Businesses that harness our desire to assemble and affiliate with like-minded individuals can generate serious wealth for shareholders. We’ve covered cult-like stocks extensively throughout our research, most recently with Figs Inc (read here).

The Cult-like Community model is simple: Find things that people use to signal social status, then create a brand that brings those people together.

This idea, a cult-like community, stretches far back into the web of evolutionary time. Scientists have documented culture and cult-like behavior in bonobos monkeys, the great tit (it’s a bird!), and yes, humans. But here’s the catch. Culture and cult-like behavior increase in proportion to the size of an animal’s brain.

Andrew Whiten and his team explain this phenomenon in the journal article The reach of gene-culture, coevolution in animals (emphasis mine):

“Culture relies not only on social learning but also on intermittent behavioural innovation, and similar comparative analyses have identified relationships between records of innovation and brain size in both primates and birds. Reinforcing these correlational analyses, a recent mechanistic model of brain evolution concluded that ‘our results are consistent with aspects of various cultural hypotheses for brain evolution.”

In other words, larger brains predispose humans to favor tribes and groups over the individual. As a result, companies that exploit this innate desire to form groups should  win more business than those that don’t. We see evidence of this when we view the 5YR returns of some of the market’s favorite cult-like brands like Yeti, Inc (YETI), Peloton (PTON), Apple (AAPL), and Lululemon (LULU).

Creating a cultish brand is simple in theory, incredibly difficult in practice. It’s a mix of catching lightning in a bottle and creating a product that signals virtue or status. I explained this in the FIGS write-up (emphasis mine):

“Take a commoditized item (cars, workout clothes, stationary bikes, and coolers) and make it a social status symbol. Now, you don’t just drive any vehicle; you drive a Tesla. You’re not working out in sweats, but Lulu gear. That stationary bike? It’s not a clothes-hangar; it’s a Peloton — a portal into a community of bike-fitness freaks.

Remove the brand, and you kill the cult.

But here’s the kicker: not every commodity product can (or should) be a cult. Cults form around sociable products. Items you can bring to a friend’s house or post on Instagram. Nobody’s hash-tagging their latest toilet paper purchase, and for a good reason. We only share things that give us “points” in life’s never-ending social status game.”

Nintendo (NTDOY) is an excellent example of a cult-like company in our current portfolio. NTDOY has one of the strongest brands and IPs globally. Millions of diehard fans will flock to the new Nintendo World amusement parks annually once it opens its doors.

There are global tournaments solely dedicated to Nintendo video games (like Super Smash). The company’s branded clothing/toys fly off the shelves. Moreover, NTDOY is a rare cult-like company that crosses generational borders.

My parents played Nintendo games growing up, just as I did. The simple, easy-to-learn nature of each game created a thread that connects gamers of all demographics.

We love investing in cult-like communities because they’re foundational to our evolution as a species. Humans form groups, tribes, and identities around things seemingly bigger than themselves. Betting on those first principle desires is one of the most profitable games out there.

A consumer’s mindset is the best tool to find cult-like companies. Look around your everyday life. What are people wearing? What are they discussing at parties? Have you noticed any new products that your friends use as social status symbols?

The answer to these questions can yield the latest cult-like growth stock. For example, one of my buddies can’t stop talking about his Traeger grill. He’s in a Facebook Group with other guys that own Traegers. They post recipes and share grilling techniques. I don’t get it, but he (and thousands of other grill-masters) are hooked.

My friend has entered an entirely new social community (i.e., cult) because he owns a Traeger grill.

Unfortunately, you can’t screen for cult-like stocks. That said, there are a few factors to look for, including: