Buy the Dip Vs Avoid Catching a Falling Knife Investment Approach

0. What is the Fuss?

Investors can get confused by the contrary investment approaches of ‘Buying the Dip’ of a fundamentally good company, vs the approach of ‘Avoid catching a falling Knife’. If the names of these investment approaches are news to you, do not worry, I will cover them in detail in this post. If you have been conflicted in using one approach over the other, this post is the right read for you. I talk about my experience in applying, and restraining at times from these approaches.

Over my investing journey, I have built a more suitable approach — “Buy the news based temporary dip, but refrain from buying a falling stock in a weak macroeconomic situation”. Now this may sound like a mouthful, so let’s take the simplified journey of getting to know this low risk and high return investment approach.

1. Background

Investment gurus often define recommended investment approaches in a simple manner. This enables retail investors to easily understand and follow these approaches.

However, what happens when two such investment approaches are contrary to each other? ‘Buy the Dip’ and ‘Avoid catching a falling Knife’ are two such investment approaches. One of them — ‘Buy The Dip’, recommends buying a…