The Original Pot Bug's Secret Weapon

Written by James Dines
Posted February 9, 2019

Publisher's Note: Mr. James Dines is a legend whose insight has been proven time and time again.

One of those insights was a very early bullish call on investing in marijuana, making Mr. Dines "The Original Pot Bug." Today we bring you an excerpt of The Dines Letter discussing it.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club

"Life is like a dogsled team. If you ain’t the lead dog, the scenery never changes."

-Lewis Grizzard

We’re unaware of any other prominent financial advisor or Security Analyst in the world who actively uses Mass Psychology as a crucial factor in forecasting investments. Mass Psychology provides valuable insights to those attempting to determine the trajectory of the Mass Mind, which is why this new field is a crucial component of our analyses.

When we sought to study Mass Psychology, apart from the already vast coverage about individual psychology, we found that almost no books had ever been written on the subject. We studied Gustav Le Bon’s The Crowd, but that was mostly about the French Revolution. We profited from Extraordinary Popular Delusions, by Charles MacKay, but that book didn’t specifically focus on the stock market; instead it covered witch manias, and particularly the tulip mania. Although it did briefly cover the history of two useful areas of our pioneering thinking on currencies: one, the massive overprinting of paper money in the late 1700s that led to a hyperinflationary depression; and two, the emergence of Napoleon, whose first act was to mint a gold coin, called a Napoleon, which preceded the return of prosperity to France. Both books amplified our distrust of inflation, and we vowed to understand it deeply.

Our Mass Psychology book broached the topic of gambling, where we for the first time shared “The Secret Desire of All Gamblers to Lose.” When overoptimism reaches a peak it’s often a sign of a stock market Top — having little to do with fundamental analysis or profound economic theories. That came true in the cryptos craze (see page 18) when the Mass was negative all the way up, and it wasn’t until bitcoin became wildly bought by the gambling public, near $20,000, that a Top was reached. Now cryptos are hated again, and year-end tax selling has increasingly pushed their prices down, nearing a Bottom — time to start buying. By DITPON. Both choices are straightforward examples of Mass Psychology.

A knowledge of history is crucial to our Security Analysis, and it saddens us that that topic has been too underemphasized in current curriculums of many so-called schools of learning. For example, America’s Prohibition I of liquor on 28 Oct 1919, that added the 18th Amendment to America’s beloved Constitution. That Prohibition didn’t work because when the public really wants something enough — it will obtain it. We used that knowledge in predicting the rise of cannabis!

How? We began to study opinion polls over some years, watching the percentage of people who favored the legalization of marijuana. Some of the Mass had already been using it for decades, and its usage had grown organically. Observing pot’s growing favorability in many parts of America, we suspected that a bull market was coming. We knew from history that alcohol use soared after Prohibition I was repealed (with the 21st Constitutional Amendment on 5 Dec 1933). DINOPA suggested that pent-up demand for marijuana was rising and, if legal with the ending of Prohibition II, the market would skyrocket to meet it.

We finally concluded that a major bull market was coming to pot stocks, despite overwhelming odds, because at the time mere possession of it was a felony crime! But we had already suffered through recommending gold prior to its legalization, and now many don’t think twice about buying the metal. Being first can hurt. It takes fearless self-confidence when following High Truth, to be a real leader. Based on our blinding insight that polls showed cannabis attitudes were changing. All we did was buy “upstream from the herd,” as we delight in describing it, and wait, as “The Original Pot Bug.” Didactic Security Analysis is aided by Mass Psychology, and leavened by peripatetic knowledge.

Next, it was almost impossible for us to value pot stocks, or even to determine which ones would survive. We had experienced a comparable challenge when we became “The Original Uranium Bug,” and had to pick stocks before there had been any drilling on the properties, or even managements chosen! But that’s another story. Again and again, if you want to be first, be ready to plow unplowed land. It’s not easy, but way more profitable.

We realized pot would be huge, on a global scale. Although obviously not as big as the Internet. Pot, for better or worse, will have a pervasive impact on the world, much more so than similar soda water, and we concluded that it would reduce the usage of liquor, nicotine, and pernicious drugs. Hard drugs are something one absolutely has to have, which is not true for marijuana. Scientists generally agree that pot is not addictive. Users could stop any time they choose. In fact, a recent University of Michigan study found that teen usage of alcohol, cigarettes, cocaine, ecstasy, heroin, LSD, and opioids declined at a time when pot legalization has increased!

We envisioned that pot would infiltrate almost every pleasure area. Cannabis will be widely used because there is no hangover, addictiveness, or calories, and the prices are relatively lower than its alternatives. We knew, from Mass Psychology, that shrinking industries, such as alcohol and tobacco, would add cannabis tinctures of all kinds, or else not survive the competition. We predicted that marijuana would produce major medical discoveries. Cannabis is not merely for recreation, but also provides many other uses, ranging from pain management, to treatment for epilepsy and anxiety. Even pets could reap the rewards of pot’s calming powers, or pain relief. Here’s the shocker: One of our repeated predictions has been that the authorities would eventually switch from making cannabis usage a crime, to promoting it as a safer alternative to nicotine or alcohol addictions!

Another of our most amazing predictions about pot would be that it would actually be aggressively used as an antidote to opioid addiction! Eventually, that it would be “nationalized” (stolen) by governments, and given free to citizens for their good behavior — as was “soma” in Aldous Huxley’s book, Brave New World. That time is not far off, it will come, count on it, in a different world, our oft-mentioned “The Coming New Social Order.”

To be clear, our near-term focus is on the investing end of the marijuana phenomenon. TDL has never recommended the use of pot to anyone, and we are against smoking anything. We have definitely recommended pot stocks because of our positive, pioneering prediction that marijuana would be legalized and spread worldwide. All we did was to acknowledge that the world’s population was trending toward cannabis’ legalization, and now we are skeptical that America’s Prohibition II will last much longer — destined to end as did Prohibition I, as noted above.

There will be normal cycles in the emerging pot industry, and it is still a challenge to evaluate these pot companies because they are so new. Pot stocks can’t be evaluated by earnings yet; they have barely begun to have sales, much less generate earnings. Even so, we figure the Mass Psychology of managers of alcohol, tobacco, beverage, and pharmaceutical companies are watching this new opportunity with growing interest. Alcohol and tobacco companies are beginning to acquire them, not only for their own companies' possible growth, but to avoid being criticized later for not having bought early on.

Thus the price at which they would be bought is far higher than could be calculated based on current sales or earnings. That is not standard Security Analysis — it is straight Mass Psychology of the competing managements of alcohol, tobacco, and pharmaceutical corporations worldwide!

The risk is, pot stocks can be whipped up and down by Mass Psychology easily, and have less stability than say a utility company with predictable earnings. So we recommend taking positions to be held for several years, regardless of markets, waiting for historically high growth rates.

From day one as “The Original Pot Bug,” we predicted a wave of acquisitions, and tried to select stocks with that in focus. Mass Psychology will at some time turn into a stampede to bag the remaining large ones.

AB InBev, the largest brewer, announced it is teaming with Tilray to study cannabis-infused drinks, each to invest $50 million to explore factors such as flavoring and length of high. How much would a pharmaceutical company pay for the right pot stock, when who-knows-which-discoveries could realistically be made from the extraordinary chemicals now concealed within marijuana? As we fumble to answer these questions, we dimly perceive some time in the future that pot will be a mature science, hopefully having contributed greatly to the world’s health and satisfaction.

These questions reflect the sadly impatient frustration of planting a seed that will grow into a tree, and not living long enough to see it grow.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline, and The New York Times, among others.


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