Cult Stocks

Cult Stocks are those stocks which have a consistent investor following and have a shareholder base that are extremely bullish of company potential in future despite of disconnect between share prices and company’s fundamentals.

Shareholders base of such cult stocks are primarily concerned about the ideas that company will capitalize in future and the speculation that company’s future potential will be fulfilled. This concept continues to fuel the company with strong investor base who anticipate for future higher returns.

A cult stock will become successful when the idea is achieved in terms of a product release or the story the company was pitching in earlier becomes a reality. But these stocks all carry a risk as the large amount of funding may not generate any returns for continual survival.

Consider Amazon.com Inc. Even without any profits in the past two decades, the company continues to thrive based on a long term model that will yield high returns only after an uncertain time period. Similarly, Tesla Motors also comprises of a shareholder base which is following a cult stock  Research in Motion (RIM) is another example of what was once a cult stock. Investors heavily followed it in its early stages and by the time BlackBerry became an instant hit, it was already dealing in billions. But at the same time stocks of many biotech companies, in fact Biotech Zombies become a cult stock which fall short of their promises and the all the capital is drained in R&D.

Investors need to get their basics and goals right regarding cult stocks. It is advisable to invest in high volume with low price stocks. A proper study of the organization, its financials, and industry prospects is necessary. Most importantly, the story that the company is creating should not be simply heard and believed but listened, analysed and questioned.

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