Mimetic Desire and Why Price Action Matters
Wanting: My Nomination for Investing Book of the Year
“The most mimetic institution of all is a capitalist institution: the stock market. You desire stock not because it is objectively desirable. You know nothing about it, but you desire stuff...because other people desire it. And if other people desire it, its value goes up and up.” Renee Girard
AMC Entertainment Holdings (NYSE: AMC) is a money losing, heavily indebted theatre chain in the age of streaming. Its stock is up 2,700% year to date. Of course, we all know video game retailer GameStop (NYSE: GME), which is up 1,100% year to date, but also 4,700% in just one year.
Speculative fervors and fads come and go, but they are usually attached to some big growth premise or new industry, not dead or dying industries like movie theaters and failing retail chains.
The surprising part of all of these so-called MEME stocks is not that they can make wild short term moves completely divorced from fundamentals, that happens all of the time in the stock market. Instead, the surprise is the staying power of these moves.
AMC has stayed higher despite repeated capital raises which have diluted shareholders. If you had asked me back in January at the peak of the GameStop madness, I would have assumed that by now the stock would be back near $20 instead of over $200.
So, what is going on?
Enter Mimetic theory, or the idea that people desire things based upon imitation or mimetically. This theory was developed by Rene Girard, a prominent social theorist and Stanford Professor (He passed away in 2015). Mimetic Theory and Rene Girard’s ideas might be the powerful tool to understand what is going on in the stock market these days. And there is no better place to start than a new book just released.
I highly recommend you buy, read and reflect on Luke Burgis’ new book: Wanting: The Power of Mimetic Desire in Everyday Life. Some of the best investment books are not actually about investing, but since investing is really just human behavior with money sprinkled on top of it, any book about human judgement, behavior or psychology immediately becomes a must read for investors. A great example is Daniel Kahneman’s 2011 book called Think Fast and Slow, which was cited ad nauseam by investors and continues to be cited today.
Luke Burgis’ recent book does a wonderful job highlighting mimetic theory in a very accessible way. Many books spend too much time and too many words explaining what could be summarized in 50 pages or less. This book is different because the topic is actually quite heavy. I think it is a book to reflect on and boy did I spend time reflecting. There have been times in my life, when I clearly did not model the right people, especially in business and this led me to a great deal of unhappiness and frustration. Whom you model and try to imitate either unconsciously or consciously will drive what you desire. It is worth reading this book if only to reflect on this very powerful point.
And there are broad implications of mimetic theory for investors. Consider a recent blog post Luke shared:
According to Girard, we don’t choose the objects of our desires independently. There is always a model of desire involved: a third person or group that mediates the desire for that object. When other people want something—especially if we admire those people in some way—it imbues that object or person with a special, almost mystical, value.
We can only recognize meme stocks ex-post, or after the fact: when we see them taking off. But Girard allows us to see what was going on back at the mystical beginning when there were hidden secrets exchanged in subreddits and whispered at bars: the genesis of desire.
And this is why price action matters. Wonder why all the crypto bros on Twitter highlight every time Bitcoin or some other crypto currency goes up in price? They want you to desire it. Wonder why the phrase “diamond hands” became popular? Because people are trying to instill the desire that you never sell.
A few more takeaways from the book are:
1. “Social media is making mimetic desire on hyper drive, especially in financial markets. Desire spreads at a speed so great we can’t wrap our heads around it.” Social media is speeding up desire in financial markets and this has broad implications for how social media is changing investing.
2. Tony Hseih’s story was both very sad and enlightening about how he didn’t understand mimetic theory and the chaos and tragedy that unfolded.
3. The best explanation of the power of people like Steve Jobs and Elon Musk I’ve ever read. Since they seem to “want differently,” they cast a spell and a reality distortion field over people, especially investors.
4. It’s clear that Rene Girard’s theories influenced not only Peter Thiel, but also Charlie Munger, whose sentiments on envy mirror Girard’s.
5. Becoming anti-mimetic seems just as important as exploring how things are anti-fragile (Nassim Taleb concept).
I think this book and anything on Rene Girard or Mimetic Theory is required reading for understanding the current market environment and I highly recommend Luke Burgis’ new book.
For more reading on Rene Girard and Mimetic Theory, I also recommend Alex Danco’s two posts on it: