Catching Falling Knives

Apologies to anyone who expected to read about an attempt at juggling. This is duller than that, but can be more important. “Catching a falling knife” is one way to describe buying a stock that’s share price has been falling. Congratulations, you caught it! Ouch. It is safer to pick up a kitchen knife after it has hit the kitchen floor. Trying to catch it too soon can be too painful. Doing the same thing with stocks is more difficult because there’s no real floor (stocks rarely reach $0.00), but fortunately there’s no blood lost, only money. Catching a falling knife, or not, is one of those investment decisions with no clear answer. Here’s how I almost bought a stock this week but didn’t because I’m trying to decide where the floor is.

Thanks to some conservative money management, I have enough discretionary cash to round out one of my portfolio’s positions (buying enough shares to bring the total to a number that’s easier to remember and manage.) My next target was and is Solar Windows (WNDW), a company that makes transparent solar panels. Transparent panels mean solar panels aren’t limited to rooftops, acreage, or special structures. Transparent solar panels may be handy and appealing for residences, but they are even more effective on buildings with more glass like office buildings and greenhouses.

Let me check the price of oil as I type. (NASDAQ – Crude Oil (CL:NMX) = $102.98)

Every rise in the price of fossil fuels tips the balance towards renewable energies. About the time I bought my first shares of WNDW the price of oil had risen from ~$60 to ~$80. At the beginning of March oil was priced at over $120. The price has come down, though not in direct correlation with pump prices, but it reflects the volatility and vulnerability of commodity pricing. Solar power isn’t as sensitive. Enabling technologies should be in demand.

This week WNDW closed at $2.84, down from the $4.96 I paid in November, down from the 25-week high of $16.55. Eep. – finance

A pessimist can look at a fall from $16 to $3 and say it is going to continue to fall.

An optimist can look at a fall from $16 to $3 and say it is bound to go back up.

They are both guessing. They may be making intelligent guesses, but they are guessing. So am I.

I was prepared to buy a few hundred shares, thought about falling knives, and decided to wait.

While this is happening, I’ve been watching another stock fall and then rebound, MVIS. (Yes, that one again.) Within the last twelve months it has fallen from $28 to a low of $2.61 about two months ago. I thought about buying then, but didn’t buy. 1) I already have a large enough number of shares that I could re-retire if it rose enough past that $28 point. 2) I didn’t know how far the knife could fall. 3) A more prudent approach might be to have a more balanced and diversified portfolio. All logical reasons. MVIS has risen to $4.60, a 76% gain in two months. Logically, any investment that beats the market is a good investment; so, by that measure I made a mistake.

I also put MVIS in a broader perspective. Two years ago MVIS was priced at under $0.20. Throughout that time there has been no positive, significant, quantifiable progress that correlates with a price going from $0.15 to over $28 to $2.61 to $4.60. That’s the market. There are rationalizations for the moves, but nothing objectively demonstrable. – finance

Within the last two years WNDW has risen from ~$1.40 to a peak of over $34 to its bumpy falling knife trend to today’s $2.84. Pardon the copy and paste but… Throughout that time there has been no positive, significant, quantifiable progress that correlates with those prices… That’s the market. There are rationalizations for the moves, but nothing objectively demonstrable.

Stocks are bouncy. If they weren’t they wouldn’t be realistic investments, at least in our economic system. Buying into an irrationally optimistic rise is more dangerous than buying into an irrationally pessimistic fall. Booms and busts are common. Booms and busts are only identifiable in retrospect. For purely mechanical reasons I failed to buy Bitcoin at ~$220, and that was after a rise from ~$20. It is now over $41,600. Buy my book (Dream. Invest. Live., the basis for this blog) for details on a few purchases that went bankrupt, where ever-more-affordable prices were a knife I kept catching, unfortunately.

The biggest losses I’ve made were by not buying more, not by selling too late. I’ve lost tens of thousands by selling one stock too late (DNDN, et al), but I’ve missed out on millions (SBUX, et al) by not buying more of another stock. Neither was obvious at the time.

Writing about most topics benefits from strong, simple, declarative statements. They make the writer sound confident and assured, and can provide the reader with the same feeling, at least vicariously. The truth is messier. Falling knives are messy and risky.

I don’t expect WNDW to fall like a knife, hit the floor, and let me casually pick it up. Especially with stocks based on speculations about future revenues the valuations can vary widely, quickly, and dramatically. Neither WNDW nor MVIS have proven earnings that meet or exceed their company’s potential, in my opinion. A projector in every phone and home? Solar windows dramatically reducing fossil fuel dependence while improving utility costs, sustainability and reliability? Sure. Both are possible. Whether they are probable will only be tested in the real world and in time.

I will probably buy more WNDW next week. While it might be more prudent to wait until the knife is done falling, I also don’t want to miss a bounce that is actually a return to earlier valuations. In those two years companies, technologies, and global circumstances have shifted in favor of both companies. Whether I catch a stock at $2.60 or $4.60 doesn’t matter much if it subsequently is worth $28 or $34 or more. I miss the optimization, but a ten-fold increase is called profit. The rest is details, bragging rights at parties.

Listen to the caveats included with ads from financial firms describing investments. Investing includes risk of loss. Investing also includes the possibility of gains. If those gains are in companies that improve the world, and those stocks are most affordable before they’ve proven themselves, then those are opportunities that let my money help me live a lifestyle in a world with a surplus of uncertainties.

Stay tuned, and be careful out there. I know I will be.

About Tom Trimbath

real estate broker / consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: and at my amazon author page:
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