MJBizMag March 2021 - 14

Trends&HotTopics | Mike Regan
Who is the 'Greater Fool?'
Marijuana shareholders can learn from GameStop's trading frenzy
T
he meteoric rise of GameStop
shares made headlines when
independent investors drove stock
prices up from about $19 in early January
to a high of nearly $483 on Jan. 28. But
what should be made of it? And what can
the marijuana industry learn from it?
What happened with GameStop
is a short squeeze. The same thing
happened to Tilray in 2018, Volkswagen
in 2008 and supermarket perator Piggly
Wiggly in the 1920s.
While it is possible to profitably
invest by selling whatever is rising at
ever-higher prices for nonfundamental
reasons, such " greater fool " investing is
a tough zero-sum game where, by definition,
someone must eventually lose.
Even the winner eventually loses
when its trading counterparts run out
of money or, as happened at Piggly
Wiggly, when someone more powerful
changes the rules of the game for their
own benefit.
Over the long term, I believe the
highest and most reliable source of
returns comes from the core function
of capital markets-matching those
who have more ideas than capital
with those who have excess capital for
a mutually beneficial deployment of
capital at higher returns.
Those fundamentals drive true value
creation over time. But this does not
mean it is wise to ignore price moves.
Situational awareness is necessary to
know when the game changes.
If you're playing basketball with your
friends, and 11 strangers in helmets and
shoulder pads line up at half court, you
need to realize you're not playing basketball
anymore and adjust your strategy.
If you continue to shoot three-pointers,
you're going to get tackled.
Fundamentals Versus
Market Mechanics
In Berkshire Hathaway's 1993 investor
letter, Warren Buffett quoted his
mentor, Ben Graham, as saying: " In
the short run, the market is a voting
machine-reflecting a voter-registration
test that requires only money, not
intelligence or emotional stability-but
in the long run, the market is a weighing
machine. "
This is why opportunities to buy
good companies at cheap prices
exist. The " voting " of the market sells
down something to below the value
supported by fundamentals.
Over the short term, the value of
a company is driven by whatever the
last person wanted to pay for one
share-and sometimes for reasons
that might have nothing to do with
the fundamentals.
Over the long term, the most
solid support of a stock price is
the fundamental profitability of the
underlying business: the " weighing. "
If you can't sell the stock (for
example, because the public markets
shut down or the company was private),
the only return comes from cash
distributed to the equity owners in the
form of dividends or share repurchases.
The best investors keep an eye
on both the long-term fundamental
" weighing " perspective and the nearterm
price from the " voting " perspective.
Then, they buy good companies at low
prices when the two diverge.
Companies Weigh In
Smart companies should have an
idea of their own intrinsic worth and
potential returns on existing and
potential projects. If the market bids up
their stock, companies will issue new
Even the winner eventually loses when its trading
counterparts run out of money ... or
someone more powerful changes the
rules of the game for their own benefit. "
14 Marijuana Business Magazine | March 2021
MJBizMag March 2021

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