Monday 2 December 2013

Do not be a slow adopter in the stock market

When it comes to technology, there are early adopters, likely to be gadget freaks who will buy the latest iphones. Many people will not understand what is the craze all about. Soon, more and more people begin to own that iphone. Once a ‘critical mass’ has reached, iphone will become the ‘thing’ to own. It is deemed as a coveted item and become an object of desire for the majority.

The diagram below is known as the Rogers Bell Curve. It is used to describe the technology adoption lifecycle.





I notice this human behaviour is reflected in the stock market too.

There are early adopters who would buy early during the start of the bull run, while majority of the people are bearish.

As stocks move higher, more investors will flow in. There will still be people who would believe that the market will not go up further and it is due for a drop.

When the ‘critical mass’ is convinced that the market is bullish, money will be poured into the market, chasing up stock prices. The laggards who finally recognized the bull market would buy at the last stage.

How many laggards would have been left to support the irrationality in the market? When the demand wanes, sellers will try to get out at all costs. And this would be the start of the downward spiral of the stock prices.

It is alright to be a laggard when it comes to leisure items like gadgets. Being a laggard in the stock market is going to cost you a fortune.
Source:http://bigfatpurse.com

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