DEFINITION of Grey Wave
Grey wave describes an investment or company thought to be profitable in the long-term or very long-term. When buying into a grey wave company, the investor should not plan for an immediate or even short-term positive return, but rather only when s/he is much older and has grey hair.
BREAKING DOWN Grey Wave
Grey wave describes an investment in the company that will likely not yield a positive return until a long time has passed. Grey wave investments are not suitable for all investor types. Often, portfolio managers buy stocks that are expected to yield a particular return within a particular time frame, commonly 3-5 years. These portfolio managers are unlikely to purchase grey wave stocks. Grey wave stocks are most likely to be purchased by long-term investors who are looking at an extremely lengthy or perpetual time horizon. The term is related to one of the most critical investing concepts - time horizon. Before making investment decisions an investor needs to take into careful consideration when s/he will need to either withdraw the principal or begin drawing down on the dividends and return. The longer the time horizon the more room an investor has for potential mistakes, to adjust to market swings and to benefit from compounding interest.
Example of Grey Wave
Janet oversees the investment portfolio for the University Endowment. The Endowment has a perpetual time horizon and sorts its investments into three buckets based on time horizon of the investment: short, medium, and long. The "long" bucket consists of stocks that aren't expected to yield significant returns for at least 20 years. The stocks in this bucket would be considered grey wave stocks.