Cut by a fallen knife

When will I learn? For the third time this year I have come unstuck trying to catch a falling knife. First it was eBay, then Verisign and now Vodafone.

I even stated on this blog that I would wait for at least two weeks after a poorly received earnings release before buying into the stock. But did I listen to my own advice? No - instead I plunged in after a couple of days. Now Vodafone has fallen a further 5% with no sign of changing direction. Ooops!

I still think Vodafone will be fine in the long term but if I had waited a couple of weeks before averaging down I could have done so much better.

I think the problem is I get used to a stock having a certain valuation. So I got used to Vodafone being worth more than 140p. When the share price slumped to below 130p I assumed it must be a bargain. Of course Vodafone could prove to be a bargain at 123p but just because it was at 150p doesn't mean it will get back there any time soon.

What was weird about Friday was that Vodafone announced that they had cancelled 750 million shares that they had previously bought back and stored in a treasury. This was over 1% of their float! But the market was more concerned about a downgrade by CSFB and Vodafone fell over 2% on heavy volume.

Vodafone's forward PE is now about 11 so I think downside is limited from here. Maybe I should buy some more? Maybe not!

Vodafone will be fine long term. I just need to batten down the hatches and wait for it to return to popularity. But waiting is so boring...