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Real Questions from Real Subscribers

Q: I just subscribed to the Forecasts, and a couple of my positions are at a loss. Do you have a rule that if a stock drops a certain percentage, we should go ahead and take the loss?

A: Dear Subscriber,

We don’t use percentage targets for either buying or selling. Our research shows that if you stick to high-quality stocks, such as those with strong Quadrix Overall scores, a buy-and-hold strategy has generated superior returns to strategies that require the sale of stocks after a drop of 5%, 10%, or 20%. Stocks frequently fall, then recover.

That said, while we never make buy or sell decisions based purely on price action, we do consider the factors driving that price action. If negative developments occur and we think those developments will impact the stock’s operating results going forward, we may rethink our position. And if selling at a loss makes sense, we’ll do it and invest the proceeds in something with more appeal.

Keep in mind that when the market as a whole declines, most stocks will decline along with it. That doesn’t mean it’s a mistake to own those falling stocks, any more than you should rush to buy any stock that rises when the market is doing well.

Thanks for your interest,

Bob Sweet, CFA
Managing Editor, Dow Theory Forecasts

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