Create a Portfolio You Don't Have to Babysit

Great Q&A starting @ 42 min. Very insightful

Published on 14 Jun 2012
In this special one-hour presentation, Morningstar director of personal finance Christine Benz and ETF expert Mike Rawson discuss how to build a low-maintenance, hands-free portfolio that will help you reach your financial goals.

Note to viewers: Filmed in late April 2012, this Morningstar presentation was part of Money Smart Week, a series of free classes and activities organized by the Federal Reserve Bank of Chicago and designed to help consumers better manage their personal finances. Morningstar is a Money Smart Week partner.

Download the presentation slides here:
http://im.mstar.com/im/moneysmartweek_presentation.pdf

Asset Allocation: Building a Better Balanced Portfolio

Your investment goals determine which stocks to include in your portfolio

The investment goals you have established are another important ingredient in determining which stocks to include in your portfolio.

• If your investment goals are primarily long-term in nature, you should build a stock portfolio that is best able to meet these long-term goals.  Choose the stocks of companies that have good long-term growth prospects.  
• If your main investment goal is to enjoy a stable source of current income, you should own stocks that pay liberal but secure dividends.  

Keep in mind that constructing a portfolio of stocks that meets your investment goals does not lessen the need to maintain a diversified portfolio.

How to Build a High Return Low Risk Stock Portfolio

A proven strategy for building a stock portfolio that gives decent returns while posing minimun risks. This is a long term strategy that has proven itself over 30 years of markets ups and downs.

There is no single strategy for being successful in the stock market. If we look at the great investors, Warren Buffet, T. Rowe Price and Peter Lynch, they all had different investment strategies. However, few people have the natural investment talents and insights that these men held. Below than is a strategy than can be used by the rest of us to earn high returns while maintaining minimum risks.

This stock portfolio strategy is based on 3 basic principles:
1. Diversify
2. Buy Quality Stock
3. Pay the Right Price




http://www.nassbee.com/wealthy/stock_portfolio.


Read also:

Wealthy
	The Most Common Mistakes People Make with their Money
	Mutual Funds 101
	How to Select a Mutual Fund
	Bonds & Debt Instruments 101
	Types of Bonds
	Build a High Yield, Low Risk Stock Portfolio
	REIT - Real Estate Investment Trusts
	Asset Allocation / Economic Hedging
	Education and Tool Links for Investing

Portfolio Review

http://spreadsheets.google.com/pub?key=tOphBEM5Tqd30vvXdwxAc6g&output=html

5 stocks are fairly valued; 1 is undervalued and another is overvalued.  None of the stock is very overvalued.

The market has turned volatile. 

However, the market is certainly not in a bubble.

How do asset classes fit in with your profile?

From answering the 10 simple questions (reference below), your total score tells you more about yourself.  Three basic profiles emerged and helped set the necessary guidelines for your investment portfolio.

The three basic profiles and their respective investment objectives are:

• You cannot afford to make mistakes: Conservative investment objectives
• You are carefully weighing up your options: Prudent investment objectives
• You want to grow bigger and better: Aggressive investment objectives

Click here to find out what asset classes these respective investors should include in their portfolios.
http://spreadsheets.google.com/pub?key=t5u-KMcEYg81UlomoCgxU9A&output=html

Read also:

What money means to you? Answer 10 simple questions.

http://myinvestingnotes.blogspot.com/2010/01/what-money-means-to-you-answer-10.html

Understand what money means to you: Answer 10 simple questions : Sheet1

http://spreadsheets.google.com/pub?key=tr9oMvjAsDJvkcPgXdd763A&output=html

****Constructing a Portfolio

Now that you have learned to analyse companies and pick stocks, it is time to focus on putting groups of stocks together to construct your stock portfolio.

No one answer is right for everyone when it comes to portfolio construction. It is more art than science. And perhaps that's why many believe portfolio management may be the difference that separates a great investor from an average mutual fund manager.

Famed international stock-picker John Templeton has often said that he's right about his stock picks only about 60% of the time. Nevertheless, he has accumulated one of the best track records in the business. That's because great managers have a tendency to have more money invested in their big winners and less in their losers.

The Fat-Pitch Approach

You should hold relatively few great companies, purchased at a large margin of safety, and that you shouldn't be afraid to hold cash when you can't find good stocks to buy. But why?

Most investors will discover only a few good ideas in any given year - maybe five or six, sometimes a few more. Investors who hold more than 20 stocks at a time are often buying shares of companies they don't know much about, and then diversifying away the risk by holding lots of different names. It is tough to stray very far from the average return when you hold that many stocks, unless you have wacky weightings like 10% of your portfolio in one stock and 2% in each of the other 45.

About 90% of the maximum benefit of diversification was derived from portfolios of 12 to 18 stocks. If you own about 12 to 18 stocks, you have obtained more than 90% of the benefits of diversification, assuming you own an equally weighted portfolio.

If you want to obtain a higher return than the markets, you increase your chances by being less diversified. At the same time, you also increase your risk.

If you own more than 18 stocks, you will have achieved almost full diversification, but now you will just have to keep track of more stocks in your portfolio for not much marginal benefit.

When you own too many companies, it becomes nearly impossible to know your companies really well. When you lose your focus and move outside your circle of competence, you lose your competitive advantage as an investor. Instead of playing with weak opponents for big stakes, you begin to become the weak opponent.

Non-Market Risk and a Concentrated Portfolio

Interestingly, holding a concentrated portfolio is not as risky as one may think. Just holding two stocks instead of one eliminates 46% of your unsystematic risk. Using a twist on the 80/20 rule of thumb, holding only eight stocks will eliminate about 81% of your diversifiable risk.

Unsystematic Risk and the Number of Stocks in a Portfolio

Number of Stocks   Non-Market Risk Eliminated (%)
1======== 0%
2 ========46%
4 ========72%
8 ========81%
16======= 93%
32======= 96%
500====== 99%
9,000==== 100%

What about range of returns?

Joel Greenblatt in his book You Can Be a Stock Market Genius explains that during one period that he examined,

• the average return of the stock market was about 10% and
• statistically, the one-year range of returns for a market portfolio (holding scores of stocks) in this period was between negative 8% and positive 28% about two-thirds of the time.
• That means that one-third of the time, the returns fell outside this 36-point range.

Greenblatt noted that if your portfolio is limited to only :

• 5 stocks, the expected return remains 10%, but your one-year range expands to between negative 11% and positive 31% about two-thirds of the time.
• 8 stocks, the range is between negative 10% and positive 30%.

In other words, it takes fewer stocks to diversify a portfolio than one might intuitively think.

Portfolio Weighting

In addition to knowing how many stocks to own in your portfolio and which stocks to buy, the percentage of your portfolio occupied by each stock is just as important.   Unfortunately, the science and academics behind this important topic are scarce, and therefore, portfolio weighting is, again, more art than science.

The great money managers have a knack for having a great percentage of their money in stocks that do well and a lesser amount in their bad picks.  So how do they do it?

Essentially, a portfolio should be weighted in direct proportion to how much confidence you have in each pick.  If you have a lot of confidence in the long-term outlook and the valuation of a stock, then it should be weighted more heavily than a stock you may be taking a flier on.

If a stock has

• a 10% weighting in your portfolio, then a 20% change in its price will move your overall portfolio 2%.
• a 3% weighting, a 20% change has only a 0.6% effect on your portfolio.

Weight your portfolio wisely.  Don't be afraid to have some big weightings, but be certain that the highest-weighted stocks are the ones you feel the most confident about.  And, of course, don't go off the deep end by having, for example, 50% of your portfolio in a single stock.



Portfolio Turnover

If you follow the fat-pitch method, you won't trade very often.  Wide-moat companies selling at a discount are rare, so when you find one, you should pounce.  Over the years, a wide-moat company will generate returns on capital higher than its cost of capital, creating value for shareholders.  This shareholder value translates into a higher stock price over time.

If you sell after making a small profit, you might not get another chance to buy the stock, or a similar high-quality stock, for a long time.  For this reason, it's irrational to quickly move in and out of wide-moat stocks and incur capital gains taxes and transaction costs.  Your results, after taxes and trading expenses, likely won't be any better and may be worse.  That's why many of the great long-term investors display low turnover in their portfolios.  They've learned to let their winners run and to think like owners, not traders.



Circle of Competence and Sector Concentration

If you are investing within your circle of competence, then your stock selections will gravitate toward certain sectors and investment styles. 

Maybe you:

• work in the medical field and thus are familiar with and own a number of pharmaceutical and biotechnology stocks, or,
• you've been educated in the Warren Buffett school of investing and cling to entrenched, easy-to-understand businesses such as Coca-Cola and Wrigley.

Following the fat-pitch strategy, you will naturally be overweight in some areas you know well and have found an abundance of good businesses.  Likewise, you may avoid other areas where you don't know much or find it difficult to locate good businesses.

However, if all your stocks are in one sector, you may want to think about the effects that could have on your portfolio.  For instance, you probably wouldn't want all of your investments to be in unattractive areas such as the airline or auto industry.



Adding Mututal Funds to a Stock Portfolio

In-the-know investors buy stocks.  Those less-in-the-know, or those who choose to know less, own mutual funds. 

But investing doesn't have to be a choice between investing directly in stocks or indirectly through mutual funds.  Investors can - and many should - do both.  The trick is determining how your portfolio can benefit most from each type of investment.  Figuring out your appropriate stock/fund mix is up to you.

Begin by looking for gaps in your portfolio and circle of competence. 

• Do you have any foreign exposure?
• Do your assets cluster in particualr sectors or style-box positions?

Consider investing in mutual funds to gain exposure to countries and sectors that your portfolio currently lacks.

Some funds invest in micro-caps, others invest around the globe, still others focus on markets, such as real estate.  Stock investors who turn over some of their dollars to an expert in these areas gain exposure to new opportunities without having to learn a whole new set of analytical skills.

Ultimately, your choice depends on your circle of competence and comfort level.  While many may feel comfortable with picking their own international stocks, others may prefer to own an international equity fund.



Our Objective

Modern Portfolio Theory has been built on the assumption that you can't beat the stock market. If you can't beat the market porfolio, then the best you can do is to match the market's performance. Therefore, academic theory revolves around how to build the most efficient portfolio to match the market.

We have taken a different approach.  Our objective is to outperform the market.  Therefore, we believe that our odds increase by holding (not actively trading) relatively concentrated portfolios of between 12 and 20 great companies purchased with a margin of safety.  The circle of competence will be unique to every person; therefore, your stock portfolio will naturally have sector, style, and country biases.  If lacking in any area, such as international stocks, a good mutual fund can be used to balance your overall portfolio.

How to construct a stock portfolio – do’s & don’ts

How to construct a stock portfolio – do’s & don’ts
Thu Jun 4, 2009 1:33pm

 

Constructing and managing a stock portfolio is hard. Just ask any professional fund manager. So, what should retail investors keep in mind when it comes to their stock portfolio?

First of all, retail investors must recognize that they are competing against the pros. Therefore, you should not do this if you do not have the time or resources to match the research and analytics done by the pros.

Secondly, you must have an investing philosophy that guides you irrespective of the prevailing market conditions. Recognize whether

• you are a day trader, punting on every rumour that you come across, or
• if you are a value investor who buys and holds for at least a minimum of 4-5 years.

If you stick to your investment philosophy then you will be disciplined to look at investment opportunities in a consistent way.

Thirdly, understand your risk profile. Are you risk averse? Or are you willing to take on extra risk in order to earn higher returns? High returns aren’t possible without taking on additional risk, and you might not be comfortable with too much risk. Your portfolio should match your risk profile.

Finally, what are you doing towards risk management? This is where the pros really stand out because they understand that managing a portfolio is all about risk management on a daily basis.

• When the price moves higher or lower than your expectation, do you buy more or do you start selling?
• Do you recognize that your exposure to one sector or stock might have gone up or down a lot due to market price changes?

Here are some steps that retail investors must take when constructing a stock portfolio?

1) Diversify: Just buying stocks in 1 or 2 companies is not enough. You could be taking on too much risk through a concentrated portfolio, akin to putting all your eggs in one basket. Ideally, your portfolio should have no more than 20-25 names. However, this also does not mean that you can have just say 5 shares of one company and 2 shares of another, because that is all you can afford because you can’t create wealth through just purchasing a handful of shares in a company.

2) Review Your Exposure Frequently: While one investment strategy is to buy and hold, that does not imply that you do not manage your exposure by ignoring your portfolio. Market prices move, sometimes dramatically. As a result, you might have too much or too little exposure to one sector or stock. Get into the discipline of reviewing your exposure regularly, especially during dramatic market movements.

3) Create your own set of rules to guide you: Formulate your own rules for when to buy or sell a stock. Don’t just follow the herd or come under peer pressure. What is good for others might not be suitable for you or your portfolio because your risk, investment criteria, tax situation and entry price might be different.

4)Keep some cash available: Again this is one area where the pros stand out. They recognize that good investment opportunities come unannounced, but in order to take advantage of them they need to have cash available to make these investments. So make sure that you keep some cash available in your portfolio to pounce on these ideas.

If the above sounds challenging and tough for you to follow, then a do-it-yourself portfolio management is not recommended. As an alternative you might be better off investing in the markets through mutual funds, where you can take advantage of the resources and risk management skills of the pros, rather than compete against them.

http://in.reuters.com/article/personalFinance/idINIndia-40066820090604?sp=true

Reviewing my Sell Transactions

http://spreadsheets.google.com/pub?key=t0sOF20dGoiu6n90X-XiAfA&output=html


Reasons for selling:

1. When cash is needed urgently for emergencies. Hopefully you will have cash kept aside for such contingencies.
2. When the fundamentals of the company has deteriorated. The stock should be sold urgently.
3. When the share is deemed overpriced, reducing its upside potential and increasing its downside risk.
4. To switch a stock to another stock with better upside potential and lower downside risk.

How You Can Tailor-Make a Winning Portfolio

How You Can Tailor-Make a Winning Portfolio
By Dan Caplinger March 25, 2009

Anybody can throw a bunch of investments together and call it a portfolio. It takes a lot more, however, to find a select group of promising prospects that fit well with your temperament, your time horizon, and your particular financial goals.

Too often, investors don't think about their investment portfolio as a single unit. Instead, they grab shares of various stocks and funds willy-nilly, based solely on their individual characteristics -- never thinking of a new stock's impact on the holdings they already own.

Make the right portfolio
In this month's brand-new issue of Motley Fool Champion Funds -- which goes live this afternoon at 4 p.m. EDT -- Foolish fund expert Amanda Kish takes a look at this question from a unique angle. Part of what Amanda's newsletter offers subscribers every month are three model portfolios, each of which represents a blend of some of the funds that the service has recommended over the years.

But of course, unless you're just getting started with your investing, you'll probably already have some stocks and funds to bring to the mix. In addition, even if you have cash available, you may not have access to buy the exact funds you want -- especially if you have to choose from a fixed menu of investment options, as many workers must in their 401(k) plans.

Given those limitations, what's the best way to choose investments in a way that will complement your existing portfolio rather than create problems?

Watch out for the concentration trap
With individual stocks, problems often come from haphazardly choosing promising companies that aren't well diversified. For instance, here's an extreme example of stocks you might have been tempted to add to your portfolio based on these news items from early last year:

• With the discovery of a massive oil field off the cost of Brazil, Petroleo Brasileiro (NYSE: PBR) found itself fortuitously positioned to take maximum advantage of the news.
• The red-hot Haynesville shale play brought quick profits to natural gas players like Petrohawk Energy (NYSE: HK) and Chesapeake Energy (NYSE: CHK).
• Demand for fertilizer rose much faster than supply, giving industry players like Potash Corp. (NYSE: POT) and Mosaic (NYSE: MOS) great returns during the first six months of 2008.
• Early in 2008, heavy demand for industrial metals from China and other development-hungry economies bolstered prospects for copper producers like Southern Copper (NYSE: PCU) and Freeport-McMoRan (NYSE: FCX) -- and with China's economy forecast to grow strongly, the end seemed far away.

Clearly, if you'd acted on those temptations, you would've owned a portfolio that was way overweighted in energy and commodities stocks -- stocks that came crashing down during the latter half of the year.

Dealing with funds
With mutual funds, there are a bunch of things to keep in mind when tailoring a fund portfolio for your particular wants and needs. For instance:

• If you have a strong relationship with a particular fund company, you might want to use their offerings in particular asset classes rather than mixing and matching across different fund companies.
• Even within broad categories like large-cap value or small-cap growth, you'll find dozens of different strategies. Some may appeal to you more than others, even if all of them have been equally successful at creating gains over the long haul.

Champion Funds gives portfolio recommendations for conservative, moderate, and aggressive investors. But if you find yourself halfway between two of those categories, then an easy way to split the difference may be to add another fund.

In this month's newsletter, Amanda goes through these and other reasons you may have for making switches -- and gives you a useful set of tools to help you evaluate whether a particular fund you may have in mind is the right one to keep your overall portfolio strong. And with dozens of different fund recommendations to choose from, Champion Funds subscribers don't have any shortage of great funds to plug into their overall investment strategy.

Putting together a tailor-made portfolio will take some work, but the rewards will last a lifetime.

For more on winning investment strategies, read about:
Yes, you can defend your portfolio from losses.
Will 7% returns really make you happy.
Want to retire? You need options.

Fool contributor Dan Caplinger is constantly making adjustments to his portfolio. He owns shares of Freeport McMoRan and Chesapeake Energy. Petroleo Brasileiro is a Motley Fool Income Investor pick. Chesapeake Energy is a Motley Fool Inside Value recommendation.

http://www.fool.com/investing/mutual-funds/2009/03/25/how-you-can-tailor-make-a-winning-portfolio.aspx

50%-50% versus 80%-20% portfolio blend of stocks and bonds

It's all in the mix
How to invest well and sleep better, in good markets or bad

By Jonathan Burton, MarketWatch
Last update: 6:37 p.m. EST Nov. 18, 2008
Comments: 58

SAN FRANCISCO (MarketWatch) -- In this devastated market, "risk tolerance" is an oxymoron. Those little tests the online investing sites give you to assess how much risk you can handle in your investments don't do justice to the kind of crash we're living through.

Most of us can't stomach 40% free falls in our fortunes and we certainly can't -- or don't want to -- suffer a shellacking like the one we had in October and then watch what's left trickle away.


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You don't have to.

This may be too late for many investors who have already seen their stock-heavy nest eggs scrambled, but some research and simple number-crunching indicates you can keep less money invested in stocks than conventional wisdom would have you believe -- without giving up your retirement goals and with a lot less risk.

Indeed, a portfolio that mixes 50% stocks and 50% super-safe long-term Treasury bonds has performed almost as well over the past two decades as a portfolio that carries an 80%-20% blend of stocks and bonds. And if you're the guy holding the first portfolio, you're probably sleeping a lot better these days than the other fellow.

"If your goal is to be very confident about having a certain amount of money at a point in time, lower-risk portfolios are actually a cheaper way to get there than a higher-risk portfolio," says Christopher Jones, of Financial Engines, an investment advisory firm.

If you, like many investors, have bailed out of stocks this year, you have, unfortunately, sold into the collapsing market and locked in your losses. But who could blame you? Most people can't handle the pain this market is inflicting. And the losses are worse because people nearing retirement often end up with way too much of their portfolios in stocks as they try to goose growth in their twilight working years.

The typical investor's thinking goes something like this: Stocks over time outperform both bonds and cash. So without a high allocation to stocks, you'll fall short of your financial goal, inflation will ravage your portfolio and your golden years will be tarnished as your money runs out before you do.

Big problem: The 80% or 70% stock portfolio that served you well in your 20s or 30s bites back in your 50s and 60s, when a crash erases years of growth in just a few weeks or months.

Start with a balance

There has to be a better, more automatic way to build wealth without constantly refiguring your investment mix. There is. Forget the stock-heavy plan and start with an equal balance of stocks and bonds.

Let's look at what happens when you ratchet down stocks early to a less volatile level: We asked investment researcher Morningstar to calculate your investment results if at the end of October 1987 -- a really frightening moment, right after the big crash that year -- you had put 50% of your money in a low-cost fund that mimicked the Dow Jones Industrial Average ($INDU:
Dow Jones Industrial Average) and 50% in a vehicle that mirrored long-term Treasurys.
Nowadays that could be accomplished at a low cost using the Dow "Diamonds" exchange-traded fund (DIA: Dow Diamonds ETF) and iShares Lehman 20+ Year Treasury Bond ETF (TLT:
iShares:Lehm 20+ Trs) . Over the decades, you would keep the allocation constant through annual rebalancing and would reinvest all stock dividends and bond income.

'Good enough' returns

The plan is to smooth your investment performance, accepting lesser short-term gains in exchange for milder, and less worrisome, short-term declines.

In this most recent 21-year example, by October of this year a 50%-50% portfolio would have averaged a 10% annual return and you would have insulated yourself from a significant portion of the market's day-to-day risk. Your best quarterly performance? A 13.8% gain in the value of your portfolio. Your worst? A 9.1% loss.

By comparison, a portfolio of 80% stocks and 20% Treasurys would have been exposed to considerably more market risk, but your return would average just a slightly better 10.3% a year. Your best quarterly performance would have been an increase of 17.6% in your portfolio while your worst would have been a 14.2% loss.

In the current bear market, the 50%-50% portfolio would be down about 14.6% from the October 2007 market peak through the end of last month, while the 80%-20% portfolio would be down 24.8%.

Over the 21-year period, the 50%-50% portfolio would have achieved 95% of the total dollar return of the 80%-20% mix, with substantially lower risk, a steadier performance and, for you, many fewer sleepless nights.

Not much difference

Make no mistake. The 50%-50% portfolio will leave you poorer than the riskier blend. But the difference isn't that substantial.

Had you put $25,000 into the 80%-20% split in 1987 and never invested another dime, the money would have grown to about $196,000. That same amount in the 50%-50% blend would be worth around $185,000.

The strategy holds up if you dollar-cost average, too, and invest a little at a time over the years. Add $100 a month, and $25,000 grows to $261,621 in the 80%-20% portfolio and $251,732 in the 50%-50% mix.

And even if you eliminate the market's horrendous decline over the past year from the calculations, the conservative plan still performs admirably. At the market's peak in October 2007, the 80%-20% portfolio would have been worth $261,109, while the 50%-50% split would have grown over that 20-year period to $217,222, capturing 83% of the more aggressive approach's return, but with far fewer bumps.

Of course in bull markets, you won't make as much with a 50%-50% portfolio. You'll give up bragging rights. But you also won't feel the raw fear that others do during the inevitable downturns. That should be worth a few thousand dollars right there.

Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.

http://www.marketwatch.com/news/story/how-invest-well-sleep-better/story.aspx?guid=%7BA27C214B%2DE1CE%2D4990%2D907C%2D67D1338851AC%7D#comments

Portfolio Management - Defensive & Offensive strategies

Strategies for maintaining your portfolio as advocated by Better Investing is simple and can be followed. You sell your shares if you:

1) need cash for emergencies

2) defensive management of your portfolio when a stock's fundamental has turned bad, and

3) offensive management of your portfolio to maximise/optimise returns.


_______________________________________


http://biwiki.editme.com/portfoliodesignandphilosophy

_______________________________________

Investment Policies (Based on Benjamin Graham)

Summary of Investment Policies

A. INVESTMENT FOR FIXED INCOME:
US Savings Bonds (FDs or Amanah Sahams for Malaysians)

B. INVESTMENT FOR INCOME, MODERATE LONG-TERM APPRECIATION AND PROTECTION AGAINST INFLATION:
(1) INVESTMENT FUNDS bought at reasonable price.
(2) Diversified list of primary common stocks (BLUE CHIPS) bought at reasonable price.

C. INVESTMENT CHIEFLY FOR PROFIT: 4 approaches are open to both the small and the large investors:
(1) Representative common stocks bought when the MARKET level is clearly LOW.
(2) GROWTH STOCKS, when these can be obtained at reasonable prices in relation to actual accomplishment – GROWTH INVESTING.
(3) Purchase of securities selling well BELOW INTRINSIC VALUE – VALUE INVESTING.
(4) Purchase of WELL-SECURED PRIVILEGED SENIOR ISSUES (bonds and preferred shares).
(5) SPECIAL SITUATIONS: Mergers, arbitrages, cash pay-outs.

D. SPECULATION:
(1) Buying stock in new or virtually new ventures (IPOs) .
(2) TRADING in the market.
(3) Purchase of "GROWTH STOCKS" at GENEROUS PRICES.


_______________


For DEFENSIVE INVESTORS: Portfolio A & B
(Portfolio A: Cash, FDs, Bonds Portfolio B: Mutual funds, Blue chips)

For ENTERPRISING INVESTORS: Portfolio A & B & C
(Portfolio C: Buy in Low Market, Buy Growth stocks at fair value, Buy value stocks i.e. bargains, High grade bonds and preferred shares, Arbitrages)

For SPECULATORS: Portfolio D
(Should set aside a sum for this separate from their money in investing.)

________________
________________


Types of Investors

Graham felt that individual investors fell into two camps : "defensive" investors and "aggressive" or "enterprising" investors.

These two groups are distinguished not by the amount of risk they are willing to take, but rather by the amount of "intelligent effort" they are "willing and able to bring to bear on the task."

Thus, for instance, he included in the defensive investor category professionals (his example--a doctor) unable to devote much time to the process and young investors (his example--a sharp young executive interested in finance) who are as-yet unfamiliar and inexperienced with investing.

Graham felt that the defensive investor should confine his holdings to the shares of important companies with a long record of profitable operations and that are in strong financial condition. By "important," he meant one of substantial size and with a leading position in the industry, ranking among the first quarter or first third in size within its industry group.

Aggressive investors, Graham felt, could expand their universe substantially, but purchases should be attractively priced as established by intelligent analysis. He also suggested that aggressive investors avoid new issues.


Read also:
Are You an Intelligent Investor?

http://www.investinvalue.com/0/styles.php
(Check out the table in this site for rules for defensive versus enterprising investors.)