Weeding out bad stocks: 3 ways to reduce the risk of investing

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Three things to consider to reduce risk before investing in marijuana stocks

Investing in marijuana stocks is a risky business. While there are certainly fortunes to be made, they can just as easily go up in smoke. Smart investors are getting in the market early while carefully managing risk. Here are the three best ways, according to experts, to reduce risk in marijuana investing.

Go for a Marijuana EFT Over Single Stocks

Exchange-traded funds, or EFTs, offer investors a portfolio of stocks bundled in a single security. Some include a dozen or more cannabis stocks in their portfolios. When one or two stocks struggle, the investment is balanced by the others in the portfolio. This has the added benefit of allowing investors to follow a variety of stocks over time.

Avoid Short Selling

Those who have fared worst in marijuana investing so far are the short sellers. Betting against pot stocks has yet to prove profitable. There is nothing riskier at this point in the market than borrowing shares from a brokerage – the gains are limited while the losses could be infinite.

Invest Small

With all the hype and excitement around the rapidly-growing cannabis industry, it can be tempting to bet big on the success of leading stocks. However, the best way to reduce risk is to enter with caution and keep your initial investment in marijuana stocks small.

Not every stock can be a winner, but some have better track records than others. Look for stocks that are already profitable or have a proven business model in states such as California or Colorado.