In Wall Street (1987) Lou Mannheim famously says, “Quick buck artists come and go with every bull market. It’s the steady players that make it through the bear markets.” ARK Invest founder Cathie Wood is the latest example of an active fund manager who touted gains during a bull market but couldn’t mitigate losses when times got tough.
Psychedelic Spotlight initially reported that Wood’s ARK Genomic Revolution ETF (BATS: ARKG) opened a position in the medicinal psychedelics company atai Life Sciences (Nasdaq: ATAI) during February 8-10, 2022 and hasn’t stopped buying over these past seven months. ARKG also started accumulating shares of COMPASS Pathways PLC (Nasdaq: CMPS) just over two weeks ago.
Naturally, investors advocating for the “Shroom Boom” to hit the psychedelics public market sector are excited by these developments, as Wood’s notoriety as an active fund manager brings attention and awareness to a mainstream audience, not to mention injects liquid demand into the respective stocks. However, Wood’s success as an investor is directly tied to a breakout bull market that began in March of 2013 (eclipsing the markets’ pre-Great Recession all time highs from late 2007) and ran until February of 2021.
Since ARKG topped out with the broader markets in early 2021, Wood’s Genomic Revolution ETF is down a staggering 70.44% (as of market close September 6, 2022), essentially erasing any gains the ETF made during the COVID stock market bubble.
Moreover, ARKG made a strategic misstep by opening its position in ATAI when the bears were still firmly in control of the price action. The stock is currently down 31.43% since ARKG’s initial three day buying spree —ending February 10, 2022. Granted, the bulk of ARKG’s position in ATAI has been averaging down since the initial accumulation, but it raises serious questions as to why bother trying to catch a falling dagger in the first place?
COMPASS Pathways PLC (Nasdaq: CMPS) is the second strategic misstep for Wood’s ARK Genomic Revolution ETF. CMPS rallied 200%+ off its YTD low in mid May until faltering on August 8th. Trend reversal signs from key technical indicators, however, began flashing red in mid July until final confirmation of a rally-killing selloff kicked in on August 11th.
By the time ARKG began accumulating CMPS on August 22nd, almost every major technical indicator pointed to further downside, and the stock is almost 16% lower since the height of ARKG’s initial three day accumulation. Once again, any investor with a healthy dose of skepticism needs to ask: Why buy near the top of a 200% rally when all signs point to a giant billboard screaming SELL?
Utilizing the AdvisorShares Psychedelics ETF (NYSEARCA: PSIL) as the sector’s benchmark, the psychedelic space writ large is presently experiencing a correction, which also drags on atai & CMPS’s already deteriorating technicals.
However, the news is not all bad.
PSIL has been in a general uptrend since bottoming out in mid May. The technicals and market mechanics point towards an auspicious fall season for psychedelic stocks. But what happens when retail investors who aren’t immersed in market mechanics fall prey to hype and mythology?
Although it’s a great speculative maneuver to bet on publicly traded psychedelic stocks experiencing a Shroom Boom, with the proper risk mitigation in place, the strategy of when to invest is critical. Managers of large funds like Cathie Wood’s ARK Invest ETFs can absorb losses while building a position over the span of several months, unlike individual investors whose time horizons may not reconcile with those of big dollar asset managers. And since this space is still highly speculative, investors will benefit from focusing on price action and market momentum rather than hype or shadowing the moves of fund managers who can barely keep their own shop afloat.
Finally, there’s an ugly underbelly and seething hypocrisy to the specific psychedelic companies Wood’s ARKG is actually buying. Both CMPS and ATAI are bankrolled by fascist billionaire Peter Thiel, and both have earned strong reputations for being the largest patent trolls in the sector. Thiel’s guiding theory in any business venture is to corner and monopolize the market, which CMPS and ATAI are attempting to do by using intellectual property laws to stifle future innovation and competition in the space.
Companies like CMPS and ATAI don’t want full legalization of psychedelics. They want to control the medicinal psychedelics market, create artificial scarcity, drive up prices, and corner you into purchasing their patented versions of organic compounds which have thrived on Earth since ancient times. In other words, proprietary IP is the driver of the oxymoron called free market capitalism.
We tend to reflexively view intellectual property as a positive without considering ethics and resulting harms of the practice itself. As opposed to a natural property right, IP is artificial, creates scarcity rather than managing it, and acts as a state subsidy to incumbent corporate interests. IP distorts markets and infringes on the concept of real property rights, forcibly transferring wealth upwards with mostly negative impacts on segments of global economies. Moreover, the myth of IP as a supposed necessity for profit incentive has been thoroughly debunked.
In July, ATAI founder Christian Angermayer (ATAI owns roughly 20% of CMPS) attempted to answer critics with a lengthy LinkedIn word salad as to why he favors medical decriminalization vs full legalization —hint, according to Angermayer it’s all about helping people. It’s borderline knee-slapping hilarious to take Peter Thiel and his minions seriously, especially when they claim to be in favor of open markets and individual liberty. Nevertheless, their feudal lord-like strategy is apparent.
Better yet, with so many medicinal psychedelic companies out there, why is Cathie Wood and her ARK Genomic Revolution ETF focused on two toxic, patent trolling outfits financially backed by an unrepentant fascist, representing one of the most dangerous threats to both our personal data and democracy?
Craig D. Schlesinger is the CFO of PSYC Corp & Spotlight Media and a market analyst with over twenty years experience predicting price movements and trend reversals in various sectors. Follow his #MathOverMyth technical analysis and him on Twitter: @psychedelicraig
Craig holds no positions in ATAI, ARKG, CMPS, or PSIL
