Cruel, cruel summer

It’s near the end of September and the seasons are changing.

 

Chet Hanks predicted this past summer would be a ‘white boy summer’. But for psychedelics stocks, it’s been more of a red summer. With fall approaching investors are hopeful the psychedelics sector can rebound coming into Q3/4.

 

It’s normal for stocks to go down in the summer. News flow usually slows, CEO’s and upper management go on vacation, as do many investors. Things kind of come to a halt. In the cannabis sector, it was always the same story every summer. Horizon’s ETF (HMMJ.T), would see a huge dip followed by an upward swing in the fall every year before 2019.

 

But this particular summer has been rough on psychedelics companies, and, it’s the first big correction the newly formed sector has experienced, and I’m not sure everyone is comfortable on the rollercoaster.

 

 

A strong trend I have been noticing over the past few years is people investing in companies and sectors that they line up with morally. Ethical investing it’s sometimes called. I understand the reasoning and psychology behind it. This explains why so many of the psychedelics retail investors are actually more so psychedelics advocates than speculative investors.There isn’t anything wrong with this, and it’s introducing new lifeblood into the public markets.

 

Here’s where things get iffy though.

 

Newer investors who aren’t used to the ups and downs of the stock market, both financial and emotional aren’t ready for the chaos that is speculative investing. These psychedelics companies don’t have 30 years of income statements to vet, and they aren’t household names with brand equity. They are startups, for the most part. And startups are inherently a more speculative investment as much of the current value of the company is based on the future and what the team has previously accomplished. This has meant cheap stock for psychedelics investors, but that cheap stock will always find weak hands.

 

PSYK, (PSYK.NE) Horizons psychedelic ETF – ie, a collection of most of the biggest psychedelics companies and a general barometer of where the sector is at fell from $10.15 CAD in May down to $6.85 CAD at the start of September, a 33% decrease. PYSK has since rebounded to $7.36 CAD. Hopefully, this is a sign of a fall bull run – more on that a bit later.

 

 

 

Reminder: panic selling is not zen, and will not free you of your demons

I have a theory – people who are new to investing are more likely to panic sell when things don’t go as planned. And I’m not even above it necessarily, panic selling is an evil temptress that temps us all. The idea of just getting out and saying ‘fuck it, time to move on’ is so appealing as the ship is sinking. I have done it twice in my life and at the moment it feels like a relief, but then most of the time it means you didn’t have a plan, to begin with, and you just were rolling with hope. This is the downside of ethical investing without knowledge of how public markets work, or the stomach it takes to weather the storm. I have seen countless posts on psychedelic stock forums that are almost cut/paste from the cannabis days. I’m all for investing in companies you believe in, but don’t let that override a cash flow statement or a shady CEO.

 

This is when you know you are in trouble –  when piles of investors are wanting to know why the stock is going down when there is no logical reasoning behind it. They point out all of the positive news that has come out about the individual company and the sector at large, they say but, it should be going up! One of the starkest realities you learn from investing in the stock market, and one of the things that makes me more uneasy as I get older is the complete fragility and opaqueness in which most stocks operate.

 

There is so much shit behind the scene with VCs and hedge funds that retail investors will never get so much as a sniff of, and in one or two trades a couple of bad actors can tank a stock if they own enough shares. Once that happens, a wave of panic selling retail investors usually follows and now we’ve got a domino effect. Retail investors really have no power in this hierarchy, and that should be the fear of the retail investor, not if the line is going up or down.

 

And there is a major difference between the hedge fund and the retail investor in the above scenario that’s important to point out. The hedge fund has probably done what their name implies, hedge. They will make money whether the stock goes up, or down, but the average retail investor without access to a margin account doesn’t have that same benefit. When they panic sell that’s it.

 

The worst thing about panic selling as an emotional reaction is it comes with the initial illusion that it will free you from obsessing over the number going up or down, but, who amongst us is strong enough not to keep checking the price even after they sell? I know I’m not. And God forbid if that thing goes up after you sell! It’s just not a fun game any way you play it.

 

Today was a good day

We aren’t sure if psychedelics will have that same level of support, although I am hopeful as I do believe this sector has a lot of momentum, cash, and a bright future with a lot of exciting upcoming catalysts.

 

 

I saw last night the aftermarket price on Cybin (CYBN.N) was shooting up, and as of 11:30 AM PST today, the stock is up 10% today. Looking at some others in the space. Field Trip (FTRP.Q) is up 4%, as are Seelos (SEEL.Q) and MindMed (MNMD.Q). Novamind (NM.C) is up 10%.

 

I’m looking forward to Q3/4 and hopefully, we have seen the bottom and this is a start of a reversal. Contrary to the newer panic seller, the bullish investors who believe in their companies for the long run are picking up more paper on these low low prices. For them, these companies are on sale and this is an opportunity.