What is a Boomlet

A boomlet is a small but decisive increase in prices, markets, populations, or social or political behaviors.

Breaking Down Boomlet

A boomlet is like a boom, only smaller. The word has the same range of meaning as boom, but it is even more closely associated with markets. Most commonly, boomlet describes a temporary increase in price, often due to a temporary surge in buying.

Boomlet implies not only a smaller increase than a boom but also a less meaningful one, with little far-reaching or long-lasting impact. For example, when housing prices rose in the United Kingdom in 2010 following the collapse of the global housing market two years earlier, the Independent dubbed the price surge a boomlet in an article arguing that prices would soon drop again.

In some articles, boomlet pops up as a more cautious way to describe a surge in growth, particularly a recent one. It allows the writer to speak about the uptrend without potentially overstating its significance. Some writers use this word, with its diminutive suffix, as a mild pejorative.

Why Investors Need to Care About Boomlets

When a certain stock or the market as a whole undergoes a price surge, it may signal a significant boom, recovery or trend reversal, or it may simply be a temporary boomlet. Investors must look to other data to predict whether prices will snap back or continue to climb. They can start with the fundamentals, whether of a single business, a market sector, or the economy at large. Are the company’s profits or growth statement improving in concert with the price surge? Is the market sector experiencing a long-term, structural shift in supply or demand? Has the general market uptrend affirmed by a drop in real unemployment, or is the market reacting to the recent actions of the Federal Reserve? If the prices are rising, but investors can’t point to a fundamental cause, or they can point only to a cause with limited growth potential, the surge may be a boomlet that will soon cool off.

The Difference Between a Boomlet and a Bubble

Like a bubble, a boomlet is a surge in prices that is bound to snap back. But they are not the same. One difference is scale. Unlike a bubble, a boomlet does not have the ability to send an economy into free fall when it peters out. The two are also different in kind. A proper bubble exhibits several discrete stages and is the result of a genuine boom having outstayed its welcome, producing an unsustainable feedback loop of buying pressure. The inevitable price correction leaves any investors who didn’t sell off their positions early enough with heavy losses. A boomlet is a boom that never fully materializes. It doesn’t trigger the bout of euphoria that prompts investors to buy overvalued stock under the assumption that prices will continue to rise and they will be able to exit their positions before the bubble bursts.