Storyworthy 𓂃🖊
Musk Derangement Syndrome
In January 2021, this obscure penny stock went vertical. Signal Advance Inc. surged over 5,000% in three days.
You might be thinking: medical breakthrough? Blowout earnings?
Nope. Just a two-word tweet from Elon Musk.
The tweet said: “Use Signal.”
But Musk wasn’t trying to give investment advice. In fact, he wasn’t even talking about Signal Advance Inc. at all…
He was telling people to download the messaging app Signal. Which has absolutely nothing to do with Texas-based company Signal Advance.
So why’d the stock skyrocket?
Well, retail investors did retail investor things. They saw the word "Signal" in an Elon Musk tweet, so they piled into a completely unrelated penny stock, driving the price from $0.70 to around $70 in under a week. Since then, it's down 99%.
Even by today’s meme-market standards, that’s some serious market nonsense.
But maybe it’s more than that. Maybe it’s what happens when we blindly follow one person’s tweets.
I like to refer to this episode as Musk Derangement Syndrome.
But it does have a more scientific name…
PSYOP 🚩
Halo Effect
The Halo Effect works like this:
First, we like or admire something about someone. Then, because we like them, we start assuming they’re competent at lots of things, even when we’ve no evidence for this.
And when we’re trading or investing, this can be a problem.
Because even when it's not their area, we’re inclined to act on the opinions of people we respect. Which doesn’t always end well:
Unicorn founders don’t necessarily have great macro takes.
The best bond traders don't usually give good crypto advice.
It’s so easy to blindly buy into an idea just because you like the person behind it. Believe me, I’ve done it. But it can badly damage your portfolio.
Brings us right back to the Signal fiasco. Investors weren’t just reacting to the words “Use Signal.” They were reacting to Musk. The fact that the tweet came from his account was all the due diligence they needed.
Musk might be a genius, but this isn’t a good long-term trading strategy.
The good news is that the fix is pretty easy: separate the name from the opinion, and then figure out if the trade still makes sense.
The Trade 🎲
Shot and Chaser
Identifying in real time and front-running something like the Signal fiasco is the holy grail for us here at Market PSYOPs. The perfect market psychology trade.
But for now, we’ll settle for two ways to play the Halo Effect:
Lean into it.
Trade against it.
Shot and chaser. Simple. Here’s what we’re thinking:
Shot 🥃
Trump Media & Technology Group (NASDAQ: DJT)
If we’re going Halo Effect, we may as well go big.
DJT is down a lot over the last while. But midterms are coming up. And Trump will need to throw a lot at the wall to boost his approval rating and hype up his base. There’s a chance DJT catches a bid.
We’re not looking for the fundamentals to improve, we’re just looking for one last wave of hype in the run up to midterms. A final drag of the cigar (to misquote Warren Buffett - man, he’d hate this newsletter).
I’m buying: DJT, October 16 $13 calls.
This is a degenerate trade, even by our standards. High risk here. But at Market PSYOPs, we run these psychology trading experiments so you don’t have to.
Don’t worry, it’s all in the name of science.
Chaser 🥤
Bullish (NYSE: BLSH)
This one is just going on our watchlist for now. No put options yet.
I mean, for a start, it's called "Bullish". That alone is almost enough evidence to short it. But from a Halo Effect point of view - lot of big names attached to this one: Peter Thiel, former NYSE president Tom Farley. Cathie Wood’s ARK (arguably the ultimate contra-indicator) has also invested.
Bullish is a crypto exchange, focusing on institutional players and derivative products. Success seems tied in with BTC's fortunes.
But by all accounts, there’s also an actual business here. So we’re keeping our powder dry for now.
Thinking Trap 🎣
There’s psychological traps everywhere in life. They shape how we think, how we make decisions, and spend money.
But that’s enough word salad for one day. Let’s gamify this:
💲💲You’ve found a stock you love. Strong business. Healthy balance sheet.
But the macro outlook is uncertain: inflation chatter, geopolitical uncertainty, apocalypse concerns…
How do you buy?
The answer - and the psychology behind it - will be revealed in the next edition.
Last Week’s Answer:
Well, did you buy the SPAC? Did the Halo Effect kick in when you saw the name Michael Burry? He’s a lot of things, but a fashion expert isn’t one of them. And there wasn’t much other info to go by. Might have been best to keep your cash in your pocket on this one…
