The 365 Commitment

No Dead Cat Bounces

I love some of the terms in the financial industry, my favorite is “the dead cat bounce.” This refers to the concept that even a dead cat, if dropped from a high enough distance, will bounce back up when it hits the ground. In the stock market, if a company has a declining asset price over a prolonged period of time, then it is possible to have a small short lived recovery. This is due to brief rallies or periods where people are trying to take advantage of the dropping security price, however, downward trends are exactly what they are. Declines interrupted by small false recoveries.

As an investor, you would never want to fall victim to a false hope caused by a dead cat bounce. In life, you do not want to fool yourself into thinking that you are improving, when in actuality you are on a slow and steady decline. This is a mental trap we can find ourselves in. Fooling ourselves into thinking that each little small recovery that we do is actually having a positive effect, when in reality we are in a slow decline.

The best way to solve for this is to look at long term progress toward a goal, and not short term ones. The shorter the vision, the easier it is to get fooled by a dead cat bounce in your own life. The best way to make sure that you are on the steady climb up is to monitor your long term progress against a metric that takes longer to achieve.

Guy Reams

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