Grey Wave

Grey Wave

Investopedia / Mira Norian

What Is a Grey Wave?

A grey wave describes an investment or company thought to be profitable in the long term or extended long term. Speculators of grey waves will buy an investment vehicle that they believe will show a return in the very long term, and not before. The term "grey wave" can be explained by the understanding that when buying into a grey wave company, the investor should not plan for an immediate or even short-term positive return but, instead, only when they are much older and have grey hair.

Key Takeaways:

  • A grey wave is an investment or company that an investor thinks will be profitable in the long term or extended long term.
  • The term "grey wave" refers to the fact that the investment will not show significant returns until the investor has grey hair.
  • Grey wave investments are not suitable for investors who expect to yield a particular return within a particular time frame, typically three to five years.

Understanding a 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, typically three to five years.

These portfolio managers are unlikely to purchase grey wave stocks. Grey wave stocks are purchased by long-term investors who are looking at an extremely long or perpetual time horizon. The time horizon is one of the most critical investing concepts. Before making investment decisions, an investor must consider when they 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, adjust to market swings, and benefit from compounding interest.

Speculators vs. Investors

You can be a speculator or an investor in the stock market. A speculator pursues the short-term hike in a company's share price. For example, a biotech company applies for FDA approval for a breakthrough cancer treatment. The investor buys ahead of the announcement and sells right after the good news of the approval comes out and the stock has climbed as a result.

An investor, on the other hand, is looking for a more long-term proposition. The investor will buy the stock and hold it because they believe the company will pay dividends over the long term. The stock is held for decades. This is a grey wave investment. The investor will have grey hair by the time they sell their shares.

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 the term of the investment: short, medium, or 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.

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