THE DEFENSIVE INVESTOR - THE INTELLIGENT INVESTOR - CHAPTER 4

The Intelligent Investor – Chapter 4 – General Portfolio Policy: The Defensive Investor As crazy as it sounds, one should not have everything in stocks. Perhaps the best counter option are short-term bonds now. We discuss Graham’s take and apply a contemporary perspective on it. Graham clearly differentiates between aggressive and defensive investors where an aggressive investor spends a lot of time on research while a defensive one enjoys life. No matter where you are aggressive or defensive this chapter is crucial for this environment as being defensive might be the most aggressive thing one can do. Let’s see what Graham had to say about the stock and bond allocation and whether it still applies to this environment. Opposite view on risk: The common view on risk is that low risk equals low returns but Graham, like me, sees things from a different perspective. For him a well-researched bargain is much less risky than a bond because bonds lose a lot if interest rates increase and if there is inflation, thus those are also risky. The basic problem of bond stock allocation: Graham’s view for the defensive investor is to have an allocation between bonds and stocks between 25% and 75%. When stocks are cheap one should have 75% in stocks and vice versa. This is against human nature and we have seen that in 2017, after an 8-year bull market, stock market inflows were the highest. However, this human trait of buying high is exactly the reason why one should do the opposite and buy low when others are selling low. Another problem is that the stock-bond allocation is personal and here is where the problems start. If you would have been just 25% in stocks for the past 3 years you would have missed out on the 25% run the S&P 500 has had since while your returns would be around zero given the returns on bonds and their recent decline. Want to know more about what I do? https://goo.gl/MQG2k5 Full-time independent stock market analyst and researcher! STOCK MARKET RESEARCH PLATFORM (analysis, stocks to buy, model portfolio) I am also a book author: Modern Value Investing book: amzn.to/2lvfH3t More at the Sven Carlin blog: https://svencarlin.com/ Check out Modern Value Investing YouTube: www.youtube.com/c/InvestwithSvenCarlinPhD Like Modern Value Investing Facebook page: www.facebook.com/CarlinSven Connect with me on LinkedIn: https://www.linkedin.com/in/svencarlin/