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  • Writer's pictureAdastra

Investment Methodology

Updated: Nov 8, 2023

Scientia potentia est [Latin]

Knowledge is power

I’ve invested in US and Canadian stocks since the age of 22. Over the span of two decades I have learned lessons, some easy and some hard. I have also learned from conversations with other investors on Stocktwits and other platforms. These I have compiled into a set of principles for this blog’s Investment Methodology.

As stated multiple times, I’m not a qualified advisor. For the insights from qualified advisors I would recommend the analyst reports prepared on stocks and sectors by Financial institutions.

These are the principles of this blog’s Investment Methodology:

Principle 1: Do Your Own Data-Driven Due Diligence (DYODDDD)

Do Your Own Diligence DYODD is good advice often shared by my fellow investors. Due diligence (DD) can be elevated with numbers and data to become Data-Driven Due Diligence (DDDD). When you read a report of post, pay attention to the data and always do your own thinking. Everyone has an agenda and biases that are reflected in their messages and analyses. Think logically and search for relevant insights rather than blindly following anyone. Be especially diligent with messages from pumpers based on hype, and shorters based on fear, uncertainty and doubt (FUD). Lots of people have opinions. Stay focused on the data, numbers and fundamentals. And remember these words from Deming, “Without data, you're just another person with an opinion.”

Principle 2: Action Your Own Data-Driven Decisions (AYODDD)

I made AYODDD up. In essence you need to first do a data-driven analysis before making any decision and taking action. In the end the decision you made was yours, so take accountability for your own decisions. The exception would be lies of politicians and unethical or fraudulent management actions, which absolutely should be called out.

Data is like plutonium. It can be used to create energy, or for mass destruction. It is important to understand data and use it wisely. The human mind is prone to biases, both conscious and unconscious. Numbers and data transcend bias. Numbers don’t care about the gender, race, ethnicity, citizenship or any other factor by which humans discriminate other humans. Numbers don’t care if a company is American, Canadian or from any other country where cannabis is or will be legal.

Numbers don’t discriminate, but they can be manipulated. Be wary of manipulation and try to understand numbers to identify any potential bias. This applies not just to random “influencers” you come across virtually or in real life (including me), but unfortunately also applies to analysts from Financial institutions. For example if you come across an analyst report for Amazon which excludes an entire revenue producing division, let’s say the revenues from Amazon Web Services (AWS), know that the analyst is either extremely biased or extremely incompetent.

Principle 3: Analyze the sector first, before stocks and ETFs

You are investing first in a sector and then in stocks or ETFs. Study and analyze the sector first, the trends, catalysts and other factors that can influence the sector into either bull or bear market. The articles in my Cannabis Investing category were designed to give the reader an overview of the Cannabis sector. This should be used as a starting point for further research and due diligence.

Principle 4: Analyze ETF ownership and trends to assess institutional activity and “follow the money”

ETFs are the most transparent of institutions, and my favorite. An analysis of the stocks held in the ETFs along with the changes in holding can help identify the stocks most favored by fund managers, who are most often more qualified and influential than retail investors. The Cannabis ETF Analysis was published to present such an analysis of the largest Cannabis ETFs measured in terms of Assets Under Management (AUM).

Principle 5: Buy Low Valuation, Sell High Valuation

Investors often think of “buy low, sell high” in terms of share price. While this is true, it is a lot harder than it seems when you focus on an absolute metric like share price, instead of a valuation metric like the PS Ratio or P/E Ratio. The valuation metrics are more relevant and should be used (quoting Professor Damodaran) as a “life vest” while picking sectors, ETFs or stocks. I recommend rethinking “buy low, sell high” to “buy low valuation, sell high valuation”. Invest in stocks/ETFs that are trading at bear market valuations. Take profits by rebalancing your portfolio when stocks/ETFs are trading at bull market valuations. The page on Cannabis Bull Market Scenario Analysis with PS Ratio Valuation presents an analysis of the relative valuations of high revenue stocks in the Cannabis sector.

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Principle 6: Pick stocks that have strong revenue growth and AEBITDA metrics

Before investing in individual stocks, it is beneficial to select companies with strong revenue growth and AEBITDA numbers. During a growth phase these are two important metrics to analyze. The pages on Revenue Growth Analysis and AEBITDA Analysis provide this analysis for selected large Cannabis stocks. Net income or loss is also an important metric. But the case study of Amazon demonstrates that this is impacted when a company deploys funds for growth rather than profit. It is important to analyze the most relevant metric for the phase in the sector or stock’s growth cycle, to avoid missing out on potential gains.

Principle 7: Analyze warrants and options opportunities

While stocks and ETFs are the more common ways to invest, warrants and options present opportunities worthy of analysis. Options are more risky and require more due diligence and luck. But warrants present a better alternative given the longer time frame for converting warrants to stocks.

Principle 8: Analyze acquisitions to determine if they are accretive or dilutive

In the cannabis sector, dilution is the greatest destroyer of shareholder value. Analyze the acquisitions made by companies to determine if they are accretive and add shareholder value. Invest in companies growing through accretive acquisitions, and in managements that care about shareholder value and do not treat shareholders as piggy banks.

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Principle 9: Analyze trends in insider ownership

Increasing or stable insider ownership is a bullish sign, as it shows that the insiders believe in the company and are willing to hold their stock. Insider selling is a red flag and should trigger a deep dive analysis of whether the investment thesis for the company has changed.

Principle 10: Quantify the factors that drive hype

Fundamentals are important. But reality is a combination of fundamentals and hype. A company with excellent fundamentals will not get the valuation it deserves, if too few investors are aware of the investment thesis. It is arrogant to rely solely on fundamentals, and this arrogance will often lead to disappointment. A balanced analysis quantifies (as best possible) the hype factor. An important factor relevant to Cannabis stocks is the exchange the stock is traded on. Being on a large exchange like Nasdaq has a significant positive impact on valuations and volumes.

Principle 11: Discuss and learn from other investors

Investing is a skill (like financial modelling), that is learned from doing. You learn from participating, not from being a spectator. Learn about investing from books, blogs, videos, etc. And also join the conversation on social media and learn from other investors. X/Twitter, Stocktwits and Reddit are platforms you can join to connect with other investors.

Principle 12: Be kind, not just to other investors, but also to yourself

On social media you often find toxicity and fear, uncertainty and doubt (FUD) spread to influence investor sentiment. These are often the actions of hedge funds, market makers and traders who profit when stocks fall in value. You only live once. Why be like these parasitic moochers? Why be the cause of toxicity and suffering, when there is already so much in the world? Be kind to your fellow investors and do not “bash” other stocks.

Be kind, also to yourself. The stock market is rigged in favor of the rich. No, this is not the rant of a capitalism hating socialist or communist. I am a fiscal conservative (and social liberal) who believes taxpayers’ money should be treated with respect. I think the stock market adds great value to society and investing is a life skill that all humans should learn, to improve their lives.

That said the market is rigged in favor of the rich, and that is why the rich keep getting richer, while the struggles of the middle and lower class populations keep increasing. Retail investors cannot trade on dark pools, big players can. Retail investors cannot use algorithms and Artificial Intelligence (AI) to trade or manipulate stock prices, big players can. And in most cases, retail investors invest and hold. Big players go long and short when they want, and can use a variety of derivatives to reduce risks and optimize gains.

So it is important to acknowledge that while retail investors do have a seat at the table, it is not a VIP seat. And when things do not go as planned, be kind to yourself. I know this is easier said than done, but I needed to say it anyway.

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Principle 13: Develop and Practice Mental Fortitude

As mentioned in the About Adastra page, we live in the knowledge age. In this age, as opposed to the industrial age, the tool of production for many workers is now the human mind (for knowledge work), as opposed to hands (for manual work). The human mind is like fire. It can be used for illumination, but also to burn and destroy.

Stock market investing, especially in today’s Meme-crazy world where sentiment often supersedes fundamentals, can be excruciatingly frustrating for investors. Most investors in the fundamentals and logic defying cannabis sector will understand what I am referring to.

For the sake of mental health (yours, and other investors you interact with), it helps to develop and practice mental fortitude. The healthiest ways to do so involve wellness practices including deep breathing, yoga, mindfulness, positive thinking and meditation, just to name a few based on my experience; and also spending quality time with loved ones and mother nature. Good diet with nutritional foods and supplements does help.

These are the principles behind the investment methodology used for this blog. As with the other pages in this blog, it is a living document and I will keep revising it as I see fit.

If you are interested in connecting, you can do so on Twitter (@numbersnarrati) and Stocktwits (@AdastraYOLO). To support, please check out the affiliate links (especially CBD and other cannabinoid products) or become a Patron via the Numbers Narrative Patreon Page.

Disclaimer: All content and analysis on this Blog/website is information shared for educational and entertainment purposes only. The content creator(s) of this Blog are not financial advisors and the content is not intended to provide advice or recommendations for any security, investment product or any other product or service mentioned on this Blog. You should not use this Blog to make financial decisions and you should instead seek advice from professionals who are authorized to provide investment advice. Although best efforts have been taken to keep the information on this Blog accurate, this Blog may contain errors and inaccuracies. You alone assume the sole responsibility of the risks associated with the use of any content on the Blog. In no event shall any of the content creators be liable for any damages in connection with the information contained in this Blog or links provided.

Disclosure: I (username Adastra) am an investor not a trader. I am bullish on the Cannabis sector as a long-term investment (2026 and beyond), provided stocks/ETFs are carefully picked based on data-driven due diligence. Of the 16 stocks covered in the Best Cannabis Stocks analysis, I have invested only in my top 3 picks: High Tide, Green Thumb and Curaleaf. But my analysis indicates (without any guarantees) that there is a potential for impressive gains in investing in the stocks best ranked in the analysis, including WM Technology, and Trulieve, which have a dedicated page with detailed analysis in the STOCKS category. I reserve the right to buy or sell at any time any of the stocks mentioned in this blog. I do not short stocks and never will short any stock in a company that makes the world a better place. I do not have insider knowledge of any company covered in this blog. All data used for analysis is from public sources. I have received (as of last update date of this page) ZERO funding for this blog from any of the companies featured in this blog.

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