The rascal/philosopher Alan Watts gained notoriety for popularizing Eastern ideas in the Western world. He thought of himself as an entertainer, but do not mistake levity with insincerity. Watts describes is the difference between the East and the West in their identifications with the Passive and the Active. This is similar to the dichotomy of … Read more
Most investors are novices and make many mistakes. Drawdowns, high fees and expense ratios, and improper diversification are all common problems they face. Advisors should be hired only if they are proficient and conservative. A lot of bad advice is given for free. Investors should expect to pay a fee, but the advisor should never … Read more
Investment funds are vehicles provide a convenient means for saving and investment, and potentially protecting investors from themselves. But the investor should expect no more than average results. But beware of high fees, excessive trading, and erratic fluctuations in performance. Be wary of outperformance, it may indicate speculative behavior on the portfolio. The defensive investor … Read more
Mr. Market is the analogy given for the market. Imagine that you co-owned a company with Mr. Market, a man who, each day whether he is a good mood or in a bad mood, will buy or sell his shares in the company. The analogy is to make the point that irrational investment is a … Read more
An enterprising investor wants to achieve a higher than average rate of return. There are 4 ways in which this type of investor can go beyond the defensive investor. . Buying in low priced markets and selling in high priced markets, buying growth stocks, buying bargain issues, and buying “special situations”. The enterprising investor can … Read more
Unless lower rated bonds and preferred stock have a huge upside, enterprising investors should avoid them. Lowe rated securities usually collapse in adverse markets. It is good to avoid foreign bonds. But ETF’s have mitigated for this problem, so do mutual funds that specialize in foreign bonds and lower-rated securities.
As long as the stock is not overpriced, buying them could protect against inflation and offer a higher return than bonds or cash in the long run. Four rules for the defensive investor. Adequate diversification (between 10 and 30 issues) Large, outstanding, conservative companies (top 30 percent of industry) Each company should have 20 years … Read more
The conventional wisdom is that the investor should match the amount they risk with their risk tolerance. But Graham says that the amount of risk that is taken should depend instead on the amount of intelligent effort the investor is willing and capable of expending and doesn’t depend on age either. The defensive/passive investor should … Read more
It is important to learn about the history of the stock market, so that you understand how stock prices are related to earnings, cash flow, and dividends. The price of a stock changes, according to real growth (company’s earnings and dividends), inflationary growth, and the amount of speculation (up or down). The PE 10 ratio, … Read more
Inflation is an investment concern because it depletes real wealth, and the purchasing power of profits and principal. Fixed income securities are usually most hard hit. The benefit of equity investments is that dividends and capital gains can make up for lost purchasing power – especially when compared with a bond that has a fixed … Read more