At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
A story stock is any stock whose market value is expected to change based on some upcoming news about the company or other types of publicity. There are numerous influences in the stock market that can dictate the trading direction of an individual security, whether that influence is positive, negative, factual or based on perception. Trading performance in a story stock is based on the anticipation of news that will come from a particular company that trades in the stock market. If the expected event is positive, the story stock will likely rise in monetary value. If a negative event is expected to unfold, a story stock probably will trade lower and lose value.
An expected trend in a particular industry could drive investing in story stocks. For instance, in the energy industry, there might be a period of time when power generated from fossil fuel is particularly expensive. During these times, the publicity surrounding alternative energy sources tends to increase. As a result, the stocks of individual companies that produce alternative energy such as solar power or wind power could become story stocks. This means that investors might believe that the value of an alternative energy stock will rise at the expense of more traditional energy companies and therefore will trade or buy this alternative story stock based on the anticipated shift in the energy landscape.
There are risks associated with investing in a story stock. Investors can respond very quickly to news circulating about a particular company, whether that news is factual or merely speculation. The proliferation of online trading has made it easy for individuals to buy and sell securities with relative ease. If the news surrounding a particular company turns out to be false, an investor who traded the story stock based on the rumor could wind up losing money.
A company might be responsible for its stock becoming a story stock. When a company expects that it will attain a particular goal, whether financial or operational, it might issue a press release to inform the public about the expectation. As a result, investors might trade a stock based on this announcement. If the company fails to achieve those expectations, such as when a company fails to begin operation of a facility that was scheduled to begin at a particular date, any buying activity that occurred in that story stock will be based on perception, and investors could stand to lose money because of it.