Learn how pot investors herd – just like all investors – at the 4th Annual Social Mood Conference in Atlanta
By Susan C. Walker | February 24, 2014
Once there was the Gold Rush in the western United States. Now that states have begun legalizing marijuana use, there’s the Green Rush. Alan Brochstein, CFA, started focusing on stocks in the cannabis industry a little more than a year ago, after he read an article about a company selling nutraceuticals derived from cannabis. He turned his interest into a business when he realized that no one else was publishing much research and analysis on public companies with a connection to marijuana, either for medicinal or recreational purposes. Now, he is a leading authority as the founder of internet-based 420 Investor, which helps investors to find objective information on cannabis-related stocks and to capitalize on the Green Rush.
Brochstein will be one of the 10 speakers at our 4th Annual Social Mood Conference on April 5, 2014. He worked for Wall Street firms and institutional money managers for 20 years, after graduating from Northwestern University with a bachelor’s degree in Economics and Mathematical Methods in the Social Sciences.
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SF: You call yourself the Cannabis Financial Analyst. How does social mood tie into your investing site whose tagline is “capitalize on cannabis”?
Alan Brochstein: While I only recently became familiar with the Socionomics Institute’s work in the area of drug prohibition, I find it fascinating that social mood governs society’s tolerance for recreational drugs. We are at a most important juncture with marijuana legalization, since Colorado has already implemented legal cannabis and Washington is in the process of doing so. In a weak economy, it’s not surprising that states are legalizing pot in light of the findings of thought leaders in the field of socionomics.
SF: How did your previous work in the stock market lead you to doing research on investing in marijuana?
Alan Brochstein: Throughout my career, I have found that focusing on aspects of the market that are neglected by other professionals can be highly rewarding. I literally stumbled upon this corner of the market just a year ago and am now devoting almost all my time to the cannabis-related stocks as well as the industry, which is undergoing a radical transformation as it comes out from the shadows of the black-market economy.
As a libertarian since my early teens, I have always maintained a strong view towards decriminalization and legalization, and my research over the past year has added yet another justification beyond personal freedom: medicinal benefits. We are witnessing the birth of a high-growth industry that will be driven by technological change, and I am focused on understanding how this will play out and on finding companies that will benefit.
SF: Your audience at the Social Mood Conference might be skeptical about investing in marijuana companies that are mostly penny stocks. What will you say to open their minds?
Alan Brochstein: In more than 25 years as an investment professional, I never focused on penny stocks, and I certainly think that they are not very good investments by nature. So, I hope the audience will understand that it is possible that at least a few of these early arrivals to the public equity markets could prove to be good long-term investments. Additionally, I hope that those who hear what I have to say will understand better how cannabis legalization is beneficial for such a diverse group of stakeholders.
SF: One of the tenets of socionomics is that waves of social mood arise when humans interact socially and that the process appears to be related to the herding impulse. Do you see that in your work?
Alan Brochstein: Through my 420 Investor service, I am seeing the herding impulse up close on a consistent basis. The cannabis theme is compelling, but it is both amusing and disturbing to see how small investors are trying to get rich quick by pursuing the lowest priced stocks with absolutely no understanding of the capital structures or business models of the companies.
SF: You are a long-term and popular blogger about stocks on Seeking Alpha. What motivates you to focus on the marijuana industry now?
Alan Brochstein: With the trends towards legalization and medical usage cemented by two key events last August, I launched an internet-based service aimed at individual investors focused on the cannabis stock sector. One challenge to focusing on this industry and those who have been quick to embrace it is how relatively inexperienced many industry participants and especially the investors are. Emotion, “ticker affinity” and an inordinate focus on short-term price action seem to outweigh fundamentals and other longer-term measures of potential success. My primary objective has been to identify likely long-term winners from losers and to create a focus on management quality and integrity, access to capital and scalable business models.
SF: Why are you looking forward to the Social Mood Conference in early April?
Alan Brochstein: I have the most exciting subject matter of anyone! While many individual investors have gravitated to the marijuana stock sector over the past 18 months or so, the nature of the publicly traded stocks has served as a barrier for more sophisticated investors to explore this area. I hope that I will inspire others to consider the opportunity and to appreciate that the quality of the publicly traded companies will improve dramatically in the months ahead.
SF: Thank you for your time, Alan, and we look forward to hearing your talk in April at the 4th Annual Social Mood Conference
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