When is it time to pick up the fallen knife?

by Jay Pestrichelli on June 5th, 2012

You’ve probably heard the phrase “Don’t try to catch a falling knife”. It’s meant to remind you that picking the bottom of a crashing market is tough to do and can result in some portfolio pain if you don’t get it right…as most don’t.

This especially applies to the unique market conditions we are experiencing right now. While it may be tempting to try and pick up those stocks that have been on your shopping list, don’t do it while the market is in a free fall.

It may feel like we’re closer to the bottom than the top, but that is all it is…a feeling. Think about it this way, buying on the way down is more likely to have a negative result than buying on the way up. Too often individual investors have tried and failed to time the markets.

At Buy and Hedge, we hedge all investments, as rule #1 tell us, so timing is less important, but we still stay disciplined about when to enter. Emotional buying can certainly be exciting, but the downside regret can be equally intense.

How will we know when the market is on the rise? Look for signals like bonds selling off to below their February peaks or the S&P above previous support of 1340 or the Euro/USD to rise above 1.30. While there are no guarantees, any or all of these signals will indicate that the selling has eased.

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