Posted on 14. Feb, 2012 in Kirchner Blog
There are probably almost as many investment strategies as there are investors. Coming from a public markets background one of my ‘favourites’ was ‘never try and catch a falling knife’. The concept, of course, is that if a stock is falling rapidly you ought to be extremely careful if you are looking to buy or you likely to get cut. Like a knife, you are more often better off waiting for it to hit the ground then pick it up. We all have our stories – for me it was CITI. Boy did I think it was on sale at $18. The scars on my hands are still healing.
But what about in the world of private capital? We don’t have the visibility into daily price fluctuations but shrewd institutional investors know when the business and investment is underperforming. The downward pressure often comes from a shortened runway rather than a short position. By closely monitoring operations and acting to effect change before the company faces a cash crunch, investors can catch the falling knife, preserve and even enhance value in companies that have gone off track.