InvestorQ : Is catching a falling knife a really risky proposition?
sara Kunju made post

Is catching a falling knife a really risky proposition?

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shivangi Arora answered.
2 years ago

What are the takeaways for your investment strategy? First and foremost, when you try to catch a falling knife, the likely risk far outweighs the unlikely returns. Secondly, in most cases it is very difficult to differentiate between falling knives and value candidates. So if the above indications are there, then better safe than sorry. Finally, any falling stock is accompanies by hordes of short sellers. As they cover their positions, there will be bounce-backs. You surely do not want to believe that, right?

Whether you are a short term trader or a long term investor, it always pays to be with the winning stocks and winning sectors. Catching a falling knife goes against the basic grain of prudent investing. At a price of Rs.3/-, many investors told me that if they bought Kingfisher at that price, their maximum loss would only be Rs. 3/- My answer is that if you really want to lose Rs.3/- there are better, more enjoyable ways to lose the money. If you think about it that way, you will not try to catch a falling knife.