DEFINITION: Traditionally in financial markets, a laggard is any asset that underperforms it benchmark, sector or peers. “Laggard” can also refer to an investor who buys into an asset near the peak of its value, and is later forced to sell at a loss.
The traditional definition of “laggard” in finance
Traditionally in financial markets, a laggard is any asset that underperforms it benchmark, sector or peers.
Imagine, for example, that a sector, like technology, is experiencing a strong period of growth. By definition, this means that most of the assets within that sector are also surging in value.
In that case, any technology company not seeing the same gains would be described as a “laggard.”
Investment lingo, however, evolves over time, and “laggard” has taken on a new, less formal definition as well:
A laggard is an investor among the last 5% of the market to buy a high-flying stock.
A beyond-the-pale surge in a stock’s price can happen for a lot of reasons, but there’s often a lot of hype involved. Some get in early enough to capitalize and sell before the drop. Laggards buy near the peak, and are forced to sell at a loss after the hype abates.
Example of the investing pattern of "laggard" investors, particularly during a hype-based rally for a given stock.
Laggards and meme stocks
“Meme stock” broadly refers to a stock whose price has been artificially inflated. This usually happens independently of factors that naturally increase a company’s price—increased earnings, for example.
Early in 2021, a group of investors communicating on the /r/wallstreetbets subreddit managed to drive up the price of a series of stocks:
Bed, Bath and Beyond (BBBY)
The /r/wallstreetbets community targeted GME and a number of other stocks for price inflation specifically to attack hedge funds, many of which held short positions on the stock—that is, hedge funds were betting on ongoing price drops. The action is referred to as a “short squeeze.”
The short squeeze was effective; a number of hedge funds lost enormous amounts of money.
The crowdsourced nature of the effort, however, meant that only a small number of individual investors bought the stock before the rise in price.
Many retail investors bought much later, when GME was nearing its peak, and lost their own money when it began to return to pre-squeeze prices.
This group of investors would be known as laggards.
(👆 that graph above, by the way, is GME from early 2021.)
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