The more popular a particular investment becomes, the less its profit potential. Read more.
residential real estate
. The more popular a particular investment becomes, the less its profit potential. When everyone likes something, such adulation is likely to be reflected in its price.Article contentit has already produced strong returns. Believing that past outperformance is a sign of strong future returns, the herd hops on the proverbial bandwagon. This widespread fervour causes prices to overshoot any rational approximation of value, thereby setting the stage for inevitable disappointment.
In contrast, when broadly negative opinion drives all the optimism out of an asset’s price, its risk profile becomes relatively small. Put another way, investment risk tends to reside most where it is least perceived, and vice versa. Cycles of excessive sentiment explain why yesterday’s outperformers become tomorrow’s underperformers .
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