Bernstein at his vacation home in Brattleboro, Vt. In each field and in every generation, a few people earn such respect and renown through the quality of their work that they become mononyms:
I like to think of the defensive investment strategy along the lines of the The Tortoise and the Hare: Hare ran down the road for a while and then and paused to rest. He never, ever stopped until he came to the finish line. The animals who were watching cheered so loudly for Tortoise, they woke up Hare.
Hare stretched and yawned and began to run Intelligent investor, but it was too late. Tortoise was over the line. The tortoise will seldom have exciting stocks to brag about at dinner parties, but he will slowly but surely grow his investments while focusing on his main source of income — his career.
So what are the four rules for defensive stock picking? Reasonable Diversification — Graham recommends holding names at any given time.
Too few names, and the risk of any one stock plummeting can derail your portfolio, too many names and all the work you do in choosing quality stocks will become diluted. I would add that diversification requires a bit more thought than simply the number of stocks in your portfolio, having 20 gold stocks would still be a risky proposition.
Does this mean that Graham would be against index funds? The Motley Fool investigated the subject and concluded he would support index funds.
However, I do believe the new craze of passive investing deserves some reflection. An investor still decides the ETFs they want to purchase, sometimes by market — US, Global, Europe, Emerging, other times by sector — financial, technology, utilities, etc.
A defensive stock should also have a long record of dividends. Set a maximum Price-to-Earnings ratio that you are willing to pay for stocks. Finally, Benjamin Graham closes his advice for the defensive investor by recommending an annual review of our portfolio.
If we choose high-quality companies, at reasonable prices, we remove both the need and the risk over micromanaging and over-trading our portfolios.
In a poignant if not slightly depressing paper by U. The surprising finding is that not only do the securities that these investors buy not outperform the securities they sell by enough to cover trading costs, but on average the securities they buy underperform those they sell.
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