Key insights
- The author describes a strategy of buying beaten-down stocks (falling knives) around earnings, and rotating into other oversold names if the initial trade doesn't work. They detail a SNAP trade that went flat and a subsequent rotation into NKE and LULU, which had declined significantly during the same period. This strategy is presented as a way to potentially outperform the market, but carries inherent risks.
I bought 40,000 shares of SNAP three months ago just before they reported 2025 Q4 earnings. I paid $6 per share. The idea was that the stock had fallen to a level that I found unlikely to be breached but that hard floor snapped like a chicken’s neck as soon as those earnings dropped. In the weeks and months to follow it continued its decline and touched $3.9 at one point. From there it started recovering and I was getting ready for 2026 Q1 earnings hoping that this time it would jump on earnings unlike the first time when it fell. Alas, no luck. It actually fell 10 % in extended trading hours but as soon as the market opened it rallied to flat almost instantly.
I’m not ready for a third time trying my chances with SNAP earnings so I took a look around to see if there were any other deals around - and more importantly - if I could somehow “win” from having been flat in my portfolio for three months. This is when NKE and LULU caught my attention. I’d held both of these stocks in the past but not recently. Well, in the time I’d been fully invested in SNAP (yes, my portfolio was 100 % SNAP) both LULU and NKE had fallen 30 %. Specifically, from February 4 to today which is my time as a SNAP shareholder, NKE went from $65 to $44 and LULU went from $180 to $130.
So, while I won 0 % from holding SNAP for three months I did end up being able to buy NKE and LULU for 30 % less. I don’t know if this is advice but I have actually been quite successful when it comes to catching knives in the past. And, this is what I always do. I try out my luck with something that’s crashed in a short time frame- when I first bought SNAP it was already down 30 % from January 2 to February 2 meaning in just thirty days - and if I get ir right then I get it right but if not - as with SNAP - I sell when it eventually goes to flat and then I go for something that’s become way cheaper in the meantime.
I’ve done it with over twenty different stocks in the last five years and have outperformed the SP500. I made a post about it some time ago: