You don't catch a falling knife, but you can pick it up when it's on the ground.

C’est un cas de figure assez fréquent : le cours d'une belle grosse entreprise plonge depuis plusieurs semaines et s’échange désormais avec un « rabais » de 30% par rapport à ses plus hauts. La tentation est alors grande pour un investisseur d’acquérir bon marché une société qui l’intéresse. Comme en plus cette dernière a pour habitude de rémunérer une bonne partie de ses bénéfices à ses actionnaires, le dividend yield qui s’affiche sur les sites boursiers est particulièrement alléchant. Tous les facteurs sont donc réunis pour nous pousser à acheter ce titre.

Unfortunately, most of the time, this is a bad idea. If the share price is collapsing, it is because in principle there are good reasons. Among these, let us mention a great classic: the profits made do not match expectations. In the best case, the latter were really too high (and therefore the share price too) and the market is only correcting a temporary anomaly. But if the expectations were reasonable, or, worse, if they are not met several times, there is a good chance that the company is facing a more serious problem, not only cyclical, but structural. The share price then does not only undergo a short-term correction, it enters a negative spiral from which it can take a very long time to recover. In addition, since profits are struggling, the dividend is also likely to suffer. If you thought you were making a good deal with a dividend at 5%, if it is halved or even suspended altogether, it is as if you had bought an apartment that is not only losing value, but whose residents are no longer paying you rent. In short, a big laugh.

Of course, there are always people who are smarter than others, who "know" how to buy at the right time. I bet you've heard these kinds of stories around you many times. In truth, they may have traded only once in the bottom of the market and they forgot to tell you about all the other times they got caught up like ordinary mortals in the bearish whirlwind of rotten stocks. Stock prices have an unfortunate tendency to behave in a similar way for long periods of time, sometimes down, sometimes horizontally and most of the time fortunately up. The chances of pulling off a masterstroke on a change in trend are insignificant.

While there is a risk of hurting yourself trying to catch a falling knife, it is much wiser to pick it up once it is on the ground. It may be a little damaged, the handle slightly chipped or the blade a little less sharp. However, you do not risk ending up with blood on your hands. A stock that falls heavily may end up in the graveyard, like Swissair, but it may also stabilize at a more or less low level, like UBS. The more brutal the descent into hell, the longer the stabilization period will have to be to be sure of getting out of the bad situation.

After the flood, we can thus pick up companies that have certainly been sold off and more or less pulled through, but most of the time are bloodless, far from the thousand lights under which they shone a few months or years earlier. We are entering the world of post-war battlefields, strewn with mines, but also teeming with a few illustrious survivors. A more or less long period of absence of dividends gradually gives way to a return to grace of distributions, sometimes very generous and generally solid. An income-oriented investor will easily find what he is looking for. On the other hand, even if the fundamentals have recovered and dividends are back, the stock can still take months, or even years, to take off again. Sometimes it never really recovers, limiting itself to vegetating in a more or less narrow horizontal channel, a kind of purgatory specific to stocks.