I have never tried catching knives in real life, and clearly these guys are far better at it than I could ever be.
As you can see it takes great skill, focus and concentration….and luck. When there is reward on one end and extreme pain (regret?) on the other then I prefer to pass. How many of you would take a ‘dare’ and try this stunt? I suspect not many of you would do it — and that’s a good thing.
As it relates to the stock market, we have a similar situation when prices are falling. Do we put our cash on the line and buy stocks when others (institutions) are dropping ’em like a bad habit? When the big money is fleeing stocks that is NOT a buy signal for me. Do we want to rely on luck and good timing to make a call? Hardly. Yet, we often find ourselves compelled to buy when prices are falling – especially to levels we ‘think’ are comfortable.
Remember – the stock market is more like Ebay and less like Walmart (put a question below in the comment area if you need an explanation). However, the other side does not know your comfort level – and in fact it may very well be further down.
Let’s take Facebook (FB) as an example, the stock everyone loves to hate. This thing has been a disaster since day one, and I suspect many knife catchers have tried to be ‘slick’ with their entry.
When a stock is in a ‘free fall‘ you need to get out of the way – but sometimes the ego doesn’t let that happen.
How proud would you be tell your buddies ‘I caught Facebook at the bottom, and now I’m a genius’. We’ve all tried that at some point and probably got our hands bloodied, promising never to do that again.
I want to look at another one that appears to be ready to trap buyers into a personal purgatory. Freeport McMoran (FCX) has been under severe distribution for months. You can see on the chart there are points of heavy selling with big institutional selling signaled by the high volume days when the stock was down. But for every drop that appeared to be right at support, held for a day or two and then rallied… the bear took a vicious swipe.
Would I buy it here? I’d rather juggle chainsaws.
This happened on at least five occasions. Clearly waiting for an ‘all clear’ would have been most appropriate. My good friend Ken Shreve writes here often about the dangers of trying to get involved with broken stocks. You may catch a day or two of upside but the risks of being involved are much higher in these situations.
I’d like to hear your thoughts on this below!