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Chapter 4. Managing Profits and Losses

Chapter 4. Managing Profits and Losses

Everyone contends with short-term price fluctuations, and even the most conservative investor may be susceptible to profit taking. Options can be employed to protect profits and even to take those profits without selling stock. On the other side of the short-term price question, options can be used effectively to eliminate loss positions through rescue strategies.

The conservative risk profile discourages short-term decisions, and speculation is contrary to your sensible investing philosophy. Your general buy-hold-sell rule is, buy well selected high-quality stocks, hold for the long term, and sell only when the fundamentals change. This smart investing approach does not preclude protecting profits when price levels become volatile. You do not want to begin as a conservative and end up as a speculator. However, there are ways to take profits without selling stock and without increasing market risks. In some instances, taking market risks makes sense, even though it is not generally a wise move to make.


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