What to Do During Market Corrections
By Timothy W. Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
Over ten years ago in March 1996, the Page One title of our Cabot Market Letter said, “Just Sit Tight.” We were in a bull market, and all our indicators were positive. But the market had been correcting for about a week, and some of our aggressive stocks were breaking down. We wrote, “Sit tight. Hold onto your winners. Sell your losers.”
And that’s exactly the advice we continue to give today. No market goes straight up day after day; its job is to keep you off balance. So it must plunge from time to time, before resuming its advance, and it’s your behavior in these plunges that determines whether you’ll emerge a winner or a loser. Our advice today, therefore, is little changed from our advice in that great bull market of a decade ago. Sell your poorest-performing stocks now. And become fully invested in healthy charts as soon as the current correction ends.
More Portfolio Management advice:
How to Systematically Assess Your Risk
A "position sheet" will give you a great view of your portfolio's risk and rewards.
How to Handle Stock Losses
Losses are part of the process—it's vital to think of them in the right way.
The Importance of Stop-Losses at Earnings Season
Stocks can rise on hope, but a bad earnings report can do a Hindenburg on an individual stock.
Consider Taxes Before You Invest
When you consider the taxes before you invest, you'll have a truer grasp of your portfolio.
Seven Short Selling Tips
We don't have any official recommendations for short selling, but if you're determined to sell short, here are seven tips.
Investing Tip: On Selling Stocks
Selling a losing stock quickly can prevent you from having to deal with a much larger loss.
The Importance of Having an Investing System
Here are three ways the market is actively trying to take your money and what you can do about it.
Three Changes to Improve Your Investing
A successful small change is much better for you (both financially and emotionally) than a big change that you can't make happen.
Rules to Protect You as the Market Climbs a Wall of Worry
These three rules will help you manage your portfolio.
Year-End Portfolio Review Helps Set Goals for Next Year
Each year end, I review my investing strengths and weaknesses, examining stock charts of previous buys and sells, comparing them to market action, and so on.
How to Watch Your Stocks
Checking your stocks often probably doesn't do any harm, but it does reveal something about you as an investor.
How to Manage Risk during Bear Markets
The secret to surviving the bear market, of course, is adapting.
How to Plan for Stock Investing Risk
Successful investors always consider risk when analyzing their portfolio, adhering to rules like cutting losses short and diversification.
Investing Basics: Keep your Eye on the Ball
Three rules: follow the market's trend, cut your losses short and let your runners run.
Identify Your Investing System and Stick with It
The hard part, in our experience, is sticking with your investing system.
Stock Investing: Do You Want to Feel Right or Make Money?
Holding on to your losers while selling your winners may make you feel right but the best strategy is to cut your losses short while letting your winners run.
How to Average Up to Buy More of Your Best Stocks
Buying more of your best stocks can be dangerous if misused.
When to Sell Your Winning Stocks
What feels good to most investors is holding on to a big winner...and what feels bad is selling a big winner—but there are times when that's exactly what you should do.
The Importance of Managing Your Portfolio
Both professional and novice investors sometimes forget that the objective is to make money, not to own every good-looking stock in the market.