When the market tanks … will you try to catch the falling knife?

So the markets tanked again yesterday, in today’s trading they are more than making it up again. Once again I ask myself “Should I have bought yesterday?” Hindsight is the easy way to invest, sadly it is not going to tell me what to do now. So I go to a market commentator whose writings have given me reason to value his opinion.

Barry Ritholtz from the must read blog The Big Picture writes an Apprentice Investor column in The Street. Barry is also CEO and director of equity research of Fusion IQ, a quantitative research firm.

TheStreet.com : Don’t Just Do Something. Sit There! | Investing | AMZN

One of the questions we get each correction is whether or not traders/investors should try to pick market bottoms. The background music is an orchestra of bottom callers, the vast majority of who are, shall we say, premature. Eventually someone gets it right, but I never have been convinced it wasn’t a function of random luck.

For the vast majority of Wall Street participants, however, this guessing game tends to be rather expensive.
[…]
From a risk/reward standpoint, there are much higher-probability
trades/investments to make, with lower risk. This balance leads to
better overall returns.

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