When dumb money chases a dead cat bounce, and other investment jargon explained

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Every industry uses jargon that leaves outsiders scratching their heads. Investors may be among the worst offenders.
Terms such as “alpha,” “dumb money,” “value trap” and – perhaps the least appealing – “dead cat bounce” are often used among traders and investors to characterize market actions.
Despite pressure for advisors to communicate with clients more clearly, industry slang can be hard to shake. We asked advisors to share the investment jargon they hear most – and sometimes catch themselves using. Here are 10 of those terms, explained.
Most of us have heard the term “alpha” to describe a high achiever who gets things done or an “alpha dog” who leads the pack. Alpha has a similar meaning in investing: it describes how much an investment return beats the benchmark.
For example, if the S&P 500 returns 10 per cent and your investment returns 15 per cent, the alpha is 5 per cent. It’s the holy grail (speaking of jargon) for money managers looking to outperform the markets.
“Beta” isn’t a term you hear as often, but it’s related to alpha. Beta is a numeric value that measures the volatility of a stock compared with the broader market. If the beta is 1.0, the stock has the same volatility as the market. If it’s more than 1.0, it’s more volatile; less than 1.0, it’s less volatile. You can see why it’s not as sexy as alpha.
Pilots measure headwinds and tailwinds to help navigate an aircraft’s speed and performance. A tailwind increases speed, pushing the plane forward, while a headwind slows it down. Investors use “headwinds” and “tailwinds” as metaphors to describe whether a company or industry will have a harder or easier time.
For example, falling interest rates are considered a tailwind for the housing market because they make mortgages cheaper. Lower energy prices are a headwind for energy companies because they often mean less profit.
Here’s another airline reference for investors. The terms “soft landing” and “hard landing” describe the impact of an economic slowdown. A soft landing is gradual and controlled, while a hard landing is much more pronounced and could lead to a recession.
The terms have been used a lot in recent years as market watchers predict what will happen to the economy – and, in turn, financial markets – after central banks began raising interest rates. When rates go up too quickly, it can lead to a hard landing. Now that rates are starting to fall, it appears a recession may have been avoided. However, not all market watchers are convinced.
Hawks and doves have very little to do with investing, except when it comes to monetary policy. For decades, market watchers have relied on the terms “hawkish” and “dovish” to describe which way central bankers are leaning when it comes to interest rates. Hawks, named after the aggressive birds of prey, favour higher interest rates to keep inflation in line with central bank targets. Doves, which symbolize peace and stability, tend to support lower rates. Policymakers can switch between hawkish and dovish depending on the state of the economy – and sometimes that shapeshifting catches markets off guard.
Money managers often describe themselves as either bottom-up or top-down investors. This industry jargon simply describes whether an investor focuses on the big picture (top-down) or more specific information (bottom-up) when deciding to buy or sell a stock. With top-down investing, the focus is on economic factors such as inflation, unemployment and gross domestic product. Bottom-up investors look at company specifics such as earnings, management and market share.
Some experienced investors (and those who think of themselves that way) like to use the terms “fundamentals” or “fundamental analysis” to describe their reason for buying or selling stocks. Fundamentals, by definition, are the principles on which something is based, which seems simple enough. However, in investing, fundamentals are wide-ranging factors used to judge the financial value of a security. They include everything from a company’s balance sheet (think revenues, profit and debt) to how the broader industry or economy performs. The next time your advisor cites “fundamentals” as the reason they’re buying or selling a stock, don’t hesitate to ask for more specific information.
Technical analysis is the opposite of fundamentals. It uses price and volume chart patterns to determine if a stock is worth buying or selling. The rise of technology in trading has made technical analysis more popular in recent years.
Few terms polarize investors as much as “smart money” and “dumb money.” Hollywood caught on with the 2023 film Dumb Money, featuring actor Paul Dano playing real-life investor Keith Gill (better known as Roaring Kitty), who made a fortune buying shares of videogame retailer GameStop, crushing hedge funds that had bet against the stock.
It’s a dramatic example of how the smart money – the investors with access to information and resources – were beaten by the so-called dumb money – everyday retail investors considered less informed and more emotional.
Most investors understand that catching a falling knife can end in blood and tears. The phrase, “Don’t try to catch a falling knife,” is a warning about buying a stock that’s dropping in value because it could keep falling, and you could lose money. The advice is often to wait for the stock to drop to its lowest point before buying it.
Of course, it’s impossible to know what the lowest price will be, which is why some investors disregard this advice. For some, if a high-quality stock is falling, it could be the best time to buy – even if it means suffering a few nicks in the process.
Animal lovers may wish to skip this one. A “dead cat bounce” is an especially morbid way to describe an investment’s short-lived recovery. The term appears to date back to a 1985 quote from two Financial Times journalists describing the brief bounce-back of the Singaporean and Malaysian stock markets. It refers to the saying, “Even a dead cat will bounce if it’s dropped from high enough.” Another term for this is a “sucker’s rally,” which most cats prefer.
If you’ve ever bought something for a bargain that soon fell apart, you’ve been a victim of a value trap. In investing, a value trap is a cheap stock that either drops in value or doesn’t move higher. Many investors get caught in a value trap since the goal of investing is to buy a stock at a good value and watch it go up. It may be difficult to know a stock is a value trap until later, but understanding the concept could encourage investors to think again before buying at a bargain price.
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