Forecasting where a stock or industry will be in the future is always a challenge. As the coronavirus pandemic has demonstrated, the world can be incredibly unpredictable and throw even the best, most thoughtfully calculated plans into disarray.
There are some risks that, regardless of what happens with the pandemic, are not worth taking. Here are three things investors shouldn't bet on this year, as doing so could leave you with some significant losses.
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1. Marijuana legalization
Cannabis investors may be tempted to hold stocks for the hope that marijuana legalization will open the floodgates for the industry. While legalization does look probable in the long term, I wouldn't expect it to happen this year. President Joe Biden hasn't made any moves to suggest he's in favor of it, let alone that he would make it a priority in 2022.
Last year, the House passed the SAFE Banking Act for a fifth time. And for a fifth time, the bill failed to progress any further. The SAFE Banking Act wouldn't even legalize marijuana -- it was a modest effort to try and make it easy for banks to do business with the cannabis industry (without the fear of repercussions from the federal government), which would help in keeping marijuana businesses safer since they would need to hold less cash on their premises.
Nonetheless, investors in Canadian pot producer Canopy Growth (CGC 14.01%) are hopeful that legalization happens; it's one of many stocks that would benefit from the U.S. pot market opening its doors. Today, Canopy Growth and other Canadian pot stocks aren't able to sell marijuana in the U.S. because they trade on the NYSE or Nasdaq, and doing business in an illicit market like marijuana would jeopardize their listings on those exchanges. Multi-state marijuana companies that are operating in the U.S. are able to do so because they trade on smaller exchanges, such as the Canadian Securities Exchange.
Canopy Growth has long been positioning itself for growth opportunities in the U.S. with many deals. It has a partnership and key investor in Constellation Brands (which owns a 38.6% stake in Canopy Growth), and the cannabis producer has pending deals that it can execute on when the U.S. pot market fully opens up -- including to acquire multi-state operator Acreage Holdings and edibles maker Wana Brands.
Although Canopy Growth stock is getting close to five-year lows, betting on its business and that marijuana legalization will happen this year is not a risk worth taking. If you're bullish on Canopy Growth, you may be better off waiting as 2022 may be just another frustrating year where pot stocks continue to struggle.
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2. Shiba Inu soaring to $0.01
Digital currency Shiba Inu (SHIB 3.62%) soared in popularity last year, becoming one of the hottest cryptocurrencies to invest in. Some investors may be hopeful that Shiba Inu, which currently trades at around 0.000021, could rise as high as $0.01, which may be the mother of all long shots. If that happened, that would be a return of more than 47,500%.
While it isn't impossible for cryptocurrencies to soar quickly in value, Shiba Inu has been going in the opposite direction. Since the start of this year, when it was trading at $0.000034, it has already plummeted 38%. Bitcoin (BTC 0.74%) has also declined, but by a much more modest rate of 20%. A big impediment is that in a world where there are thousands of cryptocurrencies, there's simply no reason, besides being a popular meme, that Shiba Inu should stand out from the pack. According to Cryptwerk.com, just over 600 merchants use Shiba Inu as a form of payment. More than 12 times as many accept Bitcoin.
Cryptocurrencies may continue to rise in popularity, but expecting Shiba Inu to rise by tens of thousands of percentage points is a pipe dream at best, especially since an increase like that would rely heavily on speculation, making it an incredibly risky proposition.
Image source: Getty Images.
3. Resurgence of meme stocks
It was about a year ago that meme stocks rose to surreal heights. On Jan. 28, 2021, shares of video game retailer GameStop (GME 1.75%) would top $483 -- more than 24 times the $20 it was trading at less than a month earlier to start the year. Movie theater operator AMC Entertainment Holdings (AMC 3.36%) also rose in January 2021, but it didn't hit its peak until the summer, when its shares hit a high of $72.62 on June 2.
Today, GameStop and AMC shares are trading at $105 and $16, respectively. It's unlikely the fanfare surrounding those and other meme stocks will get back to the highs reached in 2021. As interest rates rise and investors move more of their money into bonds, that could limit the potential for stocks to rally this year. Plus, inflation and record-high mortgages will likely result in less savings and money for investors to spend on stocks, especially on two risky, cash-burning businesses like GameStop and AMC.
What happened last year with meme stocks was by no means typical, and investors hoping that will repeat in 2022 may be in danger of setting themselves up for some significant losses.
