Monday, August 22, 2011

No You Can't Catch a Falling Knife

Two weeks ago I had to rush my 8yr old to the emergency room. Somehow he had managed to knock a knife out of the rack and instinctively tried to catch it. A lot of blood and two stitches later he learned a valuable lesson about life and investing----you cannot catch a falling knife. Today I had CNBC on in the background and heard them ask someone that since emerging markets are down about 20% is now a good time to buy? I would not be surprised if they had similar segments when emerging markets were down 5%, 10%, and 15%, and will have another one if they go down 25%.

If you are a long term investor and want exposure to emerging markets then now is a better time to buy than 20% ago was, but if you are a long term investor you also haven't made any money in 10 years so you may want to rethink that. If you can accurately call the bottom you can also make a lot of money, but if you can accurately call the bottom then call me I have a job for you here (you also may want to go out and buy a lottery ticket). Everyone else should wait until the trend reverses in emerging markets, you won't get in at the bottom but you also won't be trying to catch a falling knife either, take it from my 8 yr old, it is not fun.

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