What is a ‘story stock’? For those who don’t know – it’s used by many investors to refer to companies that sell a story and sell shares, rather than create value.
It’s similar to the ‘jam tomorrow’ phrase – whereby someone believes the company is the declarer of a never-fulfilled promise (this originates from Lewis Carroll’s 1871 book Through The Looking Glass and What Alice Found There).
These stocks always have an exciting technology, which is going to revolutionise the world or disrupt an entire industry. While these businesses offer a great story, the harsh reality is that they very often suffer from setback upon setback. This, in turn, creates a cash-call, and shareholders become diluted – often into oblivion.
It’s a proven fact that these stocks generate more bulletin board interest than those companies that are actually generating profit and cash. If you ask a person on the street which company they’d rather invest in – Company A, which makes no money, or Company B, which does make money, they’re always likely to pick Company B (why would you want to lose money?). Yet, the average person on the street says one thing and does another.
This piece was first published on our sister site ValueTheMarkets.com on 30/07/2019. To read it in full, please click here…
Author: Michael Taylor
You can learn more by downloading Michael’s fantastic free book How to Make Six Figures in Stocks. This can be downloaded from his website – https://www.shiftingshares.com/