Story Stocks - Define Your Trigger Point

May. 3.07 | About: Foxhollow Technologies (FOXH)

roger nusbaumRoger Nusbaum submits: One idea I have touched on here in the past is being a sucker for a good story. They all sound great. Realizing I am a sucker, I rarely buy a story stock for clients or personally.

The chart is for a company with a fantastic story: Foxhollow Technologies. They make drills (extreme simplification) that route out arteries.

The drills appear to work, the demographics are very compelling, and when I last studied the company it seemed as though they were ahead of their competition.

I bought it quite a while back and it went up a little, then it dropped, I sold it and it dropped some more. The story is no less compelling, but I am missing something and I don't know what it is.

This post is not about Foxhollow. I am not a buyer and I am not saying you should be a buyer.

The post about the fact there are a lot of great stories out there, and you will not get all of them correct. A story stock may or may not be a long-term hold, but you need to be aware of when a stock is a story stock and have some sort of trigger point for selling the ones you do get wrong.

Owning a lot of individual stocks like this, even if they are doing well, makes the job of portfolio management more difficult and possibly the portfolio more volatile.

This is not to say you should not do this, but understand the drawbacks of this approach. To be clear, every approach to investing will have some drawbacks.

Foxhollow Daily Chart
Foxhollow 03 05 2007