DISTRICT OF COLUMBIA: Unless you’ve been hiding under a financial rock, you’ve seen just how volatile major stock indexes have been for the past week. It’s been a wild ride as the S&P 500, which represents the largest companies in America, has slid as much as 5% and risen nearly as much—in the same day! The Dow Jones Industrial Average had swings of over 500 points a day for four straight days, something not seen since the depths of the financial crisis in 2008-2009.
Investors may be lulled into thinking that stocks they own or study in the cannabis space are insulated from what’s happening in the broader market. But that’s simply not true, and violates one of the oldest maxims in investing: Don’t fight the tape.
The “tape” here refers to what is going on in the broader indexes. If, for example, the S&P 500 or the NASDAQ is down 2% on the day, the odds of a cannabis stock rising in price that particular day is very, very low. Unless the company has some specific news or catalyst affecting it that has just come to light, one can expect that the stock will be down along with the broader “tape.” The expression comes from Wall Street days of yore when stock prices literally came out in a long roll of ticker tape, tick-tick-ticking throughout the day. Prices of stocks tended to move in concert then, and 100 years later it’s the same story.