– following a ‘simple portfolio policy – which any investor can carry out with little expert assistance.’ The lay investor can achieve ‘a creditable, if unspectacular, result with minimum of effort and capability… since anyone 0 by just buying and holding a representative list 0 can equal the performance of the market averages, it would seem a comparatively simple matter to ‘beat the averages’.
– Graham warned should have a ‘clear concept of the differences between the market price and underlying value… and should firmly base his stock selection on the margin-of-safety principle.” Such an investor, he emphasised, “cannot enter the arena of the stock market with any real hope of success unless he is armed with mental weapons that distinguish him in kind – not in a fancied superior degree 0 from the trading public.”
He laid out 4 areas in which enterprising investor might practise his aggressive policies:
Popular maxims…but very true!
5 standard methods by which more than ordinary profits may conceivably be made by the aggressive investor:
popular kinds of investments… defensive investor will buy:
- United States Savings Bond ( and/or tax saving securities) 2a. a diversified list of leading common stocks, at prices that seem reasonable in the light of past market experiences or 2b. shares of leading investment funds
Aggressive investor will buy…
1, 2a, 2b as above 3. Growth stocks, but with caution 4. Also or alternatively, representative common stocks when the general market is historically low 5. Secondary common stocks, corporate bonds, and preferred stocks at bargain levels 6. Some exceptional convertible issues, even at full prices.
The selection of common stocks for the portfolio of the defensive investor is a relatively simple matter. Here we would suggest 4 rules to be followed:
There is a great advantage for the young capitalist to begin his financial education and experience early. If he is going to operate as an aggressive investor he is certain to make some mistakes and take some losses. You can stand these disappointments and profit by them. We urge beginner in security buying not to waste his money in trying to beat the market. Let him study security values and tests out his judgement on price vs. value with the smallest possible sums initially.
A simple application of this idea would be to sell off 10% of your holding when the market advances 10% above a chosen base or central level; then to sell 20% of the remainder when it advances another 10% and so on. Repurchases would be made after the market had declined to the central level and on some similar schedule. Following this plan, you would have sold all your stock if and when the market level reached double the base figure, and you then have realised a profit of 37% above the base.