Ask a Fool: Should I Buy Marijuana Stocks?

Q: I've seen tons of hype about marijuana stocks. Should I put some of my money into the space, or is it a bad choice?

The marijuana industry is a young and high-potential space, so there's definitely lots of room for long-term growth.

However, it's important to approach this with the right mentality. Investing in any up-and-coming industry is a speculative practice. That is, it's highly risky and you shouldn't invest any money that you aren't prepared to lose -- even if you think a particular company looks like a potential gold mine.

I don't want to discuss any individual companies, but it would be smart to approach investing in marijuana stocks in a similar manner as tech stocks in the late 1990s. Some will probably do wonderfully. People who invested in Amazon.com or Priceline (now Booking Holdings) during the dot-com boom and held on to their shares have made fortunes. People who invested in companies like Pets.com -- not so much.

With that in mind, I'd advise you to do two things if you want to add some marijuana stocks to your portfolio.

First, only use a small portion of your investable assets. If you put, say, 5% of your portfolio in marijuana stocks, that's all you can lose if things go badly. And if one of them turns out to be the Amazon of the marijuana industry, it'll still be enough to produce a significant win.

Second, don't put all of your eggs in one basket. Whatever money you decide to invest in the marijuana industry, spread it among at least three or four reputable companies -- not penny stocks.

If you do those two things, you'll set yourself up to profit if you're right, but at the same time, you won't be devastated if things go badly.