You know them, I know them, we all know them. Stocks that have a following like a rock band have groupies. Cult stocks have a sizable and very loyal following amongst investors. These investors are certainly not shy about their love for these stocks and are very defensive, even if the underlying business isn’t performing. It’s an unhealthy obsession and in the case of some stocks, these shareholders are definitely holding shares at a loss.
What Is a Cult Stock?
So why do investors cling to cult stocks? It can be the popularity of the product or service that the company provides.
It can also be because of a charismatic leader who is able to persuade shareholders to believe what they say.
They can even be stocks that performed well before and gained the love of the market.
Even if they haven’t replicated that success since. Whatever the case may be, cult stocks hold their loyal followings whether the price is up or down.
Are Cult Stocks Bad to Invest in?
It’s not that cult stocks are bad, it’s that the investors that follow the cult stock don’t know when to quit.
As you’ll see later, there are plenty of cult stocks that are great companies and great additions to your portfolio.
Just because analysts advise not to invest in cult stocks, it doesn’t necessarily mean they are bad investments.
It just means that when investors buy cult stocks they have a more difficult time letting go of them.
This is also not a knock against anyone who has a strong conviction and truly believes in a company. If you’ve done your research on the product and see some future potential, then, by all means, become a shareholder.
You can believe in a cult stock company, but if what you loved about it changes, you have to know when to sell the stock. Don’t listen to the CEO or a social media following, listen to your research and your own conviction.
Some Good Cult Stocks
Cult stocks get a negative reputation but there are plenty of them that are great companies and investments. If you think about it, great companies and stocks should have more cult followings than bad ones.
Unfortunately, this isn’t always the case. Investors cling to bad stocks just as much as they do to good ones. Here are some examples of cult stocks that are excellent additions to your portfolio.
Apple (NASDAQ: AAPL)
One of the original tech cult stocks, it’s easy to see why Apple remains one several decades later.
Apple has somehow managed to build its reputation as being the underdog.
Even though it is the most valuable company in the world, there are fewer iPhone users than Android and fewer Mac users than Windows.
But despite this, Apple continues to dominate the global tech space.
Apple makes products that people desire, period. They do an excellent job of keeping customers within their ecosystem and rely on repeat business.
Apple has as much of a product cult as it does a stock cult. The stock has returned over 233,000% since it started trading publicly, and continued to provide great returns today even after recently hitting an unthinkable $3 trillion market cap. No matter how you feel about its products, there is no denying Apple has a fiercely loyal following.
Tesla (NASDAQ: TSLA)
Scour any corner of social media and you will find people who devote their time and efforts to telling you how great Tesla is. We have all experienced this in one form or another, to an almost exhausting degree.
Tesla is a great company, doing great things for the world. But unfortunately, its cult-like following has some of the most obnoxious shareholders on the public market.
CEO Elon Musk is revered as some sort of god, while the company and vehicles can do no wrong. Don’t get me wrong, I love the stock. It’s made a lot of early investors very wealthy over the past few years.
I also think the company is helping to create a global shift towards renewable energy, which is incredible. But it’s nearly impossible to scroll through Twitter these days without someone touting Tesla as the greatest thing since sliced bread. Tesla shareholders definitely fall under cult status.
Palantir (NYSE: PLTR)
Ever since Palantir hit the public markets in September of 2020, it has been incredibly popular amongst retail investors. The company itself has been under a shroud of mystery, known only as a data analytics giant.
A lot of its shareholders don’t even know what it does! There are fan accounts on Twitter and channels on YouTube that are dedicated to Palantir. In fact, the company is so popular, it is always sold out of memorabilia at its digital gift shop!
Some say that Palantir has an element of ‘cool’ that surrounds it. An aura, or something mysterious that draws people to it, no matter what the underlying business is like.
Unfortunately, the stock has been beaten down during this ongoing correction. Palantir still anticipates growing its revenues by more than 30% per year through 2025.
But is that really why it has a cult following? Or are investors just attracted to mysterious companies with cool Lord of the Rings references as names?
Ark Invest ETFs
At one point in time, Cathie Wood could do no wrong. Everything she touched turned to gold, and investors followed her moves like she was a celebrity. Much has changed though as growth stocks have taken a beating with the threat of rising interest rates from the Federal Reserve.
Wood’s Ark ETFs are down significantly off of their highs, and so are many of the stocks that she has bought. Despite this, Wood and Ark Invest still have a devoted cult following that will likely be rewarded by these stocks in the long term.
Some Not so Good Cult Stocks
Not all cult stocks are good stocks. In fact, one could argue they’re so much like meme stocks, that they don’t always last. Below is a list of cult stocks that could be on the outs. Time will tell with some of these stocks, i.e. $AMC.
AMC (NYSE: AMC)
Nothing defines cult stock like the meme stock revolution from last year. You can’t utter anything negative about AMC or Apes will attack you from all sides on social media.
AMC likely has one of the strongest armies of retail investors of any stock in history. It has certainly reached, and far exceeded, cult stock status, but that definitely doesn’t make it a good investment.
Unfortunately for Apes, the movie theater industry has simply not returned to pre-pandemic norms.
Even with gimmicks like NFT giveaways, being able to pay with cryptos, and even free popcorn, AMC has not been able to attract moviegoers back to the theaters.
The stock has fallen 32% in 2022 and 62% over the past six months. Even still, AMC fans will tell you that the short squeeze is still coming. Remember when they said AMC would hit $100,000 per share?
GameStop (NYSE: GME)
I hate to pick on meme stock investors, but I’m sorry, GameStop is not worth $120 per share. Even with a potential digital transformation and shift towards the blockchain with an NFT marketplace.
GameStop received the same treatment that AMC had last year, and even though the stock is down 40% over the past six months, diamond hands will always trump a poorly run business.
GameStop has a chance to reinvent itself, but that still does not justify the stock price. You can love the stock, like Roaring Kitty did, and still acknowledge that it is overpriced. The two things are not mutually exclusive. If for some reason you like GameStop at $120, why didn’t you like it at $5?
Lucid (NASDAQ: LCID)
Sure, Lucid is still a young company and it has a lot of time to figure things out. But were people ever wrong about it being the Tesla killer.
Rewind to 2021 and Lucid shareholders firmly believed that the company was the next iteration of Tesla. The stock skyrocketed to $66 before its SPAC merger, and now it can barely stay over $20.
In retrospect, we should have seen that the market for $150,000 luxury EVs wasn’t very big. Lucid recently downgraded its production numbers for 2022 from 24,000 to about 12,000.
The CEO has some beef with Tesla after he accused Elon Musk of mistreating him when he was employed by Tesla. But just because a company has a vendetta, it doesn’t make it a smart investment!
Are Cryptos Considered Cult Stocks?
I know this article is about stocks but there might be no better example of cult investments than in the crypto market. There is a reason why Bitcoin and Ethereum holders call themselves Maxis. Tribalism is alive and well in the crypto world and each token and project have their cult followers.
Just look at what happened with DogeCoin and Shiba Inu Token last year. While they aren’t stocks, crypto founders can be as charismatic and persuasive as the best CEOs. If you want a true representation of cult followings, look no further than crypto traders. The bias and lengths they will go to tell you that their token is the best one can put Tesla investors to shame.