Building The Pot Stock Portfolio For The 'Risk-Adverse' Investor (Pun Intended)

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Includes: AGTK, AVTCQ, CBDS, DSCR, GBLX, GRNH, IGRW, MDRM, MNTR, NRTI, PMCB, SRNA, STEV, TURV, VGPR
by: Matthew Finston

Summary

N=15 pot stocks that have dropped -45% to -96% from average price paid in 2014.

Ideas on how to build a pot stock portfolio for the "risk-adverse" investor.

Risk-averse investors avoid risk compulsively; risk-adverse investors are compulsively risky.

Three similar but distinctive model portfolios: "Buy Bear: Sell Bull;" "Contrarian;" and "Sell-Half.".

Working too hard to avoid losses may be a sign.

Last week, I discussed N=25 pot stocks that had noticeably high volume during 2014 but had softened for 2015. I am adding 15 more names to the list:

Agritek Hldgs Inc.

OTCPK:AGTK

Avt Inc New

AVTC

Cannabis Sativa Inc.

OTCQB:CBDS

Discovery Minerals Ltd.

OTCPK:DSCR

Growblox Sciences Inc.

OTCQB:GBLX

Greengro Technologies

OTCPK:GRNH

Interactive Health Network

OTC:IGRW

Modern Mobility Aids Inc.

OTCPK:MDRM

Mentor Capital Inc.

OTCQX:MNTR

Inergetics Inc. New

OTC:NRTI

PharmaCyte Biotech Inc.

OTCQB:PMCB

Surna Inc.

OTCQB:SRNA

Stevia Corp.

OTCPK:STEV

Two Rivers Wtr. & Farming

OTCQB:TURV

Vega Biofuels Inc. New

OTCPK:VGPR

I made the case (not very effectively) that investors should seek liquidity if they want to play these stocks. Rather than deciding which pot stock has sound fundamentals, I am going to let the liquidity dictate that for me.

But we're not interested in 2014 liquidity. We're playing 2015. So we'll have to take this into account. I am going to build a model portfolio based off of the liquidity from 2014 and 2015. For details on the liquidity for each security, see the notes at the end of the article.

As it is impossible to be risk-averse and in pot stocks, the following portfolios adotp strategies that let you have your cake and eat it too. The models are designed to pacify the "risk-adverse" tendency through strategies of diversification and discipline. Rather than trying to resist adverse investments, the model portfolios offer an approach to buy those assets that can cause mayhem to our portfolios.

Three "Risk-Adverse" Pot Portfolios: Avoiding Losses

Rules:

  • Avoid losing money
  • Cost per holding: should not exceed the security's average cost per trade from 2015
  • Amount shares per holding: the average amount of shares purchased should not exceed average amount per trade in 2014.
  • Holdings: N=15
  • Starting value: $10,000 cash

Goals:

  • Avoid losses: break even, even after total transaction costs.
  • Exit strategy: how not to get caught with too many shares
  • Diversification: Not just about buying the fastest movers or the most liquid
  • Cash: hold cash. Just hold cash.
  • Remain disciplined

Definitions:

  • Risk-averse: Adj. A risk-averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks. In other words, among various investments giving the same return with different level of risks, this investor always prefers the alternative with least interest.
  • Risk-adverse: (neologism) Adj. a "risk-adverse" investor is one who is compulsively drawn to risky investments in hopes of hitting the lotto. These investments have an adverse effect on his or her portfolio. The compulsion is like that of a roulette gambler who bets everything on his or her "one lucky number." The "risk-adverse" gambler cannot stop the compulsion, and so, must find a way to satisfy the urge in a way that causes the least harm (I've taken up Zynga's (NASDAQ:ZNGA) Texas Hold'em).

Rationality: If I have my heart set on buying pot stocks but want to do it in a risk-averse way, how much of each stock should I buy? I don't want to buy more shares than I can sell during the bull market per transaction, and I also don't want to spend more than investors are spending now.

The following are hypothetical portfolios. In a month's time, we'll see how the portfolios performed. If they all flop, I'll rethink the strategy. If they succeed, I may put it to the test, possibly using different combination of holdings.

"Buy Bear; Sell Bull" Portfolio

 

Ticker

Shares Avg. 2014

3/6/14 Price

Subtotal

1

AGTK

3,836

0.0227

87.08

2

AVTC

555

1.25

693.79

3

CBDS

220.40

6.37

1,403.97

4

DSCR

344,051

0.0009

309.65

5

GBLX

1,027

0.2301

236.42

6

GRNH

5,057

0.0957

483.95

7

IGRW

70,218

0.0006

42.13

8

MDRM

16,590

0.03

497.69

9

MNTR

565

0.9

508.73

10

NRTI

13,175

0.0134

176.55

11

PMCB

7,178

0.119

854.22

12

SRNA

1,662

0.229

380.68

13

STEV

10,516

0.078

820.25

14

TURV

1,328

0.52

690.54

15

VGPR

207,068

0.0009

186.36

 

Subtotal

683,048

0.0107

7,372

 

Commissions @ $9

 

$135

 

Total

 

$7,507

But at what price do I sell? The main goal here is to not lose money. So I am not only try to sell at a higher price than my cost to buy, but also cost to sell. I have adjusted each holding below to account for the $18 commission.

 

Commissions added

Cost Increase

AGTK

105.08

21%

AVTC

711.79

3%

CBDS

1,421.97

1%

DSCR

327.65

6%

GBLX

254.42

8%

GRNH

501.95

4%

IGRW

60.13

43%

MDRM

515.69

4%

MNTR

526.73

4%

NRTI

194.55

10%

PMCB

872.22

2%

SRNA

398.68

5%

STEV

838.25

2%

TURV

708.54

3%

VGPR

204.36

10%

Total Cost

7,642

4%

Cash: $2,628

Let's test our portfolio. Will we be able to sell it?

 

Holding

Avg. Trade 2015

Wiggle Room

Tradable?

AGTK

105.08

$423

302%

Yes

AVTC

711.79

$898

26%

Yes

CBDS

1,421.97

$1,600

13%

Yes

DSCR

327.65

$797

143%

Yes

GBLX

254.42

$634

149%

Yes

GRHN

501.95

$1,207

140%

Yes

IGRW

60.13

$436

625%

Yes

MDRM

515.69

$733

42%

Yes

MNTR

526.73

$754

43%

Yes

NRTI

194.55

$532

173%

Yes

PMCB

872.22

$1,086

25%

Yes

SRNA

398.68

$1,134

185%

Yes

STEV

838.25

$806

-4%

No Adjust

TURV

708.54

$977

38%

Yes

VGPR

204.36

$494

142%

Yes

Our holding in STEV cannot exceed $786 if we want to be able to exit out of the position entirely.

Contrarian-Pot Stock Portfolio

It has only been three months and N=15 share prices are down an average -17% for this year.

Ticker

AVG Price 2015

Current

Down

AGTK

$0.04

0.0227

-48%

AVTC

$1.33

1.25

-6%

CBDS

$7.13

6.37

-11%

DSCR

$0.00

0.0009

-29%

GBLX

$0.30

0.2301

-24%

GRHN

$0.11

0.0957

-13%

IGRW

$0.00

0.0006

-50%

MDRM

$0.03

0.03

-10%

MNTR

$1.17

0.9

-23%

NRTI

$0.02

0.0134

-15%

PMCB

$0.14

0.119

-15%

SRNA

$0.32

0.229

-28%

STEV

$0.08

0.078

-1%

TURV

$0.59

0.52

-11%

VGPR

$0.00

0.0009

-20%

Total

$0.017

0.014

-17%

I have put together an alternative portfolio that has adjusted for the fall in share price:

 

Initial Price

Shares

With Commission

Break Even

Price

AGTK

$129

5,693

$158

22%

0.0227

AVTC

$737

590

$766

4%

1.25

CBDS

$1,553

244

$1,582

2%

6.37

DSCR

$400

444,985

$429

7%

0.0009

GBLX

$293

1,273

$322

10%

0.2301

GRHN

$545

5,691

$574

5%

0.0957

IGRW

$63

105,677

$92

46%

0.0006

MDRM

$547

18,249

$576

5%

0.03

MNTR

$627

697

$656

5%

0.9

NRTI

$203

15,127

$232

14%

0.0134

PMCB

$983

8,257

$1,012

3%

0.119

SRNA

$489

2,133

$518

6%

0.229

STEV

$786

10,077

$815

4%

0.078

TURV

$770

1,480

$799

4%

0.52

VGPR

$223

247,555

$252

13%

0.0009

Total

$8,348

867,728

$8,782

   

Cash: $1,652

The holdings include three transaction costs: the initial buy, selling half, and closing out. This is to make sure the contrarian's profit taking won't be undermined after the initial sell when/if the price bounces back.

Sell-Half

I just took the average trade value of 2015 and halved. If the stock runs, you'll be able to sell everything or at least half your holdings without an issue.

 

W/O Commission

Shares

With Commissions

Break Even

Cost

AGTK

$184

8,117

$211

15%

0.0227

AVTC

$422

338

$449

6%

1.25

CBDS

$773

121

$800

3%

6.37

DSCR

$372

412,956

$399

7%

0.0009

GBLX

$290

1,260

$317

9%

0.2301

GRHN

$576

6,022

$603

5%

0.0957

IGRW

$191

318,333

$218

14%

0.0006

MDRM

$339

11,311

$366

8%

0.03

MNTR

$350

389

$377

8%

0.9

NRTI

$239

17,830

$266

11%

0.0134

PMCB

$516

4,337

$543

5%

0.119

SRNA

$540

2,359

$567

5%

0.229

STEV

$376

4,818

$403

7%

0.078

TURV

$461

887

$488

6%

0.52

VGPR

$220

244,278

$247

12%

0.0009

 

$5,850

1,033,356

$6,255

   

Cash: $4,150

Like the contrarian portfolio, costs have been adjusted to account for one buy and two sells. The idea behind this last one is simple: sell half when you double your money and hope to break even in the process.

How would you weight your portfolio with $10,000?

 

Buy Bear; Sell Bull

Contrarian

Sell Half

'14, %N=15 Liquidity Leaders

15 %N=15 Liquidity Leaders

Rebalanced

AGTK

1.1%

1.6%

3.1%

5%

2%

18%

AVTC

7.1%

7.7%

7.2%

6%

3%

131%

CBDS

14.2%

15.8%

13.2%

4%

11%

26%

DSCR

3.3%

4.3%

6.4%

2%

3%

61%

GBLX

2.5%

3.2%

5.0%

4%

1%

173%

GRHN

5.0%

5.7%

9.9%

30%

15%

-53%

IGRW

0.6%

0.9%

3.3%

1%

2%

6%

MDRM

5.2%

5.8%

5.8%

1%

0%

1184%

MNTR

5.3%

6.6%

6.0%

6%

4%

37%

NRTI

1.9%

2.3%

4.1%

1%

3%

-20%

PMCB

8.7%

10.1%

8.8%

32%

33%

-72%

SRNA

4.0%

5.2%

9.2%

1%

15%

-58%

STEV

8.4%

8.2%

6.4%

4%

5%

54%

TURV

7.1%

8.0%

7.9%

0%

1%

833%

VGPR

2.0%

2.5%

3.8%

3%

2%

43%

Cash

26.3%

16.5%

42%

0%

0%

0%

The last position is the most important: cash. The "sell-half" portfolio is the simplest and most 'risk-averse' in terms of exposure to pot stocks. If I were to test this strategy out before the month trial period, I would go with the "sell-half" portfolio.

Strategy Summarization: Adverse Risk To Risk Aversion

Most important takeaway from this exercise is our process of finding a risk-averse strategy.

  1. Avoid losses
  2. Transaction costs should not exceed average trade value
  3. Hold cash
  4. Buy bear market transaction costs; sell bull market trade volume
  5. Avoid losses

Trades during a bull market reveal that investors purchased lower amounts of share per transaction than in the current bear market. If the bull market returns, those that are buying now will end up having a depressive impact on the share price.

The best example is IGRW. Buying in 400,000 share blocks may seem like a sound strategy if the price returns to its previous highs, but why do investors believe that someone will purchase their 400,000 shares? In 2014, only 70,000 shares were bought/sold per trade. I anticipate that stocks with low share volume per trade during the bull market and high share volume per trade during the bear will have the weakest "bull run", and therefore, present the most risk. The outcome is unavoidable. Those kinds of stocks will be 'pumped and dumped.' So its best to altogether avoid.

Tickers with consistent per share volume:

Ticker

2015

2014

Change

PMCB

7,756

7,178

8%

CBDS

225

220.40

2%

STEV

10,179

10,516

-3%

TURV

1,663

1,328

25%

These four also have not 'crashed' as hard as other pot stocks. The liquidity in TURV is very low so that may be a reason to avoid. But if I were to pick four out of N=15, it would be PMCB, CBDS, STEV, and TURV. Not considering fundamentals. This is purely about technicals.

Final thought

One has to consider that all this work to avoid losses in pot-stocks may just be a sign that you should just avoid pot stocks. Okay, let's see you try to scratch out investors' "so-close-to-legalization" itch. Or even worse, the "penny-stock-millionaire" itch.

Notes:

2013-2015:

TICKER

TOTAL Val USDX1000s

VOLUME

TRADES

%N=15

AGTK

$53,640,110

189,668,043

47,030

4%

AVTC

$85,376,930

25,148,686

43,978

6%

CBDS

$48,842,330

5,506,691.00

24,929

4%

DSCR

$26,918,042

14,050,237,302

34,237

2%

GBLX

$41,764,344

31,846,576

30,075

3%

GRHN

$370,182,573

1,168,960,521

206,395

28%

IGRW

$15,999,161

4,211,420,966

18,549

1%

MDRM

$12,261,992

169,031,057

9,299

1%

MNTR

$72,069,737

23,914,096

41,471

5%

NRTI

$22,171,732

325,184,372

21,421

2%

PMCB

$450,889,694

1,872,455,919

236,300

34%

SRNA

$18,345,043

34735266

14,794

1%

STEV

$64,485,140

428,918,123

47,372

5%

TURV

$5,578,272

9,299,260

7,012

0%

VGPR

$39,106,605

13,043,652,083

50,039

3%

N=15

$1,327,631,705

$35,589,978,961

$832,901

100%

PMCB (before NVLX) and GRHN combined volume made up for 62% of N=15's total dollar volume from 2013 to 2015. So we'll keep that information in mind.

Now let's look at the stats for 2014

Ticker

Total Val USDX1000s

Volume

Trades

Value P/Trade

AVG Price

Shares P/Trade

AGTK

$52,961,960

174,257,354

45,425

$1,165.92

$0.30

3,836

AVTC

$65,653,740

18,415,492

33,179

$1,978.77

$3.57

555

CBDS

$44,084,590

4,839,171

21,956

$2,007.86

$9.11

220.40

DSCR

$23,940,876

9,860,859,266

28,661

$835.31

$0.00

344,051

GBLX

$41,219,254

30,017,718

29,215

$1,410.89

$1.37

1,027

GRHN

$351,478,760

940,934,353

186,066

$1,889.00

$0.37

5,057

IGRW

$14,551,741

1,056,005,602

15,039

$967.60

$0.01

70,218

MDRM

$12,027,341

144,679,216

8,721

$1,379.12

$0.08

16,590

MNTR

$70,137,484

21,837,587

38,633

$1,815.48

$3.21

565

NRTI

$16,863,428

201,105,630

15,264

$1,104.78

$0.08

13,175

PMCB

$369,746,010

1,228,900,519

171,196

$2,159.78

$0.30

7,178

SRNA

$12,251,874

15,664,261

9,423

$1,300.21

$0.78

1,662

STEV

$52,449,730

357,322,365

33,979

$1,543.59

$0.15

10,516

TURV

$5,578,272

5,926,663

4,463

$1,249.89

$0.94

1,328

VGPR

$36,901,136

9,362,175,654

45,213

$816.16

$0.004

207,068

Total

$1,169,846,198

23,422,940,851

686,433

$1,704.24

$0.050

34,123

What we're mostly interested in is the value per trade and the amount of shares purchased per trade. This will lead us in putting together our model portfolio.

Now let's take a look at 2015

Ticker

Total Val USDX1000s

Volume

Trades

Value P/Trade

AVG Price

Shares P/Trade

AGTK

$678,150

15,410,689

1605

$422.52

$0.04

9,602

AVTC

$1,322,490

992,278

1473

$897.82

$1.33

674

CBDS

$4,757,740

667,520

2973

$1,600.32

$7.13

225

DSCR

$1,204,744

945,902,920

1511

$797.32

$0.00

626,011

GBLX

$545,090

1,802,358

860

$633.83

$0.30

2,096

GRHN

$6,100,290

55,751,124

5056

$1,206.54

$0.11

11,026.73

IGRW

$629,572

519,411,383

1444

$435.99

$0.00

359,703

MDRM

$180,965

5,428,951

247

$732.65

$0.03

21,980

MNTR

$1,807,970

1,541,218

2398

$753.95

$1.17

643

NRTI

$1,458,310

92,706,901

2742

$531.84

$0.02

33,810

PMCB

$13,686,320

97,723,048

12599

$1,086.30

$0.14

7,756

SRNA

$6,093,169

19,071,005

5371

$1,134.46

$0.32

3,551

STEV

$2,070,530

26,159,115

2570

$805.65

$0.08

10,179

TURV

$341,816

581,991

350

$976.62

$0.59

1,663

VGPR

$807,682

721,957,248

1636

$493.69

$0.00

441,294

Total

$41,684,839

$2,505,107,749

$42,835

$973.15

$0.017

58,483

Before we compare 2014 to 2015, it should be noted that N=15 is down an average of -17% when we look at the average value of shares traded:

Ticker

AVG Price 2015

Current 2015

Change

AGTK

$0.04

0.0227

-48%

AVTC

$1.33

1.25

-6%

CBDS

$7.13

6.37

-11%

DSCR

$0.00

0.0009

-29%

GBLX

$0.30

0.2301

-24%

GRHN

$0.11

0.0957

-13%

IGRW

$0.00

0.0006

-50%

MDRM

$0.03

0.03

-10%

MNTR

$1.17

0.9

-23%

NRTI

$0.02

0.0134

-15%

PMCB

$0.14

0.119

-15%

SRNA

$0.32

0.229

-28%

STEV

$0.08

0.078

-1%

TURV

$0.59

0.52

-11%

VGPR

$0.00

0.0009

-20%

Total

$0.017

0.014

-17%

Perhaps we can factor this into how we weight our model portfolio.

Now let's compare the averages of 2014 against 2015.

    Value Per Trade avg price   shares per trade  
    2015 2014 Change 2015 2014 Avg price 2015 2014 Change
1 AGTK $423 $1,166 -64% 0.0227 $0.30 -93% 9,602 3,836 150%
2 AVTC $898 $1,979 -55% 1.25 $3.57 -65% 674 555 21%
3 CBDS $1,600 $2,008 -20% 6.37 $9.11 -30% 225 220.4 2%
4 DSCR $797 $835 -5% 0.0009 $0.00 -63% 626,011 344,051 82%
5 GBLX $634 $1,411 -55% 0.2301 $1.37 -83% 2,096 1,027 104%
6 GRHN $1,207 $1,889 -36% 0.0957 $0.37 -74% 11,027 5,057 118%
7 IGRW $436 $968 -55% 0.0006 $0.01 -96% 359,703 70,218 412%
8 MDRM $733 $1,379 -47% 0.03 $0.08 -64% 21,980 16,590 32%
9 MNTR $754 $1,815 -58% 0.9 $3.21 -72% 643 565 14%
10 NRTI $532 $1,105 -52% 0.0134 $0.08 -84% 33,810 13,175 157%
11 PMCB $1,086 $2,160 -50% 0.119 $0.30 -60% 7,756 7,178 8%
12 SRNA $1,134 $1,300 -13% 0.229 $0.78 -71% 3,551 1,662 114%
13 STEV $806 $1,544 -48% 0.078 $0.15 -47% 10,179 10,516 -3%
14 TURV $977 $1,250 -22% 0.52 $0.94 -45% 1,663 1,328 25%
15 VGPR $494 $816 -40% 0.0009 $0.00 -77% 441,294 207,068 113%

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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