Laggard

10-K Wrap

What is a Laggard?

A laggard is a security or a security that underperforms its benchmark or its peers. A laggard will have below average returns compared to the market. A latecomer is the opposite of a leader.

Understanding latecomers

In most cases, a latecomer refers to a stock. However, the term can also describe a company or an individual who has underperformed. It is often used to describe good against evil, as in “chiefs against stragglers”. Investors want to avoid delays because they achieve lower than expected rates of return. In broader terms, the term straggler connotes resistance to progress and a persistent tendency to fall behind. As an example of a laggard, consider the ABC stock, which regularly shows annual returns of only 2% when other stocks in the industry show average returns of 5%. The ABC action would be considered a latecomer.

If an investor has laggards in his portfolio, he is usually the first candidate for sale. Holding a share that earns 2% instead of a share that earns 5% costs you 3% each year. Unless there is good reason to believe that a catalyst will lift stocks from an action that has historically been lagging behind its competition, maintaining the lag costs money. The reason for the poor performance of a latecomer is usually company-specific. They may have lost a big contract. Perhaps they are currently dealing with management or labor issues. Perhaps their income is eroding in an increasingly competitive environment, and they have not found a way to counter the trend.

Key points to remember

  • A laggard is a security or a security that underperforms its benchmark or its peers. A latecomer is the opposite of a leader.
  • If an investor has laggards in his portfolio, he is usually the first candidate for sale.
  • Investors can confuse a latecomer with a good deal, but these carry excessive risk.

Risks related to the purchase of Laggard shares

How does a title fall behind? Perhaps the company is continually lacking in profit or sales estimates or showing fragile fundamentals. Low-priced stocks also carry more risk as they often have less dollar trading liquidity and have larger spreads between bid and ask prices.

Everyone loves a good deal. But when it comes to investing, a cheap or late action may not be the best deal. You could very well end up getting your money’s worth. While a stock at $ 2, $ 5 or $ 10 may seem to have many benefits, most stocks selling for $ 10 or less are cheap for a reason. They have had some kind of impairment in the past, or they have something wrong with them now.

A better strategy might be to buy fewer shares of a sharply rising institutional quality rather than thousands of shares of a cheap stock. The best mutual funds and other large players prefer companies with strong results and sales histories and share prices of at least $ 15 on the Nasdaq and $ 20 on the NYSE. They also prefer that volumes be at least 400,000 shares per day, which allows funds to trade with less impact on the share price.

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