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“Greater Fools”, “Story Stocks”, And Bernanke “The Hero”
Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
zerohedge.com / By Tyler Durden / 04/03/2013 18:01
The term “Story stock” used to mean a company with little more than a sheaf of press releases and a glitzy narrative about its future prospects. Now, ConvergEx’s Nick Colas notes that pretty much any stock with a fighting chance of outperforming needs to have a “Story” to cut through the clutter of a noisy macro-driven market. Story-less equities where the valuation is cheap simply dawdle, while theoretically expensive story stocks sizzle loudly. So what makes a good story? The answer is not only “Blowin’ in the wind,” it is as old as the hills. CEOs matter intensely – they tell the story, and in the best cases they are the “Hero” at the center of it. Other types of narratives: “New Blood”, “Resurrection”, and “Conan the Barbarian.” And even with all these categories, Colas reminds us that we can’t forget that the U.S. equity market is essentially one large story stock, driven by a “Hero” figure – even if you don’t consider Chairman Bernanke is the same league as Moses or Ironman.
Via ConvergEx’s Nick Colas,
At a recent client event, we got to talking about what U.S. equity was the best “Story stock.” It took me a second to catch up to this line of questioning. To me, the term is a derogatory one. A story stock is one with little more than an overactive PR department pumping out press releases. Such companies rarely have actual revenues, and when they do the bookkeeping is sketchy, at best. These types of investments rely heavily on the “Greater fool” theory, hoping that some poor sucker who comes late to the story will take you out of your stock at higher prices.
What our assembled group actually debated was something different: what stock best exemplifies the critical fundamental drivers which investors most value in the current market? Being the old codger at the table, I offered up the three best examples I could remember from the last 20 years on the Street as a template to consider what stock might fit the bill today:
- Chrysler in the early 1990s. Lee Iacocca had resurrected the #3 automaker from near extinction in the early 1980s, but took his eye off the ball as the decade progressed. When the Gulf War I recession came around, Chrysler didn’t even have the cash on hand to finish the development of the Grand Cherokee – a breakthrough product which could save the business. So Iacocca aggressively restructured the company, took his show on the road, issued a ton of stock at $5, and finished the truck. The stock went to $10, then $20, then $30 in just a few years. A cyclical recovery helped, but investors were consistently surprised by how the new – and American – company could develop cars and trucks with huge margins quickly and consistently.
Thanks to BrotherJohnF
2013-04-03 18:33:22
Source: http://silveristhenew.com/2013/04/03/greater-fools-story-stocks-and-bernanke-the-hero/
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