As valuations continue to rise on both the TSX and the NYSE, it gets harder and harder for investors to find good deals. The temptation might be to invest in something, even if an investment might still be overvalued.
However, there are times when the best thing to do is just step away from the stock market and wait until conditions are more favourable. It’s certainly tempting to jump onboard the bandwagon and hope to cash in as prices continue to rise, but investors shouldn’t take that as a given.
The market has crashed before and it will crash again. By exercising disciplined investing strategies and making prudent decisions, you’ll leave yourself less exposed to market-related risks.
An investor needs to look no further than cannabis stocks to see how incredibly expensive it has become to buy shares. Aurora Cannabis Inc (TSX:ACB) has doubled its share price in just the past few months and trades at nearly 100 times its sales. Canopy Growth Corp (TSX:WEED) and Aphria Inc (TSX:APH) have also doubled in price this year, as have many other pot stocks.
It may seem obvious that these stocks will continue to rise and you may think it’s crazy to suggest otherwise. The problem is that investors that are buying these shares are paying big premiums for stocks that don’t have much in sales and share prices are being based mainly on future expectations and growth.
Paying for potential is dangerous, because if it doesn’t come to fruition it could all come crashing down. There are still good investments to be found out there, but there’s also a lot of risk as well.