‘The Dead Cat Bounce’

So markets around the world all experienced gains over the last couple of days. Take the FTSE100 as an example on Monday 23rd March this opened at around the 4,900 mark, and by close on Wednesday 25th March the FTSE 100 ended at just short of 5,700 – over 10% increase. The below graph highlights this sharp rise over the last 2 days.

Does this mean the current crisis is all over, or is this what is known as the Dead Cat Bounce?

Now before TWP get a visit from the RSPCA, let’s be clear no cats have been harmed! The Dead Cat Bounce is a market jargon for a situation where a security or an index experiences a short-lived burst of upward movement in a largely downward trend. The term Dead Cat Bounce is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.
The truth is no one knows whether the markets will continue to rise or fall – no one can predict the future. However what we can repeat is the common investment adage is: “It’s time in the market not timing the market”.

Simply put is it’s better to put your money in the stock market and leave it there rather than attempting to estimate when might be the best time to buy or sell. The reason for this is that just missing out on a handful of the best days on the market can seriously hit your returns over the long-term. Looking at the above graph if an individual who held a fund that simply tracked the FTSE100, and sold to cash on Monday morning they would have missed out on the gains produced. Indeed Wednesday’s rise (9.1%) was the 2nd biggest in FTSE 100 history!

All this means is that it is likely there will be further bumps along the road, and whilst these are worrying times, we repeat our earlier message of don’t panic and keep calm, and remain invested. We do not believe in trying to time the markets we believe in investing for the long term. Indeed coming in and out of the market, rather than remaining invested can have a significant impact on returns over the long term as the table below demonstrates:

If you’d like to chat about this or any other aspect of how we can help you at TWP Wealth please give us a call on 01625 582500 or email us at enquiries@TWPWealth.com