This is NOT an exception to Lesson #1
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Today I sold my Tilray stock (it’s a cannabis grower) for a 782% profit in a way that looks like I just broke the rule from Lesson #1. I didn’t wait for the bubble to pop and then get burned a little. Instead, I sold on the way up. Here’s an image from my account.
Incidentally, yes, I did this in a retirement account (two actually). This was just a stock buy—nothing fancy with options or whatever.
Why Sell Tilray Stock
The reason is simple: Tilray ($TLRY) changed from a traditional bubble to a Reddit-fueled pump and dump. And the ways you make money on a pump and dump are different from the ways you make money from a traditional bubble.
I kept my money in Canopy Growth Company ($CGC) because it’s still a traditional bubble in the larger cannabis space. I’ll probably buy into Tilray Stock after the dust settles.
My daily subscribers know this, as I give them updates on my own positions every trading day before the market opens at 9:30 am Eastern Standard Time.
For everyone else, let’s start with a review of the main points from Lesson #10.
There Are Three Kinds of Bubbles
You can distinguish bubbles by the reasons that make them “bubbly.”
The Pump and Dump
This is the classic stock scam.
- The price for the stock or coin totally unrelated to its intrinsic value.
- It gets pushed up by emotional hype.
- There is nothing more than emotions to sustain that price.
- So they crash down in short order.
Tim Sykes is the philosopher who pioneered how to make money on these bubbles and his strategy is to bet on the crash—by shorting them.
I explain his process in a fair amount of detail in Lesson 10. It’s hard to replicate and he’ll charge you $1440 a year to follow his moves (which makes me think I should be charging more for my daily coverage).
Anyway, that’s that approach.
The “Traditional” Bubble
This is the focus of this newsletter.
- These bubbles start with a good value proposition. They make sense.
- Then the stock or coin gets a lot of attention as people discover it and the price moves up too fast.
- Eventually, it corrects back to below that intrinsic value and then readjusts.
- Since the run-up is long and the decline is relatively slow, it’s best to hold onto these over the top of the bubble and get burned on the way down a little bit.
These are my bread and butter. I have no problem holding onto these as my returns move into the 1000%+ range because I know how they work.
The Double Squeeze
This is the new kind of bubble that Reddit traders just invented and played out on GameStop. As you’ll note, that eventually went down too, but not before going up orders of magnitude more than a traditional pump and dump.
- These use “assets” that may or may not have a lot of intrinsic value to begin with.
- The strategy only works of hedge funds are shorting the stock (betting it will lose money) by a large percent. It really has to be more than 50% short.
- The asset then gets hyped on a place like Reddit where people buy calls options. It has to work with call options, not buying stock, for the reasons explained in lesson 10.
- When that happens, the buyers force a mechanism, called a gamma squeeze, on the market makers—the people who just transact your buys and sells.
- That squeeze then forces a second squeeze on the hedge funds who are losing money as the price goes up. To avoid further losses, they have to buy stock to close their positions (hence, making the price go up even more).
Subscribers to The Weekly Bubble and, of course, The Daily Bubble know that I see only one such good double squeeze candidate right now.
What Happened to Tilray
Initially, I bought a small number of positions in $TLRY because the company, before Biden’s election, was doing terribly. I was expecting a bounce from the legalization of recreational cannabis in New Jersey regardless of whether or not Biden won back in November of 2020.
Explanation of Tilray Stock
As I explained in Lesson #8, the worst companies usually do the best when an industry turns around—assuming those companies survive that long.
As a result, my main play was to buy the much more financially stable $CGC and dip my toe into $TLRY, which was in bad shape: major losses each quarter, mounds of debt, a looming credit shortage, etc.
Well, Biden won. New Jersey, of course, legalized cannabis, and the whole industry started bouncing back. The plan was working out better than I expected, but I was planning to hold $TLRY well into 2022. Traditional bubbles take a while and we’re only going to get good news from the Biden administration on this front.
But then $TLRY started getting a boost from Reddit. Here’s the chart of the company.
Since there aren’t a lot of hedge funds shorting $TLRY (the short % was not more than 20%), I knew this couldn’t be a $GME-styled double squeeze. It might go up more still, but not 500% more.
That meant that Tilray had switched from a “traditional” bubble to a pump and dump. And the only reliable way to make money on those is to short the stock. If you happen to own the stock, then your job is just to take your earnings off the table as soon as you can.
The Final Nail
Honestly, I was still dithering about this until I saw this interview with the Tilray Stock CEO on Bloomberg. This was an interview that was discussing Tilray’s new activities and their upcoming merger with Aphria.
The journalist asks him point-blank: won’t Tilray shareholders be hurt in the merge with Aphria? And the CEO says: “Well I take the long view.”
Interview of Tilray Stock CEO
Here’s the clip and the exchange is right around the 3-minute mark (Bloomberg is bad about embedding their videos so you have to click the image).
That is CEO-speak for: absolutely the shareholders are about to get f*cked.
And look at his smug face!
Anyway, that’s what did it for me. I sold as soon as I could on the market’s open.
I didn’t, then, abandon my strategies because I got greedy or whatever. I realized that the situation changed from a traditional bubble to a pump and dump. That’s why I monitor the situation of all my positions, even if I don’t do a lot of buying and selling.
Notes & Disclosures
General financial disclaimer: I am not providing advice on financial investments and I am not a financial advisor. I am only explaining how I think about this process and imply no returns on your investments. As they say in the news industry, this is for entertainment purposes only. Please do your own due diligence before investing in anything.
Specific disclaimer: At the time of writing, I own a variety of cryptocurrencies, including Bitcoin and Ethereum. I also own CGC but I obviously sold out of Tilray. In general, I trade these, so by the time you read this, I may not still own them or might have rebought Tilray.