Perks and Damages of Being a Wallflower Stock


March 10, 2021 | AtoZ Markets – Wallflower is a term to describe a stock that lost the investor’s and trader’s interest. This reason is the cause of a lower trading volume.

Who is a wallflower?

A wallflower can is an introvert or a person with social anxiety for extreme cases. They may attend social gatherings or parties but will usually keep a safe space for themselves, hoping that no one will approach them, for they fear the limelight.

Comparing a wallflower stock to a wallflower person

Just like how a wallflower person prepares a lot for a social gathering but will eventually avoid conversation and contact, a wallflower stock is out in the open, but still, it will do nothing to gain an investor’s interest. So, there will always a possibility for a snowball effect and a significantly less trading volume when there is a continued decline in interest.

Economic bubbles

An economic bubble is a cycle when an asset’s price is way higher than its intrinsic value. So, as fast as it grows, it quickly starts to show signs of decline. This decline is called a crash or burst. Simply put, an economic bubble is a sudden massive drop in an asset’s price, as economists describe it. It typically involves property markets.

Let’s take the Dutch tulip bubble as an example. According to Earl A. Thompson, former UCLA economics professor, the tulip flowers soared up to twenty times sometime in the 17th century, specifically from November 1636 to February 1637, and then dropped drastically with 99% in just three months. This occurrence was called the tulipmania. Investors purchased many tulips at a relatively high price, where a single flower costs more than an annual income of a skilled worker – or even a house in the Netherlands! Like any economic bubble, the bear market became too drastic that left many tulip investors bankrupt.

These economic bubbles in hot situations often lead to being today’s hot topic to a wallflower soon enough.

Being a value stock as a ray of hope

A wallflower still has possible options to attract potential investors. One way is to become a reasonable candidate for a value stock. A value stock is a company share with a somewhat lower price given its fundamentals, dividends, or sales that finally gives an investor a reason to consider a wallflower.

A value stock is the direct opposite of a growth stock. It is a more significant leap of faith to choose a value stock before a growth stock that has an expected growth above the average market faster. If a value stock remains silent, failing to entice further attention can put an investor in a more challenging situation. So what can be a sufficient reason for an investor even to consider choosing a wallflower value stock? The moment a value stock gains recognition from the investing community for its good potentials and when the price closely matches the company’s principal strength will put a big plot twist for any wallflower value stock investor since it can be a considerable amount.

Source: https://www.investopedia.com/terms/w/wallflower.asp

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