Where to Catch Trends

by | Apr 23, 2004 | Archives

Spotting trends can bring more profit than just about any other investing activity. But knowing what stage of a trend is best to jump in is vital as well. To understand this better, let’s look at diffusion models to see how trends spread.

A well-known diffusion study followed the spread of a new hybrid corn in Iowa in the 1930s. There were 250 farmers in the area that were observed. The goal was to see how fast these farmers accepted and switched to the new hybrid, which was superior in every way to the existing corn that the farmers had been growing.

Though this hybrid cost less gave better, more dependable crops and higher yields, not all the farmers began to use the corn at once.

Only a few farmers started using the hybrid in 1932 and 1933. IN 1934 16 more switched. Then in 1935 21 more followed. 1936 saw the highest switching when 61 farmers began using the hybrid. Then there were 46, 36, 14, and 3 that switched, leaving only two of the 254 farmers studied.

In this study, the original few who began using this corn were the Innovators. These are the adventurous people who will always try anything new. Innovators start trends but do not cause the trends to take off. They instead infect the Early Adaptors 16 who in 1934 and 21 in 1935 that began using the hybrid. These are the opinion leaders in the community that will cause the trend to spread. These are people that cause the trend to really spread.

They were followed by the Early Majority ((the 36 who switched in 1936), the Late Majority (61 in 1937). Finally they are followed by the Deliberate (46 in 1938 and 36 in 1939), Skeptical Mass (14 in 1940 and 3 in 1941) finally leaving only the Laggards (the two who still had not adapted by 1941).

Whenever looking at a trend or potential investment, ask where is this in the diffusion process?

The greatest profits with the lowest risk are gained from getting into a trend just before the Early and Late Majority jump on the band wagon. This by the way is why I have become involved in publishing Natural Awakenings. I believe that the Early Majority are catching on to alternative ways of healthy living now. For details go to https://www.garyascott.com/archives/2004/01/16/983/index.html

The best times to dump an investment or leave a trend is when the deliberate start to enter the fray. Notice how the numbers are just downhill from this point on. The exciting growth is gone.

A peaked trend does not always mean you should not invest. There is potential at every part of the curve. What counts is making sure that idea behind the investment or business is in tune with the diffusion position.

For example laggards can offer an exciting niche opportunity We observe why next lesson. Until then I hope that all your trends are good.