Are We In The Middle Of A Dead Cat Bounce
No one can say for sure what will happen. Even though many people claim to be able to do so. Are we experiencing a dead cat bounce? It is more than possible due to the current pandemic.
A dead cat bounce incase you have not heard the term before is essentially a temporary ‘bounce’ back to previous levels after a substantial drop like we have already had.
However to be called a dead cat bounce the market must then continue to decline to lower levels than before for a sustained period.
The name started on Wall Street. “Even a dead cat will bounce if falls fast enough” A rather crude terminology but one that investors should be aware of nonetheless.
The term was first used to describe the market conditions in Malaysia and Singapore in 1985.
The problem with a dead cat bounce is – it’s virtually impossible (whilst in the rally) to know if it is just a temporary thing or if the tables have truly turned and the reversal is for real.
It seems likely we are experiencing a bounce as the full effect of the pandemic starts to batter the world economies. Do you think we are due another stock market crash?
Should You Be Concerned About Another Stock Market Crash
Should we be concerned if we have another market crash?
Keep calm and carry on, the markets will recover. If it takes 3 months or 3 years they will bounce back.
A long history of previous crashes has shown this to always be the case. History is not an accurate predictor of future events though.
Until we invent a real crystal ball though it is certainly one of our strongest metrics to look at to help us determine what will come.
Furthermore, having a diversified dividend investing portfolio, or Exchange- Traded Fund based portfolio will ensure we have some protection if the economy does take a severe turn for the worse.
As many companies will suffer dire consequences, just as many will benefit and turn huge profits in these times. Demonstrating the need for diversity at the heart of your portfolio.
Stay Invested Come What May
Whatever comes our way, stay invested. Let us all hope the markets continue to trend upwards. However, if the worst is yet to come, stay positive. If we fall into a recession try and keep calm. Stay invested.
Reinvest those dividends, invest in quality blue-chip stocks, dollar-cost average your holdings. Especially the real stand out companies that you can virtually guarantee are rock-solid stable.
Paper losses are just that. Your losses only truly become losses if you lose your nerve and hit that sell button.
I’ll give an example. My older brother had some money in a stocks and shares ISA (handled by his bank, no involvement from him) When the crash came a couple of months ago he wanted to get out!
His account was up around 150% in just five years. I tried to convince him but alas I could not. Rather than thinking he was still about 60% up at the time, all he could see was that he was down.
If he had kept his cool, those gains would be back by now.
Investing is a long term game. Personally I look at my account almost daily. However, I am not emotional if I see red. I see a buying opportunity.
If you are the type to panic when you see red or become emotional then do not look at your accounts as much as me! You really should be using primarily ETFs if you are like this.
Being a dividend investor it is crucial we keep on top of our holding through the ups and downs.
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Grab a book or two from my most recent reads.
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None of the above should be used as financial advice, I am not a professional. Always do your own research.
Thanks,
Sean
