I may not be the best Wall Street Investor at least I’ve no prior experience but recently
I did make it my ambition to catch up with the markets. For once, life is more
less the same as the financial markets. You must be decisive and make mature
decisions. Over the last month, I’ve really struggled whether I should continue
with this blog at least under this domain name. Change is always inevitable, I’ve
acquired a brand new Domain Name and a better home is on the way, it’s being
refined by a friend. I thus had to make a decision whether to have another
article appear or should I wait. Through soul searching and with a couple
of articles in my laptop in the waiting line, Posting has definitely prevailed.
In line with my strategy to
create multiple streams of income and growing my wealth seven fold by the end of year 3, I decided to
explore new investment ideas in the financial markets. And just like sports and
other activities in life, investing is full of clichés that have pearls of
wisdom to behold at such a time when life is so volatile. Understanding these
clichés and their implications goes a long way to helping you stand out from
the crowd. I have picked some of these clichés with special reference to a
falling knife.
FALLING KNIFE PHENOMENA
The term falling knife is especially common in the stock and foreign
exchange markets. It’s common to hear brokers and investors cautioning each
other or newbies “Never try to catch a falling knife.” This cliché simply means
that when a share is falling, there’s a good reason for this fall. The point is, it
may continue to fall anyway and consequently do not even think buying the share
until it has finally come safely to rest. What’s more? Picking up the knife may turn out
to be a trap. Think of the time you started cooking and the knife slid
off the counter. Times you may be luck to grab it by the handle and probably it
won’t hurt you. But next time just step back with your hands when it happens. In
essence treat this like a loaded gun. You may never escape with all your
fingers and your sanity.
The main trouble with falling knives
is knowing
when exactly they have stopped falling. It is also important to
differentiate between panic selling and falling knives. The former represents
shares or currencies that have fallen sharply mainly because of the
overreaction to unsavory news by speculators. While falling knives may be
attractive to short term traders hoping to make quick returns, they are risky
as
Branes Institute found out companies with Falling knives (shares) always post higher bankrupt rates over a
three-year period following the initial fall. The upshot is that when you pick up an
occasionally falling knife hoping that it will rebounds, this can be a hit and
miss. On one hand, chancing your luck in a falling knife situation means that
you simply decide that the price drop is a temporal situation. This conclusion
may be done by justifying the price drop as a result of a market overreaction.
A falling knife may never rebound and may end up losing all its value. However,
a pick up that is timed perfectly at the bottom of a long downward momentum can
be rewarding financially and emotionally despite risks being extremely high. My
point is, in life don’t go for the trending heading southwards, capture the
moment and be decisive on what to take and what to ignore.
OTHER CLICHÉS
Here are other clichés that have stood
out from the crowd for me from the financial market: It’s not different this time. Financial market activities that happen each day
have happened before and will repeat again. The debate is to what degree. Investors have no control over
financial markets. The best they can do is recognizing the
messages that the markets are conveying. Buying low, selling high has similar odds to
winning the lottery. Very few investors achieve these milestones. Greed can be the Achilles heel of
investors. Sell when you can, not when you must. Accept that losses are part of the
investment experience. The biggest problem is not incurring
losses. Rather, it’s holding losses too long. Cut your losses swiftly and decisively.
Don’t expect to make the right decision every time. Emotional attachment
to stocks is a downfall of many investors. Learning to be patient and logical
is a difficult virtue. Wise investors can change course quickly when
the time comes. Remain objective and void of biases. Bad news on a stock or a currency
is often not a one-time event. More usually follows soon after. If the news troubles you, sell
your stock or currency you holding.
CONCLUSION
Intrigued by the knife-catching
phenomena and other trends in the financial market Nobel Prize Psychologist
Daniel Kahnemmen co-authored "Thinking, Fast and Slow" with Jason Zweig
a Wall Street Journal Writer and observed that predicting when a market will turn is
attributed to a cluster of fundamental human traits. In particular they
argued that people have a tendency of believing they have special insights that
give them advantages over others. They also observed that in critical
conditions such as a rapidly falling market people rely on their intuitions and
the variation is only observed with flight or fight responses. When
investors are losing fast, they get into panic mode and prepare for a fight or
take a flight. However, they argued that they are better off by slowing
down and taking time to analyze the market situation and their responses to the
emerging trends.
Given the above observations and reflections, the questions you
should Ask are, What Causes you to
believe that you can somewhat get back when you have lost in life by a single
drastic strategy in life? What are
the consequences of a failed attempt to recover the area you’ve fallen in? This is because life is fundamentally unpredictable,
we cannot outperform life even when we think we have trained enough.
People even who have outperformed others in a given year or facet in life may
be unable to match this performance over the next year. Times when we do not
have superior insights it’s important to ask for help.
You can now enjoy my new Book JOIN
THE DOTS IN MY WORDS which is an inspirational book to help you join
the seemingly difficult puzzles of life.
Grab your copy online on amazon Click
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