Give Your Strong Picks Some Room

When it comes to underlying market health, yellow flags have been out there for a while. Another caution flag was raised Wednesday when major averages declined in higher volume. A market uptrend won't be affected much by lower-volume declines, or even intermittent higher-volume declines. But when the latter types start to cluster, the action can pose problems for a rally. On Wednesday, the S&P 500 flashed its fifth higher-volume decline since Feb. 29. Selling has been less pronounced in the Nasdaq. But a deviant market was in full effect Thursday, when major averages reversed early losses and finished near session highs. The day's action told me there are still buyers around. They're a stubborn bunch, aren't they? It's funny, though. Even though distribution is starting to make its presence felt in the major averages, I'm not seeing much of it at all in leading stocks. Proper portfolio management is critical right now. When it comes to my model growth portfolio, I'm currently taking stock of what I own. I have several names that are working nicely and, since I have nice cushions in many of them, I'm in no hurry to sell. However, if I start to see meaningful signs of institutional selling in them and they start breaking below key support levels, I will take partial or full profits. I'm not seeing it yet, though. There are five-figure portfolios, six-figure portfolios and seven-figure portfolios. Whatever the size of yours, assess what you currently own. There are most likely some strong performers, some middling performers and some others that just flat-out aren't acting right. This market now carries elevated risk, and this means you should be proactive with a game plan in the event that conditions deteriorate. Give your leaders as much room as possible to work, and don't be afraid to cut loose the dead weight. What's the biggest mistake investors make in portfolio management? They sell their strongest performers first and hold on to stuff they should be selling. How many times have you sold a stock for a small profit only to see it double over the next 12 months? We've all been there. How many times have you held on to laggard only to see it lag more? Or, worse yet, how many times did you throw good money after bad -- adding to a position that wasn't working in the first place? Right now, I have 12 stocks in my model portfolio. Some are older, more established growth names, and others are stocks that I believe have the potential to be great. Stocks I own that could still be in the early stages of big moves are GNC (GNC), Verifone Systems (PAY), LinkedIn (LNKD) and Rackspace Hosting (RAX). All four sport that potent blend of fundamental and technical strength I look for in a stock. I hope to be able to fill out positions in these names in the coming weeks and months, but one thing's for sure: I plan on giving them room to work. Other holdings in the portfolio might not perform up to expectations, and I won't be afraid to let them go. The key is to add to positions that are working. A lot of investors do the opposite. The bottom line: Scads of leaders continue to hold well above their 50-day moving averages, a key support level. Heck, many are still holding above their 10-day and 20-day lines. Don't sell your strong performers too quickly. For now, I'm playing more defense than offense with the portfolio -- that is, I'm not actively looking to add new names. I'm focusing on what I own for now. Overall, I like what I see, but we all know that market conditions can change quickly. That's OK, though, because I have a game plan. Hopefully, you do too. Editor's Links More value investing: In Search of Perfection Use Your Eyes To Be Flush With Cash

Give Your Strong Picks Some Room

With the higher risk in the broad market, do let your leaders work -- and cut loose dead weight.

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