What do cryptocurrencies and marijuana companies have in common? First, they are among the hottest topics discussed amongst retail traders. The media is fanning the fire, sending company stock prices like Aphria (NASDAQ: APHA) and digital currencies like Bitcoin (BTC – USD) soaring high these past couple of months. Second, they are entirely speculative when it comes to projecting their future value.
These investments can not avoid the systematic risk factor they face, which is why Twin Rivers portfolios do not hold speculative investments. Systematic risks are factors that affect an entire market or industry. Typical systematic risk factors include changes in macroeconomics, the environment, and societal conditions. Things like high-inflation or changing interest rates, natural disasters, and changing consumer preferences can alter the course of entire industries, and their effects are not limited to just one company. Marijuana companies and cryptocurrencies both face the similar and unpredictable systematic risk factor of government regulation.
Marijuana stocks jumped when Joe Biden was announced as the winner of the presidential election. Also, with a democratic controlled congress, the possibility of legalizing or decriminalizing marijuana nationwide has investors buzzing about the industry’s potential. This notion in itself is the problem. Nobody knows which direction the government will go with marijuana. There is even a chance the government may not change its stance at all.
Bitcoin faces a similar uncertainty. The attraction to investing in digital currency like Bitcoin is very high right now. Many people believe with the seemingly constant increase in the national debt ceiling, cryptocurrencies like Bitcoin will eventually eliminate fiat money. The idea that the government, or governments worldwide, will allow consumers complete privacy with their transactions is unlikely, which is at the core concept of Bitcoin as a currency. Still, no one truly knows in our rapidly changing society what might happen with these digital currencies, which is the very reason we consider investments in cryptocurrencies speculative. There are forces beyond anyone’s control that can quickly level these industries and markets at any given time.
At Twin Rivers, we will not buy speculative investments in your portfolio unless you instruct us to purchase the asset. There is an increase in financial transparency that comes with marijuana companies going public, and government regulators like the SEC are more closely monitoring digital currency exchanges. Yet, we still believe our clients can obtain financial security without investing in speculative markets like marijuana and digital currencies. Our team builds custom, diversified portfolios and only takes the risks required for our clients to create their ideal future.
Even though we believe that financial success can be achieved without investing in speculative markets, we understand the upsides that can come with taking on additional risk. If you would like to learn more about speculative investing and how it could affect your current portfolio, please do not hesitate to contact one of our advisors.
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The Twin Rivers team wants to guide you on your journey to financial success. If you have any questions about the topics above or would like to discuss any financial decision you are facing, please do not hesitate to contact our team.