I often catch the falling knife.

I have often caught the falling knife. The falling knife is a stock which is falling in price and one makes the mistake of buying long before it has hit bottom. Why does someone buy such a stock? The answer is easy: it looked like a great deal when compared to its recent highs.

For instance, a little over a year ago Bank of Montreal was selling for about $155. Then, it started falling. When it got down to about $117, I bought a couple of hundred shares. Recently, it sold for as little as $102.67. Yesterday it closed at $104.53. I am down about $2500 on my recent buy.

Guided by history, I believe BMO stock will revisit its old highs within three years and most likely in far less time than that. I may well be up $8000 in three years and I will have collect approximately $900 in dividends in those three years. I may make approximately 12.9% annually despite having caught a "falling knife."

For another example, let's look at my recent purchase of TC Energy (TRP). I paid $45.89 for my shares. I pulled the trigger early but the stock recovered quickly. The price is now at $47.24. I am up $270. The icing on the cake is the dividend. I have already collected $186.

The lesson I am trying to impart here is buy good companies at good prices and you will do just fine. Don't worry about calling the bottom. That is something that is almost impossible to do.  Don't berate yourself when you buy early. It happens. In the scheme of things, it is not important. If the spread grows grossly large, you can always average down if you still have confidence in the stock.

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By market close Friday, TRP was at $49.92. I was now up $806 in unrealized gains plus $186 in dividends. 

Sometimes, "catching the falling knife" is not the right metaphor. Sometimes, one "dodges the bullet."