Don’t Catch A Falling Knife
Good day, Henry here. Everyone has done things which were both at times exhilarating and fascinating, but also sometimes terrifying. Starting a small business, skiing too fast and riding an over-excitable horse are some examples from my life. Lately I have been doing another.
I have been doing something which tests my mettle, looking after my own investing. I am sure many of you are doing the same. At present it is a nerve-wracking time to be watching the market. I am very lucky to have a friend who has been helping me greatly.
During the past correction, he has been warning me to not try to “catch a falling knife.” This was a standard term in the financial industry, though it was new to me. What it means is that as the market is falling, stocks are often much cheaper then they were previously and almost everyone is tempted to jump in and invest.
The problem, of course, is that despite the fact that the price has fallen, it is not done falling - hence the knife image. It’s not a good idea to get on the fast bus going to the wrong place. If the chart says that the market is still falling, you or I need to wait until it reaches a bottom and starts to rise. The danger is that a person can decide that they know what is happening and being over-sure of themselves, get into trouble.
It strikes me that it is not only in financial situations that we can get into trouble by thinking we know too much. Many disagreements between people would smooth out on their own if we did not become convinced of our own rightness and say too much.
Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
The point we get caught on is that just because we are sure we know what is going on, does not mean that we do or that we should say what we know. Many relationships have been ruined because people were sure they were right and acted on it and destroyed the trust in the relationship. I think it was the famous psychiatrist Harry Stack Sullivan who said about relationships: “We can either be right or related.” What he mean was that if we’re determined to be right then we’ll never hear what other people are saying, destroy the trust in our relationships and ignore our own common sense and be proven wrong in the end anyway.
So if we demand that we are right we may well loose or seriously damage our relationship. Just like the investing image, it is only afterwards that we are full of regret for being so “right”.