Human behaviour is most interesting for me when considering group think, basically crowd or herd mentality.

Many of you will be following the top equity market story of the last couple of months – marijuana companies.  The demand for these  stocks has no logical or rational analysis behind it that I can figure out.

Me too

Personally I believe this is a perfect example of the fear of being left out.   Based on the demand, unsupported by more than a quess at what sales volume the marijuana market  represents, thousands are acting out their me-too impulse.

Basically if we don’t buy now at whatever price we might miss out.  Lets get in before it’s too late.  News flash, it’s too late.  It was probably too late when the price for Canopy (the biggest Canadian marijuana producer) broke $8 a share.

Looking at basic indicators like sales, forecast sales, forecast earnings per share, net asset value, market cap, management track record and so on a solid case could be made to buy Canopy at $7 to $8 per share.  Beyond that, not so much and $42 per share, forget it.

(Full disclosure I bought at a little over $7 share).

Probabilities

Based on a very conservative guess at the size of the Canadian marijuana market, Canopy’s share of this market ( considering manufacturing capacity and current sales) it is highly likely they will be able to pay a 5 to7% dividend (based on a $7 share price) within 3 years (assuming they don’t retain a lot of capital to keep growing).

My estimation though is at $42 per share the dividend would be less than 1% at most and the only way you would get good value is if the sales grow rapidly along with demand for the shares.  A very big if for me.

So I conclude, the sheep mentality is in place and emotions, not logic or analysis are driving demand.