Don't Fall in Love With Cult Stocks Like Sirius XM, Apple

Not even jail terms and indictments faze stock cultists. Universal Express, whose ex-CEO was jailed for contempt of court, and CMKM Diamonds, whose indicted ex-CEO is a fugitive from justice. Both have retained their legions of followers.

Of all the cult stock followings out there, from Krispy Kreme (KKD) to Enron (both naked shorting victims, according to cultists), few rival the hapless souls who bought into a teetering subprime lender, Novastar Financial, in 2006 and 2007. Tough financial journalists like Herb Greenberg sounded the alarm; critics were repaid by vicious attacks from loons, including a website set up by an anonymous shareholder. While warnings were being ignored, Novastar-boosters were posting helpful advice on how to buy shares with credit cards.

Novastar is an extreme example, but for every cult favorite like Apple that beats the market, there are dogs like Universal Express, CMKM and Overstock, which is 50% under its price in the days before its CEO started foaming at the mouth in 2005, lagging well behind the NASDAQ. Overstock gave its devoted shareholders another smack in the head on Thursday, when it announced a surprise quarterly loss.

Getting back to Sirius, one fan has figured out a way of celebrating the company's debt-fueled descent into the commode -- a DVD documentary, featuring Byrne among others. A promo reads: "Like fellow investors who had put their money in the once safe holdings of banks and mortgage lenders, Sirius XM stockholders stood by helplessly as the value of their retirement funds disappeared and with it their life savings. Was it the bad economy? Mismanagement? Or something even more sinister?" (Hint: it's something even more sinister.)

"Stood by helplessly"? Whoever wrote that seems to have forgotten the magical concept known as the "sell order." The holder of every cult stock ought to write that in crayon on their bathroom mirrors: "Sell the dang thing."

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