Recently one of our friend gave us a Ceramic knife as a gift. It was unopened for long and I started using it. As I was cutting at the edge of the platform, it slipped and fell and as is usual if anything falls you try to catch it. As I did that it gave me a small cut and fell down.
Reason for bringing this up is in Investment parlance, one is always in a dilemma of catching a falling knife. It means a stock is falling down steeply. Do you average the price as it goes down or do you let it fall thinking it will drop dead. Examples can be given of Yes bank, Vodafone India, Punj LLoyd, SREI finance, ILFS and the list goes on. Some recover, while some end up as DUDS.
The general investment philosophy of "catching a falling knife" is if the underlying business is good, then it can be caught, but if underlying business either due to regulation (Vodafone India) or bad luck (Punj Lloyd got caught in Iraq, Libya wars and civil insurgencies) or fraud by management (as in Yes bank) is bad - DO NOT TOUCH IT. If and only if the market has "temporarily" given it a thumbs down due to some issues (eg Nestle and Maggi) and is expected to get over it, you can then average it.
One more buying is by Pyramiding (as in opposite of Rupee cost averaging) is if business is good and started moving from an All Time High of 3-4 years, it may interest people to buy the stock.
