The 10 Percent Rule is one of the Investment Theories. The 10 Percent Rule helps the investor in identifying and understanding broad market swings. It is a simple rule and assists the investor in avoiding defective value judgments. The investor calculates the value of his/ her portfolio at a specified interval, say every week. Once in a month the weekly values are aggregated and average value is determined. In case, the monthly average continues to rise, the investor does not have to take any action - the profits may be allowed to run. However, a 10 percent fall in the monthly value of investments is considered a signal to sell and liquidate the portfolio fully, and sometimes partially. On the other hand, if after such a liquidation, the notional value of the portfolio (so liquidated) rises by 10 percent, it give a signal to buy and re-create the same portfolio or a different portfolio of the same value. In 10 Percent Rule, the construction of the initial and subsequent portfolio plays the most significant role. Thus, a portfolio of Blue Chips shall perform differently than a portfolio of average stocks or Junk Stocks.
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