No need to rehash the zillion takes on the developing situation in the stock market. If you need some background, this piece by Jason Koebler in Vice is one of the better intros I’ve seen.

One of the self-proclaimed ‘degenerates’ in /WallStreetBets is calling the name of the future movie “The Big Long,” starring Luke Wilson.

Who doesn’t like to see bullies get beat up by underdogs? This will make one hell of an entertaining film at $AMC.

I imagine Michael Lewis is already frothing at the mouth for the book deal. Personally, I’d rather see the book written by u/DeepFuckingValue, the anonymous Reddit user who started the whole thing. (On that note, I’d also rather see the crew from Reddit band together to make the movie, too—rather than a Hollywood job, with an agenda.)

But the Twitter Ban wasn’t really about Twitter, and the GameStop saga isn’t really about the stock market.

Those whose knee-jerk reaction is to become fixated on legislation and app fixes and prohibitions on trading certain stocks to prevent the “problem” are completely missing the human element—or they very likely believe that humans are the problem.

If you’ve been reading this newsletter, you know by now that we’re not going to get into hot takes and how-to-fix-its. We’re going to attempt to pull back the veil and gain some insight into what’s really happening at a human level.

René Girard on the Stock Market

If you think this kind of behavior is problematic for the stock market—or “unnatural, insane, and dangerous,” in the words of hedge fund manager Michael Burry—then you’re forgetting a fundamental aspect of human behavior. Nothing is more natural.

“Mimetic desire” is a term coined by the French social scientist René Girard to refer to humans’ built-in propensity to imitate the desires of others. As much as we like to think of ourselves as “objective” stock pickers, Girard found that humans don’t desire anything directly.

Desires, which are different than needs, are entirely mimetic. The more abstract the object of our desire, the more mimetic our motivations.

Stocks fall squarely into this abstract category.

“The most mimetic institution of all is a capitalist institution: the stock market,” Girard said. “You desire stock not because it is objectively desirable. You know nothing about it, but you desire stuff exclusively because other people desire it. And if other people desire it, its value goes up and up.”

Stock market analysts and pundits are at a loss for words to describe strange market movements that seem to defy objectivity. CNBC analysts and pundits hem and haw about all of this. Notice the strange fixation with whether or not retail investors are “doing the research” by Scott Wapner in this CNBC interview (watch at that link) with Social Capital’s Chamath Palihapitiya.

Wapner’s fascination with whether retail investors are “doing their research” is an investor’s version of The Romantic Lie. It’s a complete denial of mimesis and of the nature of markets themselves. It also betrays a certain degree of self-conceit to convince oneself that the “smart money” comes from people who “do the research.”

The hedge fund bros are playing the game just like the Reddit crew is—and this time they were outplayed.

These pundits simply lack the understanding and the language to describe the phenomenon.

“When they tell you ‘psychology’ is getting into the market, they mean that the mimetic wave that makes stocks rise is getting out of bounds,” Girard said. “It has no more relationship to reality than that. The stock market is always threatened with a mimetic wave of such importance and such a lack of objectivity.”

Certain aspects of the current situation unfolding in late January 2021 do seem unprecedented. (I think the nature of short-selling is going to change forever, among other things.) But why are we pretending that the stock market has not operated with a massive amount of mimetic desire and rivalry for well over a hundred years now?

The Rise and Fall of Desire

Today we are seeing the acceleration of mimesis in the stock market in part because the pandemic has concentrated it there. With the inability to exercise mimetic impulses in normal social situations (which diffuses mimesis in a million directions), a growing number of people are directing theirs to speculative trading.

This doesn’t make life any harder for those of us who prefer value investing. In my view, it makes it easier. If we’re able to stand at a far enough distance from the mania, we can more easily see where the real value lies. If we’re able to see mimetic movements for what they are, we see where the mimetically-driven price action is happening, and where it is not. There are ways to tell, which I’ll have to save for a future edition of this newsletter.

We can invest in long-term growth. We can also bet on mimesis.

But mimesis can very quickly turn on a dime in the opposite direction. Girard says that mimetic movements usually happen swifter on the downside than the upside. In the way that only Girard can, he compares stock plunges to scorned lovers in the writing of French novelist Honoré de Balzac.

“Inevitably, there will be a collapse, which is also lacking in objectivity. Just as a fashionable woman in Balzac, when she’s abandoned by a lover, may be abandoned by all potential lovers at the same time. It’s a total disaster for her. She becomes like a stock that has lost its value.” (Emphasis mine.)

That’s partly because mimetic desire makes us rivals to one another. Let’s be honest: rivalry is a large part of what’s motivating the battle playing out in the stock market. “War is a continuation of politics by other means,” wrote the Prussian military theorist Carl von Clausewitz. This is clearly a war.

It’s not a traditional war, though. It’s a war in which mimetic desire, rivalry, and scapegoats have been weaponized. And that’s a very dangerous war.

We still don’t know how it’s going to end. It seems to me like part of a trend of escalating mimetic rivalry which is now spilling over from politics into every domain of life. I believe this is what Ray Dalio (a man who is now in the wrong demographic to arouse any sympathy, I know) is trying to say in a recent Washington Post interview:

“What concerns me more is the general anger—and almost hate—and the view of bringing people down that now is pervasive in almost all aspects of the country. That general desire to hurt one another is of concern.”

(I’m convinced someone has slipped him an advanced copy of Wanting, which I hear is currently circulating by samizdat in certain circles...)

Dalio is right about this, though. It should be concerning. I’d caution anyone gloating too much over the downfall of their enemies on either side. If we’re feeling the schadenfreude, it certainly means we’re caught up somewhat in the mimetic cycle ourselves. And we should check what’s motivating us.

One of the problems with mimetic rivalry is this: when they go too far, people forget what they were fighting for in the first place. This leads to chaos.

Destroying one’s enemy becomes more important than, say, taking profits and going home rich. (Mad Money host Jim Kramer has seriously misunderstood the situation. He told retail investors to settle for having “hit a home run” rather than going for a grand slam—but it’s not about hitting a “grand slam,” it’s about a different kind of slam…)

If a person or group in a mimetic rivalry takes their metaphysical desire far enough, they’re willing to destroy themselves—as long as it means that they destroy their enemy in the process.

I don’t want to see that happen. I believe that good can come out of mimesis, and even out of mimetic rivalry, if we learn from it. But not if we have no idea what’s happening.

If we don’t understand these mechanisms, we’re not just doomed to “repeat history”—we’re doomed to escalate and accelerate the mimetic cycle until it ends in spectacular violence.

Playing to Win

I wish every business school in the world started with a course in fundamental anthropology and human ecology, with a good portion of it dedicated to mimetic theory. The more you understand anthropology, the more you understand the stock market.

“Bubbles are neither rational nor irrational,” wrote the Wall Street Journal’s Jason Zweig. “They are profoundly human, and they will always be with us.”

Mimetic desire will always be with us. And that’s why I’m bullish on rivalries. The question is: who’s profiting off mimetic rivalry? And who’s losing?

If we let it go far enough, we all lose.

Take it from someone who has played poker late into many nights. When the stack is huge and the night is far spent, and so is that third glass of whiskey, the fourth one is never a good idea.

But it’s hard to walk away when 5.9 million people are telling you it is.

—Luke

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