An expression describing the risky practice of buying a stock that is dropping sharply in price, hoping to catch it before it bottoms out. The danger is that you may catch the knife by its blade instead of its handle, meaning the price could continue falling and cause larger losses. This approach is highly speculative and risky.
A company's stock falls from $50 to $30 in one week due to bad earnings. An investor thinks the stock has fallen enough and buys at $30. However, worse news emerges, and the stock drops further to $10. The investor who tried to catch the falling knife suffered a much bigger loss than expected.
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