Investing in Cults for Profit

Investing in Cults for Profit

Investing in Cults for Profit

Many high-performing investments have cult-like followings.

  • Apple
  • Tesla
  • Bitcoin
  • Bored Ape Yacht Club
  • DeGods
  • HEX
  • Terra Luna
  • FTX + (Solana by extension)
  • GameStop

Before we go any further let’s take a moment to define ‘cult’ within the context this report.

A cult, in the most extreme sense, could refer to a community of people who are coerced and exploited by a leader psychologically, emotionally, financially, sexually, or otherwise. When used in this context, cult members often have restrictions placed on their behavior and are not allowed to leave the cult.

For the context of this discussion around “investing in cults”, we are not talking about the hardcore cults described above. We’re talking about investments whose communities exhibit cult-like behavior.

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Common characteristics of cults and cult-like behavior:
  1. There is often a backstory that includes extreme hardship or mythical elements.
  2. Opposition of critical thinking.
  3. Isolation of members and penalizing them for leaving.
  4. Usually headed by a powerful and/or charismatic leader.
  5. A belief that the leader is the exclusive means of knowing “truth” or giving validation.
  6. Low or zero tolerance for criticism or questions. The group suppresses skepticism and delegitimizes former members.
  7. Records, books, articles, or programs documenting the abuses of the leader or group (victimhood mentality).
  8. Cults often cut members off from other forms of social and financial support and pose both physical and psychological risks to members of the group.
  9. An us-versus-them outlook is consistently reinforced, with rebellion against other sources of authority.
  10. The group is elitist.
  11. Participation in the group becomes the members’ identities.
  12. Rites of passage, initiation rituals.
  13. The cult leader, or members, often humiliates or talks down to others not in the community.
  14. Leverages the idea of being a part of a greater purpose to promote the brand or the investment.
  15. Repetition of pre-meditated talking points without an actual understanding of the underlying issue/technology/idea. (We see this one in politics a lot. By the way, political parties are quite cult-like.)

Why do cult communities drive price upwards?

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Irrational price behavior is driven by irrational market participants.

Much of the behavior outlined above results in a community that does not think rationally. They have been brainwashed to act in a desired way for the ”good of the group”.

In the case of investments like Bitcoin, the desired outcome is to HODL (don’t sell) and stack sats (buy more).

Remember, price is ultimately dictated by supply and demand.

Investment cults…

…create demand by recruiting new members.

…create demand by encouraging members to buy more (stack sats).

…restrict supply by discouraging members to sell (HODL).

You will also commonly see the promotion of irrational price targets.

(BTC to $1 million in 90 days!)

Apple

Apple, our first example, has several characteristics and employs several tactics that have created a cult-like following.

Of our examples, Apple is the only one that has a cult-like community predominantly centered around its products, rather than as an investment vehicle. However, the by-product of this is a high performing investment.

For example, Tesla has a cult following both around its products and it’s performance as an investment, but the cult-like community predominantly resides in the TSLA stock investing community.

As we go through Apple’s cult-like characteristics and tactics, keep in mind the list above.

  • Apple was led by the charismatic and unorthodox Steve Jobs, whom is often regarded as a genius visionary.
  • Steve Jobs has a heroic story arc, as he was the victim of ridicule from his peers. No one believed in him and he had to overcome extreme adversity to make Apple a success.
  • iPhones gate-keep Android users by differentiating between green text messages (android users) and blue text messages (iMessage), despite technology existing to integrate android users. This leads to a feeling of superiority over Android users and an overall elitist mentality.
  • Apple products are priced above their competition, even when the competition has a technically superior product (more storage, RAM, etc.) This reinforces the elitist mentality.
  • Apple products work together seamlessly, making switching costs high. Abandonment of the ecosystem is not easy.
  • Airpods are specifically designed in one color (white) to be extremely noticeable by others.

Branding is the process of creating a distinct identity for a business in the mind of its target audience and consumers, and Apple is an expert at branding.

Apple created a brand that assigned desirable character traits to people, based only on the fact they possess an Apple product. All of these things have contributed to a strong brand and community that exhibits cult-like characteristics, which has greatly contributed to the financial success of Apple.

The Cult of Elon Musk

Tesla/DOGE/Spacex etc.

There’s a reason Tesla stock trades at a PE ratio of 52x and Ford trades at 6x. It’s backed by the cult of Elon Musk and the belief that he will continue grow and innovate at a faster pace than the competition.

  • Tesla is headed by Elon Musk, who is worshipped for being a brilliant entrepreneur based on is past successes and unorthodox bluntness with the media.
  • Every company Elon Musk runs is part of solving a bigger problem. With Tesla, he doesn’t just sell electronic vehicles. He sells the solution to a common enemy, the solution to climate change. He doesn’t just launch rockets into outer space. He is working to reach and colonize Mars as it humanity’s only hope of escaping the doomed Earth. People buy into the grander vision of the cult.
  • Elon Musk expertly maintains a large presence in the media, leaning into and leveraging his fame where other billionaires frequently prefer to lay low. People flocked to buy Dogecoin when Elon Musk supported it because he is more rich, influential, and famous than nearly anyone on Earth.

Bitcoin

Bitcoin is among the strongest cults, and brands, in the world.

  • Bitcoin has a mysterious, anonymous creation story where no one knows who exactly created it.
  • Because Bitcoin has an anonymous founder, the echo chamber promotes the loudest and most influential holders as leader (Michael Saylor, John Mcafee, Balaji Srinivasan). These leaders have wealth, influence, and irrational price targets or visions of the future for Bitcoin.
  • Critical thinking is frequently shunned if it goes against the Bitcoin narrative. Bitcoin-ers ignore the fact that Bitcoin’s security budget (emissions schedule) is unsustainable in the long-term. They ignore Bitcoin’s scalability issues in favor of the lightning network, a centralized, bank reliant solution.
  • Instead they prey on individuals who lack technical understanding of Bitcoin’s flaws and focus on key, repeatable catch phrases and talking points like HODL, the future of money, the world’s future reserve currency, sound money, stack satoshis, never sell, etc.
  • They have an elitist mentality that puts down non-holders (”Have fun staying poor!”).
  • The us-versus-them mentality is consistently reinforced with the common enemy being the current financial system, the dollar, the government, the central banks, etc.
  • Rites of passage include willingly not taking profits in favor of holding one’s portfolio through predictable 70%+ drawdowns.
  • Bitcoiners view themselves as part of the ‘greater purpose’ of financial revolution.

It’s hard not to be bullish on Bitcoin when assessing its community’s beliefs and actions.

HEX, Terra Luna, FTX & Solana are all great examples of investments that performed extraordinarily well for a period of time in the last bear market, due in large part to cult communities that centered around eccentric leaders (Richard Hart, Do Kwon, Sam Bankman Fried).

Otherwise rational people were dumping their life savings into these investments because they bought into the cult-like vision.

Some cult investments are built on sound fundamentals and have staying power. Others are built on lies or unsustainable strategies and collapse.

The key take-away here is that cult-like communities can drive irrational price action, which can be extraordinarily profitable for those who can recognize such behavior and participate in its investment potential without ever buying into the cult itself.

Extremely devoted communities with irrational views drive irrational behavior (not selling, continuously buying more, strong recruitment, low churn) which in turn leads to irrational price action.

Once one buys into the cult itself, however, the likelihood of successfully taking profits at right time greatly diminishes. You find yourself HODLing 90% drawdowns waiting for the irrational vision of the cult to be achieved (which it rarely ever is).

Do you actually believe Teslas, with their unethically mined lithium batteries, will solve climate change?

Do you really think Elon Musk will ever set foot on Mars?

Do you really think that Apple products make you better than others?

Do you actually think Bitcoin, which takes 10 minutes to process a transaction, will be universally adopted as the world’s reserve currency?

Do you actually believe Dogecoin is going to have a significant role as a real currency in the financial system?

Do you actually think HEX is the best store of value ever created?

Do you actually believe 20% APY on a USD stablecoin is sustainable forever?

Did you actually think that the celebrities who bought Bored Apes bought them with their own money and because they like NFTs?

Do you think even half of the people shilling you on the future of capabilities of artificial intelligence even understand the underlying technology past a surface level?

Cult-like behavior is an incredibly bullish signal.

Great opportunity resides in the ability to identify investments whose communities are led by delusional beliefs and irrational price targets, and manage investments accordingly.

Identify the cult. Invest cautiously. Jump ship when it starts taking on water. Find the next cult.

Keep this list handy for the next bull market:

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Common characteristics of cults and cult-like behavior:
  1. There is often a backstory that includes extreme hardship or mythical elements.
  2. Opposition of critical thinking.
  3. Isolation of members and penalizing them for leaving.
  4. Usually headed by a powerful and/or charismatic leader.
  5. A belief that the leader is the exclusive means of knowing “truth” or giving validation.
  6. Low or zero tolerance for criticism or questions. The group suppresses skepticism and delegitimizes former members.
  7. Records, books, articles, or programs documenting the abuses of the leader or group (victimhood mentality).
  8. Cults often cut members off from other forms of social and financial support and pose both physical and psychological risks to members of the group.
  9. An us-versus-them outlook is consistently reinforced, with rebellion against other sources of authority.
  10. The group is elitist.
  11. Participation in the group becomes the members’ identities.
  12. Rites of passage, initiation rituals.
  13. The cult leader, or members, often humiliates or talks down to others not in the community.
  14. Leverages the idea of being a part of a greater purpose to promote the brand or the investment.
  15. Repetition of pre-meditated talking points without an actual understanding of the underlying issue/technology/idea. (We see this one in politics a lot. By the way, political parties are quite cult-like.)