What does dead cat bounce mean in investing?

Where did the term 'dead cat bounce' come from? What is a stag profit? We explain nine colourful financial terms every investor should know.

Each pastime and profession has its own language. From the Bazball of cricket and rope-a-dope of boxing, to the Dorothy Dixer in politics and code brown in healthcare.

They are the words and expressions that enlighten and entertain, exclude and exasperate.

The finance industry has its own colourful and confounding lingo too. Insiders adore these words. Outsiders agonise over their meaning. They are the verbal equivalent of a secret handshake. Let's press the flesh on some favourite financial terms.

1. Alpha, beta, delta

If these are Greek to you, they're meant to be.

They're the first, second and fourth letters of the Greek alphabet and among the most well-used metrics in finance.

Alpha is the excess return of an investment compared to a benchmark. Beta measures the price volatility of a security in relation to the market overall. And delta quantifies the sensitivity in the value of a security to changes in the price of an underlying asset.

Other industries are Greek geeks too. For example, Sigma (18th letter) and Omega (24th letter) are names of leading firms in healthcare and watchmaking respectively.

The Greeks have been bearing their lexical gifts for a long time.

2. Blue-chip

The best performing, most trusted and solidly enduring of investments. The blue-blooded aristocrats of listed companies.

Their colouring, bestowed in the US more than a century ago, comes from the world of gambling, where the highest valued poker chips are, or were, blue (so I'm told). Maybe stock exchanges do resemble casinos after all.

Not to be confused with assets labelled blue sky, which are generally viewed as highly speculative.

3. Dead cat bounce

The recovery you're having when you're not having a recovery. It's a small, brief and largely illusionary rebound in value during a decline in response to apparent good news.

But in the absence of improved fundamentals, the decline quickly resumes and the cat stays dead. Also known as a sucker's rally.

The phrase is believed to have been coined by journalists at the Financial Times in the 1980s when making the point that "even a dead cat will bounce if it falls from a great height".

Lest felines feel picked upon, note that weak, underperforming, best-to-avoid stocks are generally dubbed dogs.

4. Diamond hands

An investor who remains calm and steady in volatile times, who's prepared to hold and endure high risk, rather than panic and sell at the first sign of trouble.

Originating as a meme on social media, having these precious hands is about staying the course and playing the long game. Our friends at The Motley Fool say the concept serves as "equal parts investing strategy and life philosophy".

Diamonds are created under extreme heat and pressure. Cool Hand Luke probably had diamond digits. Edward Scissorhands not so much. Investors who are quick to sell at the first whiff of strife are said to possess paper hands.

5. Doom spending

Not the name of a new villain in the latest Star Wars franchise, but evidence that the dark side is an ever-present force nevertheless.

It's a form of retail therapy involving impulsive, unnecessary, often unaffordable spending to soothe feelings of stress and anxiety triggered by negative events such as economic uncertainty.

This urge to splurge is most prevalent among Gen Zers (those born between 1997 and 2012) and enabled by online shopping.

While doom spending may provide temporary relief, ultimately it usually makes things worse, causing financial indebtedness and acute buyer's regret.

6. Fear index

Nickname given to the volatility index or VIX, created by the Chicago Board Options Exchange in the 1990s and replicated around the world, including in Australia with the S&P/ASX VIX.

The index offers insight into investor sentiment - hence the 'fear' - and expected fluctuations in market values.

British novelist Robert Harris titled his 2011 thriller about AI and computer trading The Fear Index. It may have spooked investors, but readers lapped it up. I doubt a book called Investor Sentiment would have sold as well.

7. Stag profit

The quick, lucrative killing made from short-term speculative trading, most commonly by participating in an initial public offering (IPO) and then selling the shares at a premium as soon as they start trading on an exchange.

This practice seeks to capitalise on the promotional hype and investor demand accompanying a new listing. It's distinct from a windfall, which is a significant return that's unexpected or unplanned.

While the stag name might derive from the stagflation era (high inflation, high unemployment and stagnant growth) rather than a male deer (or a buck's night), it's a reminder of the popularity of animal monikers in the money vocabulary.

From bulls and bears, cash cows, nest eggs and loan sharks, to the acts of squirrelling away, following the herd or bringing home the bacon. Interestingly, the animal that's known collectively as a 'business' is rarely referenced in finance - the ferret.

8. Window dressing

Manipulating a financial position to suggest things are better than they really are. (How much is that doggy stock in the window?)

Australia's corporate regulator, ASIC, regularly warns against the practice leading into reporting periods.

Temptation lurks to trade in a way that inflates share prices and end-of-year performance figures to 'earn' a bigger bonus or score a higher position on finance industry league tables.

A distant and mischievous relative of window dressing is taking out the trash.

This is the attempt to hide, or soften the reaction to, bad corporate news by slipping it out when you hope no one is watching, like on a Friday afternoon, a public holiday or the day before Christmas.

It rarely works. Bin chickens are ever ready to rifle through your rubbish.

9. Zombie companies

The living dead of businesses. Companies that continue to operate despite exhibiting financial distress, often relying on bailouts or loans to remain solvent.

Lock up your wallets, because according to a KPMG study from late 2024, zombie companies are on the increase in Australia due to persistent challenging economic conditions. Cue a menacing laugh from the late, great Vincent Price.

Learning the language of money can, literally, pay dividends.

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