% into VFV
- 20% for active investing: Big Tech, Banks, etc.
Here are a few reasons I went with the approach above:
- It’s much less stressful because it’s essentially tracking the S&P.
- It gives you a little room to experiment with growth stocks which can be useful.
- There’s in-built diversification.
- The management fees are insanely small. Plus Questrade doesn’t make me pay $10 per trade to buy ETFs. This lets me Dollar Cost Average effectively.
Constant Learning
I have a stash of books on investing and finance that I’m going through. I would invite you to do the same and learn from the very best. The amount of knowledge in the 200 pages of a book is insane. Here’s a great list to start with.
Here are the ones I’ve read up until now. (I will be updating the list as I read more).
- The Compound Effect by Darren Hardy
- The Little Book of Common Sense Investing by John Bogle. Here are the key takeaways.
- The Intelligent Investor by Benjamin Graham
Well, this is was my journey jumping head first into investing and learning some very expensive lessons. For those of you who are looking to start, I hope this post inspires you more than it scares you. And for those who have been in a similar situation as me, I hope this account gives you some comfort that things can only get better from here. Live and learn.
Find me on Twitter and let’s have a chat :)
