Warning: Do Not Try To Catch This Falling Knife

My mom is a wonderful cook. But that doesn’t mean it is fun to be around her in the kitchen. She has one terrible habit that she just hasn’t been able to break — even though it physically hurts her.

In the kitchen, my mom continuously tries to catch a knife whenever one falls. Occasionally, she enjoys spectacular success, grabbing the handle as the knife spirals low. Those successes are what she remembers (and uses as proof that her reflexes are still sharp).

I remember the times she catches the blade and needs to stop cooking so she can stop the bleeding. I’m certain she’s caught the knife by the blade more often than she catches the handle.

Time in the kitchen with my mom has taught me that there are two types of people in the world – those who get out of the way of falling objects and those who ignore risk by trying to catch knives. I’m the former, and she is obviously the latter.

Of course, this also applies beyond the kitchen.

The Effects Of These Shutdowns Are Easy To See

In the stock market, many analysts warn that you should never try to catch a falling knife. By that, they mean it’s best to avoid buying stocks that are falling because you never know when they’ll stop falling.

Right now, the market is a falling knife. This is the fastest bear market in history, and I believe it reflects the recession that is either already underway or beginning next quarter.

The economy was already slowing, and the risk of recession was rising before the coronavirus panic struck. All of the shopping for goods that will survive a quarantine takes money away from discretionary spending. There will certainly be a slowdown in the services sector.

Closing down buildings and events is also slowing the economy. One report indicated that more than 50 collages have cancelled in-person classes. The students will learn with online courses, but the communities will see a drop in business.

As one example, if a college closes, bars and clubs that depend on students will see sales drop. They will cut hours of bartenders, servers, and other employees. This might sound trivial, but it’s an easy example to grasp. The same thing happens at Starbucks, McDonald’s, and the local sandwich shop.

All across America, and all around the world, panic is sowing the seeds of recession. The recession will take on a life of its own. That’s why stocks are falling.

Action To Take

Yes, many stocks are attractively priced. But they are like falling knives. There is a chance we can catch the bottom. Or, we can step aside, let them fall and pick them up once they’ve safely hit the floor. In other words, we will buy when the panic stops.

I recommend stepping aside. This is a bear market associated with economic weakness. On average, recession-linked bear markets lose at least 30%. Generally, it takes time for prices to decline that much, and some stocks reach bottoms long before the bear market ends.

But this isn’t a normal bear market. The speed of the decline tells us there is panic, and that makes sense. News is now everywhere. Social media amplifies the news. We are being bombarded with stories of death and quarantine. Panic is a natural response.

Now is not the time to be buying. Many stocks are attractive at their current prices, but I believe we will get them at even more attractive prices in a few weeks.

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