A Personal Investor and investment wisdom or why you must catch a falling knife to succeed, part 2

Mag. Dobromir Risov, BSc, November 2026

Bull and Bear in Frankfurt, Stock Exchange - the bear is feared by many (shutterstock).

"Never catch a falling knife" - well meant and unfeasible

In today´s blog I talk about wisdom investment statements. Personal investors must decide if those are helpful or not. The blog is going to give an answer on that. Today I analyze: “never catch a falling knife”. This statement says to a personal investor to withhold from buying  a stock or an investment fund on the risk it could drop further. It does not specify how to achieve that.

Now that sounds like a good advice. Obviously no one likes losses. This is a no brainer. Intellectually, that statement belongs in the category of market timing. Market timing is the idea of guessing the top and the bottom of the markets. Unfortunately both endeavours are unfeasible.

Do you know a business which made profits from day 1? Exactly.

To make my point of unfeasibility, I want to move away from the stock markets for a moment and move to businesses held privately. Let´s say I want to start a coffee shop. At the start, after opening,  there will be a few clients, if any. After all, the coffee shop is new, few people know about it. As a result the business will accumulate losses at the start. Costs like rent and payroll must be paid whether or not there is revenue. This is the nature of starting a business. Over time, more people will show up and increase the turnover of the coffee shop.

As probable as a personal investor never catching a falling knife. (shutter stock)

More turnover means, reducing the daily losses and eventually starting to make a profit. A personal investor reading this agrees with me. You would not expect to turn in a profit from day 1 in the coffee shop. Further, it takes 1-3 years to amortise the capital expenditures I made before starting the coffee shop: items like refurbishing the interior, buying furniture, professional coffee machines.

And, now, back to the stock markets: chances are the same personal investor agreeing on above, develops irrational expectations about not losing any money from day 1. So, I ask the personal investor to respond to that question on his own: how do you expect to guess the bottom 100% correctly? Exactly, you have no idea. And so, a personal investor often chases an impossible task probably because it sounds so good. And yet, the price of a stock or of an index is important for success. How then operate in the stock markets? Here it is:

Investment success lies in intelligent & bold action

I have caught a falling knife – more than once, and often way before reaching the bottom. Rather than trying the impossible, I propose a different approach: I call it: intelligent boldness. “Intelligent” refers to a personal investor orientating around company or business fundamentals (earnings and dividends for example). The second term “boldness” refers to the necessary and indispensable component of daring to jump into the cold water and buy.

Intelligent boldness is applicable to buying indices too. "Intelligent" data is available easily. There is plenty of information on earnings or dividends for a basket of stocks, an index at reach. So, a personal investor needs not dwell into single stock analysis – saving him a lot of time. To facilitate the idea of jumping into the cold water, I would like to add, that with life in general and investing in particular, no one knows what tomorrow brings. The best way to deal with that is to accept it.

What is a consequence of "never catching a falling knife"?

Since guessing 100% exactly the market is impossible, many personal investors end up not investing at all. They missed the bottom or so they and stay out of the stock market entirely. However, not investing at all leads to 0% chances of succeeding. You don´t get it? Well, think of sports: when you don´t show up to the game, you have no chance of winning. So staying out of the market all the time is also a loss. A personal investor reaps the benefits of the capital markets when he replaces the impossible idea with intelligent boldness. What amazing returns a personal investor can accomplish, I showed in part 1 A Personal Investor and the well sounding and impossible statement: "stocks can only go up". The reader will notice, the outstanding performance at the end, and the massive temporary drops before. It is a very good example of catching a falling knife and still making handsome profits.

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Frequently Asked Questions (FAQs)

1. What is the conclusion on "never catch a falling knife"? A personal investor trying to guess the price 100% right is destined to fail. Don´t follow that advice rigidly.

2. What is the risk of overly adhering to that principle? Avoiding market losses at all costs naturally keeps a personal investor away from investing. By doing so, the chances of success become 0%.

3. How then deal with falling prices? A personal investor maximises the chances of success by applying intelligent boldness. Intelligent refers to a focus on fundamentals. And boldness refers to buying and accepting that no one knows what tomorrow brings.