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Why Investing Now is Like Catching a Falling Knife

The Indian stock markets have had a ‘relief rally’ over the past few days. With the Sensex recovering almost 700 points over the past four trading sessions, investors are starting to believe in the ‘end of crisis’ theories floating around.


But the fact remains that the global economy and financial markets remain far from an end of crisis, and investing in stocks is likely to be clouded by high levels of uncertainty in the short to medium term.

Of course, policymakers are working day and night to avoid a full-blown financial crisis in Europe and the US. But all signs point to a continuation of weakness across global stock markets. Indian stock markets aren’t immune to this, as we have seen over the past 3 years.

On the other hand, stocks have fallen to such levels that valuations have started to look attractive.

So the question every investor has on top of his mind is – Should I invest, or should I wait for markets to fall even more?

I believe investing in stock markets at this point of time is like catching a falling knife.

If you want to catch a knife and yet avoid getting hurt, you must softly move your hand down as you catch the knife.

In the same way, when you invest now, you must expect stock prices to fall more (like a falling knife), even after you catch hold of them.

Of course you must expect to get hurt, because your stocks will fall even after you buy them, you can still avoid the maximum damage that can be caused when you don’t catch the knife at all (don’t invest in stocks at all) and let it fall on your feet.

Nobody knows when the tide will turn for the better. But you need to be in the water if you want to swim to your destination of financial independence.

So your question now must not be – Should I invest, or should I wait for markets to fall more?

Your question now must be – Of the beaten stocks, which are the ones that I must buy now that will not destroy my capital permanently and will instead help me become wealthier over the next 10-20 years?

See, you can never make money from stocks after having waited for things to get completely clear. Uncertainty is the best friend of a sensible investor, for only at such times do you get to buy the best stocks at great prices.

As Warren Buffett says, “Be greedy when others are fearful.”

As an investor, now is the time to catch the blunt knives (safest stocks) when they are still falling.

Almost perversely, the investor who waits for the knife to fall harmlessly to the floor may be hurt the most.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

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