A Guide To Identifying Cult Stocks
A cult stock checklist for the junior mining sector
One of the simplest pitfalls for junior mining speculators to identify and avoid are cult stocks. Cult stocks are a unique category of the junior mining stock universe - it is almost never a good idea to own these stocks for very long.
Through observing numerous cult stock situations over the last couple decades, and even being a shareholder in a few, I have developed a set of key characteristics that can help to identify cult stocks:
“Cult following” of bull investors who follow all company news/update/speculation/rumors/gossip with religious zeal - this is the key aspect of any cult stock. The stock becomes a religion for many.
Cult stock disciples will blame short sellers and create other conspiracies in order to explain any price action that is not to their liking.
Bulls will not listen to any contrary points of view and regularly dismiss FACTS that are not to their liking.
When the company is caught lying or distorting things the bullish cult following develop theories to help explain away this behavior. After all, the bulls cannot possibly be wrong in their bullish opinions.
On social media chat forums such as CEO.ca I have regularly witnessed cult stock disciples blame ‘bashers’ who are trying to get the share price down so they can LOAD UP. This is a key theory that must be regularly trotted out to explain poor price action in a cult stock.
Cult stock disciples will often use personal insults and attacks against people with views not to their liking. When the facts are difficult to argue, the cult always makes it personal. After all, only bulls are entitled to opinions.
Cult stock bulls will tend to create a sports team type of mentality on public forums - regularly using pronouns such as we or us when referring to the company that they worship.
Cult stocks also have a grand ‘pie in the sky’ bullish narrative that is either impossible to verify, or requires a lot more time and money to verify. These narratives can be as wide-ranging as ‘Witswatersrand 2.0’ (Novo Resources 2017-2021), ‘rapid covid-19 antigen test’ (Sona Nanotech 2020-2021), or a court case ruling that could deliver a permitted high-grade polymetallic mining operation in Spain (Emerita Resources 2021-2022).
NVO.TO (Monthly)
In some sense, for a stock to truly be a bona fide cult stock it will need to meet all of the above criteria. There are plenty of popular stocks out there across financial markets, and many of the most widely followed stocks are popular because of their share price performance.
Great Bear (acquired by Kinross Gold for C$1.8 billion in 2022) wasn’t a cult stock, Arizona Mining (acquired by South32 for C$1.8 billion in 2018) wasn’t a cult stock, Filo Mining (acquired by BHP/Lundin for C$4.1 billion in 2024) wasn’t a cult stock.
Were all three of these popular stocks with broad followings?
Yes.
However, they all delivered world class drill results and moved quickly to create shareholder value - eventually all three were acquired by large multinational mining firms.
If a strong uptrend in a company’s share price is justified by incredible high-grade gold drill intercepts, or successful phase 2/3 clinical trials, then we can’t really be justified in saying the bull narrative is ‘pie in the sky’.
The proof is in the pudding.
Other recent examples of cult stocks from other sectors of the stock market include AMC, Gamestop, MicroStrategy, and Tesla.
Do you own a cult stock?
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, corporate presentations and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This article is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDARplus.ca for important risk disclosures. It’s your money and your responsibility.
This article was written a bit too late for me as I did invest in Novo but a big lesson learned.