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The Daily Dow LEXINGTON, Ky. (June 20): Part of the Foolish philosophy is not to try to time markets, because quite frankly, no one's very good at predicting short-term outcomes. When the market corrects, then, it can be painful to watch, but giving into the fear of that correction and selling out is precisely the worst thing you can do in most cases.
When the market plunges and you panic sell, most of the time the damage has already been done to your portfolio before you get out and by selling, you miss any recovery after the big sell-off. In essence, panic selling turns the Wall Street cliche upside down and you end up buying high and selling low.
Instead, Fools stay fully invested, riding out the market's ups and downs, but that doesn't mean we sit by idly and do nothing to protect ourselves against the volatility. Part of the Fool strategy is to set up a diverse portfolio by incorporating both growth stocks AND large-cap value stocks. Even if you ignore the Fools approach to shorting stocks, having both types of long positions can act as something of a buffer.
Anyone watching the Nasdaq plunge lately would be at least partly relieved watching her large-cap Dow Dividend Approach stocks hold steady, even gain some ground. It's not unusual for growth stocks and value stocks to come in and out of favor at opposite times. And no one can really tell why or when the switch will occur. By having both in your portfolio, your risk is reduced and your opportunity for good returns increases in all kinds of markets.
Today was no exception. With the Nasdaq getting thumped again, the Foolish Four portfolio tacked on another small victory. Over the long haul, this kind of "hedging" is much more Foolish than turning to options and the like for "portfolio insurance." A well-constructed portfolio and patience are a Fool's two best insurance policies. Fool on!
Transmitted: 6/20/96
Today's Dow Numbers THE FOOLISH FOUR MODEL (6/20/96) |
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