Hopium stocks are stocks that are losing a great deal of money while they try to get sufficient scale to be profitable. It's generally the startup mentality. You can really win big if it scales to profitability, like Amazon. Unfortunately, less than 1 in 1000 are able to become big winners. The majority go belly up.
There is a tendency by speculators to believe that they hold the "lottery ticket" to the next Amazon. That is the kind of wildly “optimistic” environment we have been in for some time. Like most lottery ticket "investors", the likely result will be a total loss of investment capital. I see those optimistic tendencies eroding as hopium stocks are bought on "the dip" only to drop further in price. Like the old song, “Something from nothing equals nothing.”
Today, I'm seeing a lot of the most active stocks being more conservative, stable earning companies. This tells me that there is more rotation into quality stocks and people's moods are changing from unbridled optimism to pessimism. The lottery is going out of style (at least for a while) and it’s showing in the markets’ activities.
Conservative stocks will also fall in price, along with speculative issues. So rotating into them NOW will also cause the investor to take paper losses as conservative stocks shrink with the general market. The medicine for late portfolio positioning will be a one, two punch that most investors will lack the stomach to withstand. There will be no safety from the current storm. But, unlike hopium stocks that will go bankrupt in the coming recession, quality stocks will eventually rebound to sunnier days.
Positioning conservatively is something any money manager worth their salt should have done a long ways back. There have been ominous signs of a weakening economic environment for some time. Depending on how speculative a portfolio has been will require taking the pain of REAL losses with speculative positions and future paper loses with conservative companies as rotation occurs and the general market continues to sink The alternative is to continue to hold the speculative stocks and see many go bankrupt while hoping (thus hopium) one holding will make the portfolio a superstar and make up for all the others’ capital losses.
Stay safe and prepared for the ensuing storm. You don't want to be on the Kon-Tiki in a Cat 5 hurricane. Even the Queen Mary will viscerally feel the life threatening ensuing storm.
Be smart, be well-read, be aware and be successful.
