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Chapter 4. Managing Profits and Losses > Your Conservative Dilemma

Your Conservative Dilemma

A conservative policy is intended to protect your investments from loss. By selecting long-term quality companies, you eliminate the volatility that threatens your portfolio's value, and you set the goal of building equity over many years. Even so, you have to contend with ever-changing market conditions and the prospect of needing to modify your mix of stocks. The most readily available information is short-term by nature, so you have to continually ensure that your portfolio-based buy-hold-sell decisions are made using valid information.

Short-term indicators can be very distracting. Momentary volatility in issues you own, especially when price spikes are part of marketwide volatility, can be very distracting. Without gaining independent confirmation of apparent changes in trends, it is easy to make mistakes. For example, you may decide to sell stock to avoid further price declines when it is not necessary, or you may buy additional shares when prices surge, only to realize later that a correction was virtually certain. Reacting to short-term indicators and trends is human nature, but it can adversely affect the value of your conservative portfolio.


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