As I reviewed the latest batch of "letters to the editor," it occurred to me that I have more extensive written correspondence with the Mind Over Markets community than with members of my own family.
In today's smartphone age, it seems that most people would rather communicate via texts. My millennial daughter Jennifer is among the worst offenders. Asking her to send me an honest-to-goodness email is like asking Superman to pick up a piece of Kryptonite.
Hence my gratitude for the extra effort readers make in sending emails to our address: mailbag@investingdaily.com
Letter writing, even in electronic form, is an increasingly neglected art that still serves an important function. Let's get to this week's letters.
Mesmerized by marijuana…
The "green rush" is generating a high volume of letters on the topic. Here's one such reader inquiry:
"I'm curious about marijuana stocks, but I'm still trying to make a decision. This is a new direction for me. Any advice?" - Tulasi A.
Marijuana, for years demonized as the "devil's weed," is becoming a mainstream multi-billion-dollar consumer products industry in both the recreational and medical sectors. Canna-business, as it's sometimes called, represents one of the greatest investment opportunities that you'll experience in your lifetime.
Powerful, multi-year tailwinds are propelling marijuana companies. This chart tells the story:
As an increasing number of countries and U.S. states legalize marijuana, pot companies are proliferating. However, you must remain wary of the micro-cap marijuana stocks that are exploiting investor fascination with this investment theme. Many of these companies are dubious penny stocks that will soon implode.
Without a doubt, there's money to be made in the marijuana industry - big money. But you should steer clear of thinly capitalized companies that lack significant products in the marketplace. A shakeout is brewing among the weaker players.
Investors are indiscriminately throwing their money at marijuana stocks with a lemming-like fervor that's reminiscent of previous market frenzies - Dutch tulip mania and the dot-com bubble come to mind.
Here's the good news: Our strategists are scouring the marijuana landscape for the best investments. We're finding stable cannabis companies with viable products, seasoned management, and actual earnings growth. To learn more, keep your eyes open for our team's continual coverage of the booming marijuana industry.
The crude facts…
As energy prices slump, several readers are expressing concern over the viability of oil and gas stocks. Here's one such letter:
"Energy prices are in the doldrums again. Should I be concerned about energy sector indebtedness?" - Gary C.
With oil and gas prices sputtering this year, it's no surprise that the number of expected bankruptcies in the energy sector this year is growing.
Read This Story: Sunset in the Energy Patch?
The following chart shows the wild ride over the past 12 months of per-barrel prices for U.S. benchmark West Texas Intermediate (WTI) and the international benchmark Brent North Sea crude (as of last Friday's market close):
In this unpredictable climate, your smartest strategy is to look for energy stocks with the lowest ratios of long-term debt-to-equity. They're less vulnerable to wild oil price swings and they'll grow the fastest when energy prices inevitably bounce back.
The right allocations…
"I'm wondering what falls into your 25% allocation to 'hedges'? - Frank S.
You're referring to this asset allocation pie chart, which I've conveyed in recent columns (see below).
Considering today's investment conditions, these allocations provide a prudent mix, generally speaking.
I define "hedges" as precious metals such as gold and silver, real estate investment trusts (REITs), and commodities, among other investment classes. Choices depend on your investment profile and how much risk you're willing to shoulder.
Of course, in a bull market, your allocations should emphasize stocks. In a bear market, you should lighten up on stocks in favor of bonds and cash. And in a transitional market that's "in between," you should strike a balance. At all times, your portfolio should steer clear of overvalued equities.
An appealing hedge right now that often gets ignored by investors are assets linked to agricultural commodities.
By investing in plays that benefit from sweeping global transformations, you can settle in for the long haul and tune out the white noise about fluctuating indicators.
The confluence of four relentless trends - political turmoil, agricultural destruction, population growth, and an expanding global middle class - make agricultural assets effective hedges against inflation. For convenience and safety, consider benchmark exchange-traded funds that hold stocks of companies involved in agriculture.
As a direct hedge against inflation, consider Treasury Inflation Protected Securities (TIPS). These are government securities that pay interest, but also adjust the principal based on the Consumer Price Index (CPI).
The big "melt-up"…
"A certain stock newsletter adviser just predicted a huge 'melt-up' in stocks over the next six months to 1 1/2 years. The reason, he opined, is that central banks across the globe are planning to buy trillions of dollars' worth of stocks. He mentioned the very low, even negative, interest rates in these countries.
The banks figure they can't make money on lending at these rates, so they'll buy up a ton of stocks, which would cause the stock prices to rise, and then will sell them. After this melt-up, a disastrous melt-down would occur, just as happened in the housing and dot-com bubbles. Do you have a take on this?" - Robert B.
This scenario is plausible and the recent actions of financial institutions bear it out. But investors face other risks. This "melt-up" also is getting fueled by a syndrome known as FOMO (fear of missing out). That's usually a bad sign and we're already seeing this fear lapse into just plain fear.
Read This Story: Bracing for the Next Black Swan
Correction triggers abound. Even if the trade war is somehow resolved (and don't bet on it), plenty of other worries about growth will probably sow further volatility and sell-offs.
The big picture…
"Can you recommend stocks and bonds that should be in your portfolio?" - Joel B.
Joel, the purpose of my Monday-Friday column Mind Over Markets is to examine macroeconomic trends in the business, financial, economic, and political realms. I provide context, as well as a compass.
For specific money-making picks, turn to our premium trading services, where our team of strategists (including myself) pinpoint investment opportunities.
Questions or comments? I'd love to hear from you: mailbag@investingdaily.com
John Persinos is the managing editor of Investing Daily.
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