In the fast-paced world of investing, some stocks soar not because of their profits or financial health, but because of their compelling stories, the headlines they create and investor sentiment. These are known as “story stocks”; they are companies whose share prices are driven more by narratives and speculation than by current fundamentals.
This article takes a look at story stocks and breaks down what they are, why they matter, and the risks and rewards they carry.
What is a story stock?
A story stock is a company whose value in the market is primarily influenced by a compelling narrative, whether it’s about future potential, disruptive innovation, celebrity CEOs, or social media hype. Because of all the attention gained from hype and media, investor sentiment is heightened, which means a story stock may attract a heavy trading volume for many months, until a new contender comes along.
These stories often revolve around:
Emerging technologies (e.g., AI, space travel, biotech breakthroughs)
Massive growth projections (e.g., new markets, global expansion)
High-profile individuals (e.g., Elon Musk effect)
Cultural moments (e.g., meme stocks like GameStop and AMC)
What's important to be aware of is that story stocks usually lack strong financial performance today. Investors buy them not for what they are now, but for what they could become. It's all about the narrative that's told.
Don't get confused with meme stocks
Meme stocks may have similar traits to story stocks; however, they are not the same. A meme stock -as the name suggests- is a popular stock driven by hype that has been created by everyday investors who are active on social media platforms such as Reddit or TikTok. These stocks tend to have a cult-like following among social media communities and often experience substantial price gains despite lacking any fundamental backing or analysis. As the stock gains more popularity and its prices continue to rise, more investors jump on board due to FOMO (fear of missing out).
Examples of story stocks
Here are some examples of story stocks.
Amazon (AMZN): By far the most successful story stocks of all time. Amazon was poised as the company that would dominate the online retail market. Not only did it stir emotion in investors due to its foundation story, but for several years, the company would surprise and confuse traditional value investors because it would lose money and continue to discount its products even further. However, irrespective of this, the stock's price never really went down. Amazon eventually did take over the online retail market.
Tesla (TSLA) in the early days: Before turning consistent profits, Tesla’s share price surged on the promise of transforming the auto industry with electric vehicles.
GameStop (GME) (2021): This is an interesting example, particularly because GameStop was also considered a meme stock, which then turned into a story stock for the following reasons:
GameStop was a struggling video game retailer, but it had a compelling turnaround story that fueled investor imagination. After a fast turnaround on Wall Street, with the help of Reddit users rallying around it, the price of the stock surged purely on momentum and narrative. A few things fuelled GameStop's story:
New leadership: Investors got excited when activist investor Ryan Cohen (co-founder of Chewy) obtained a major stake and joined the board, pushing for a digital transformation.
"Comeback kid" story: Everyone likes a "comeback" story, and that's exactly how GameStop's narrative was written. Investors believed GameStop could reinvent itself as a tech-driven e-commerce company.
Retail nostalgia: Many investors grew up shopping at GameStop, making the company emotionally compelling and drawing on childhood memories.
So, the GameStop “story” that was written was a dying retailer that turned into an e-commerce powerhouse.
Virgin Galactic (SPCE): A company with little revenue but big dreams of commercial space travel, enough to capture imaginations and investor dollars.
Space travel and other emerging technologies are examples of story stocks
Why do story stocks attract attention?
FOMO (fear of missing out): Retail investors don’t want to miss the “next big thing.”
Media and social media hype: Headlines and viral posts can trigger significant price fluctuations.
Speculative gains: If the story catches on, early believers can see big returns, at least temporarily.
Low interest rates: In some environments, cheap money fuels more risk-taking.
The risks of investing in story stocks
While story stocks can deliver big short-term gains, they come with major risks:
Volatility: Prices can rise and fall rapidly on news, tweets, or sentiment shifts.
Lack of fundamentals: If the business doesn’t live up to the story, the stock can crash.
Herd mentality: Many investors follow hype without doing their own research.
Pump and dump schemes: Some story stocks are exploited in market manipulation schemes.
Reading between the lines of story stocks
While story stocks at face value may appear to be tempting investments, it's always recommended that investors do their due diligence and research the company's financials and other relevant documentation before investing in these companies. Remember to do the following before undertaking such investments:
Do your homework: Separate the hype from the business model.
Understand the valuation: Is the price justified by future potential?
Have an exit plan: Know when to take profits or cut losses.
Diversify: Don’t bet your entire portfolio on a single narrative.
Story stocks can be tempting to invest in, but they’re a double-edged sword as their narratives and speculation don't necessarily guarantee success. They do, however, remind us that markets aren’t just about numbers; they’re also about investors' emotions, beliefs, and imagination. Whether you’re a long-term investor or a short-term trader, understanding the power of a good story and its limits is an important part of your investing strategy.
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