Friday, 13 October 2017


The basic characteristics of an investment portfolio will be determined largely by the position of the individual owner.

  • Savings banks, life insurance companies and "legal" trust funds:  High grade bonds and high grade preferred stocks.
  • The well to do and experienced businessman, as long as he considers these to be attractive purchases:  Any kind of bond or stock. 

Those who cannot afford to take risks should be content with a low return on their invested funds.


The general notion is the rate of return which the investor should aim for is more or less proportionate to the degree of risk he is ready to run.

The better view is the rate of return sought should be dependent, rather, on the amount of INTELLIGENT EFFORT the investor is wiling and able to bring to bear on his task.

An intelligent investor is one who is endowed with the capacity for knowledge and understanding.

The minimum return goes to the passive or defensive investor, who wants both safety and freedom from concern.

The maximum return would be realized by the alert and enterprising investor who exercises maximum intelligence and skill.

In many cases, there may be less real risk associated with buying a "bargain issue" offering the chance of a large profit than with a conventional bond purchase yielding under 3 per cent.

The kinds of investments that are suitable for  defensive and enterprising investors

A.  The defensive investor will buy:
1.  US Savings Bonds (and/or tax-exempt securities)
2.  A diversified list of leading common stocks, at prices that seem reasonable in the light of past market experience - or
2a.  Shares of leading investment funds

B.  The enterprising investor will buy:
1, 2, 2a.   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.

There are important categories of securities which the intelligent individual investor will not buy.  These are as follows:

1.  Investment-grade corporate bonds and preferred stocks when their current yields are lower or only slightly higher than US Savings bonds or foreign government issues at full prices.
2.  Leading common stocks when the market is at high levels as judged by past experience.
3.  Secondary common stocks, except at tempting low prices.
4.  As a corollary of 3, he will not buy new issues of common stocks, with infrequent exceptions.  (This does not refer to the exercise of subscription rights on leading issues.)

The intelligent investors should not support new security financing except on terms which offer them proportionately as attractive a combination of income and safety as is obtainable by the purchase of US Savings Bonds plus common stocks of leading corporations at normal market prices.

The Intelligent Investor
Benjamin Graham

No comments: