Psychedelic Stocks: ARK Invest and the Reverse Midas Touch

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.

ARK Invest YTD Performance

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…