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A story stock is one that trades primarily on expectations of future profits rather than on current conditions. The expectations of a story stock are often driven by technology; for example, a story stock may offer a promising new drug or communications device. A large well-known company can become a story stock if it makes a radical change to its strategy, often by buying a company in an unrelated business.
A story stock tends to draw a disproportionate amount of attention from the financial and general press. Capturing the imagination of the trading public, a story stock will tend to trade with high levels of volatility as speculators rush in and out. The frenzy surrounding a story stock can last for months, or even years, and the price of a story stock can run to very high levels. Contrarian strategies based on fundamentals have great difficulty trading a story stock as valuations become secondary to momentum. |
