Tuesday, December 6, 2011

Does a Dead Cat Bounce?

George Putnam, editor of the Turnaround Letter advisory service thinks dead cats can bounce as outlined by Mark Hulbert at Marketwatch.  I would not condone this type of investing except for entertainment purposes as trying to time a dead cat bounce can sometimes be as tricky as catching a falling knife. Putnam produces a list of stocks that have been pummeled during the year. The idea is that these stocks can rebound (a bit) after big mutual funds dump the stocks before year end in an effort to "window dress" their year end portfolio holdings list.

This year's list of possible year-end dead cat bounces includes:

Bank of America (BAC)
Computer Sciences (CSC)
First Solar (FSLR)
Janus Capital Group (JNS)
Monster Worldwide (MWW)
NetFlix (NFLX)
US Steel (X)


  1. This theory basically assumes that there is some sort of semi permanent price pressure when these stocks are sold. So for that to happen we need lots of selling all at the same time relative to the overall float of the stock. The evidence on price pressure (for example - index additions) shows that the price bounces back very quickly - usually a day or so. So unless all the funds sell at the same time and you are able to buy right after they sold, and sell the next day, I don't think this will work.

  2. I'll bet you $1000 at least one of those bounces ;)

  3. Looks like I've created a market! How about Rob bets Richard the $1000? I'll take just a 5 cent commission (and $100 for the bid/ask spread)!

  4. I'm not a betting man! But I am interested then in when I should build and when I should sell. Build on Dec 31, sell on second trading day later?