When it comes to investing in stock market, the power of “the story” is very strong. But unlike the fairy tales, most stories here have an ugly ending.
Remember the story of Cinderella? And how she seemed plain and peasantly? With the help of her fairy godmother, Cinderella was able to turn her pumpkin, mice, rat, and lizards into her coach, horses, coachman, and footmen.
I can relate this story of Cinderella to the stock market. To find a stock worth investing in, you’ve got to search for your own Cinderella – a story worth believing in, but which is ignored or looked down upon by most other people.
The problem is, most investors end up stumbling onto story stocks that have ugly endings. A large part of this is because the hottest selling stories in the stock market are often those where the storytellers are looking for bigger fools to offload their own junk before the stories turn sour. And they often manage to find a lot of such believers (often small, gullible investors) for their stories You see, as investors, we all are on the receiving end of sales pitches from brokers, friends, investment advisors, fellow investors, and bloggers in media, stock forums, and social media about stocks that they claim will deliver spectacular returns. These stories not only sound persuasive and reasonable but are also backed up by evidence – anecdotal, in some cases, and statistical, in others – that the strategies work. I am sure you have often read stuff like these in media –
• Small-cap stock backed by famous investors like ABC and XYZ has “tremendous potential”
• 5 multibagger stocks picked by ABC are set to soar
• XYZ multibagger stock is set to multiply 10x in next 3 years
• 5 Indian stocks Warren Buffett would buy and why
These are nothing but stories that are hyped under the pretext of “what has worked in the past will surely work in the future.”
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