The Rise of Cult Stocks
Let’s call it what it is, the Gamestop movement was an institutional strategy to bring popularism into the stock market and attract new investors to use their stimulus money ($1,400 on the way). The Reddit movement also has brought incredible traffic into sentiment plays.
These stocks have a particular playbook including dedicated Subreddits to pump their stocks. These stocks tend to become more “cult” like, the less fundamentals or real catalysts explain their stock movement. They are getting really easy to spot. Typically they have an inflated number of followers on Stocktwits compared to the real world business growth of the stock.
- They are typically popular on Reddit, Robinhood and Stocktwits.
- They go up without reason due to their GenZ appeal (sentiment).
- They are driven on wild speculation about the future of the stock.
- They typically lack strong fundamentals to support their thesis.
- They are pumped by the sheer volume of new retail traders (with institutional backing).
- They are an evolution of pump and dump cycles in a liquidity inflated world of small-cap growth stocks.
- Their followers have used defined tactics to increase the popularity of the stock online in an artificial manner.
- They correlate with each other on Yahoo Finance and often have similar price action or price ranges (such as $MVIS and $UAVS)
- They often were or are triggered at the same time in the bubble market (like campaigns unleashed at a time when there are more eyeballs).
- The stocks often have baselines much much lower than their launch pad like trajectories through the small-cap price ranges.
- The cult stocks have followers who do their due diligence on Reddit or YouTube (among the least trustworthy of places).
They are a real phenomenon and many of them will continue to climb just as NIO, PLUG, FCEL and others did. It’s not based on valid P/E ratios or earnings growth, nothing of the sort. Some of them are actually worth buying! They are totally divorced from real-world value, and operate in almost their own meme-like echo-bubble.
At the Last Futurist, here are some that we have noticed:
The Fed really is king and this really is a bubble market, but many GenZ investors or traders don’t know anything different because they haven’t been trading long enough. The cult-like quality of these stocks mean they are pure play sentimental stocks, with wild legions of “diamond hands” (the meme equivalent to hodlers). This weird trader behavior almost guarantees that the stocks will “go up”. To the moon, you know.
Here we aren’t talking about Gamestop, that’s something else. Cult stocks just need a small core of very loyal investors and a recent price history of a step incline. They prey on cognitive distortions related to gambling fallacies such as the hot-hand fallacy, confirmation bias and so forth.
This means even at incredible profits their legions do not sell. This creates surprising liquidity pumps that defy all short action. They are the tried, the true and the completely naked stocks of the pump and dump reincarnated for 2021.
Cult stocks are a derivative of the personality-cult bias of Elon Musk and Tesla. They best exemplify what happens in a bubble. Their followers shout-down bears or anyone that might defy them even leading to the shorts or the common sense devil’s advocate to be banned from the app. This creates only one voice, the “we win” of the cult stock.
These are the crypto-cool kids trading actually on the stock market because their friend turned $5,000 into 50k. These are the social media manipulators and the echo-bubble natives. They are a weapon institutions use to manipulate the stock market and blame the young Robinhood investors.
These stocks correlate with each other, since they are huge winners in a market that doesn’t reward research, but herd-like behavior. The hive mind is real, the cult-stocks are their BFFs and imaginary financial Gods.
A cult-stock can go from a lowly penny stock to a mid-cap stock with incredible volume in 3 months of pumping. And the list is just getting started…Cult stocks are the new money trees, the new Kool-Aid and the new get rich scheme of social media natives.
Cult stocks are the sentiment plays multiplied by diamond hands, the legions of our brave new world. The cult stocks do not have very good intrinsic value, but it doesn’t matter, so long as the stock goes up.
The cult stocks feel like the crypto world invading the penny stock realms. It’s the gamification of the small-cap momentum traders and it’s happening at a scale you would not believe. And Elon Musk is their Avatar.