[Summary]
``Don't grab a falling knife'' is an investment adage that states that you should not easily buy stocks that are plummeting.
When a stock price drops significantly, it looks cheap, but there are often reasons for the decline.
If you are aiming for a rebound, make a decision after confirming that the decline has bottomed out.
What is a falling knife?
A falling knife is a metaphor for a stock that is plummeting.
Just as trying to grab a falling knife in the air can cause you to get hurt, rushing to buy a stock that is plummeting can result in big losses.
why is it dangerous
There is a reason why stocks are plummeting.
- Deterioration of financial results
- downward revision
- scandal
- sale on credit
- Theme ends
- A sharp decline in the overall market
If you buy without checking the cause, it may fall further.
how to judge
To avoid falling knives, it is necessary to check that the knife has stopped lowering.
The points you want to check are as follows.
- Is the reason for the decline temporary?
- Has there been a fire sale with high trading volume?
- Did you experience any undergrowth or repulsion?
- Has the business outlook been disrupted?
- Have you decided on a stop-loss line?
Summary
``Don't grab a falling knife'' is a saying that warns against jumping in and buying stocks that are plummeting.
Rather than buying because it's cheap, check that the decline has bottomed out and your reason for investing before making a decision. During a sharp decline, the stock is not "undervalued" and may still be in the process of discovering its price.