1) Aggressive vs. Defensive:
2) Understanding Mr. Market
Benjamin Graham introduces an intriguing concept in his book: the metaphorical figure of Mr. Market, representing the stock market itself. Imagine yourself as a business owner with Mr. Market as your partner. He regularly visits your doorstep, offering to buy or sell businesses at varying prices. What makes Mr. Market intriguing is his emotional disposition; sometimes he overvalues, offering more than a business's intrinsic worth, while at other times, he undervalues, offering less than its true value.
For instance, if your business's intrinsic value is 1000 rupees, Mr. Market might offer 2000 when he's upbeat, or only 500 when he's downcast. However, crucially, Mr. Market never coerces; he merely presents opportunities. Graham advises intelligent investors to capitalize on Mr. Market's fluctuations: buy when he undervalues a business and sell when he overvalues it.
3) Defensive Investors
These investors, also known as passive investors, engage in minimal trading. Benjamin Graham advocates for this approach, recognizing that many lack the time for extensive research needed for active trading. Hence, I echo his recommendation for you to embrace a defensive stance, emphasizing long-term, low-risk strategies.
To excel as a defensive investor, adopt these nine fundamentals:
First, maintain a balanced portfolio by dividing your investments 50-50 between stocks and bonds/cash. For example, if you have 1000 rupees to invest, allocate 500 to stocks and keep 500 in bonds, cash, or other investment options. Regularly rebalance your portfolio to maintain this ratio, adjusting it on a specific interval, such as at the start of each month when you receive your salary. This practice, known as Dollar Cost Averaging, reduces the risk associated with market fluctuations.
Here is a brief overview of the remaining eight fundamentals that defensive investors must focus on.
No.1) Diversification
Means invest in 10 to 20 companies that to in
different-different industries.
no.2) Large companies
invest in big companies which are established from several
years.
no.3) Conservatively financed
invest in companies which are conservatively financed whose
current ratio should be 200 percent
companies whose assets should be mora than its liabilities.
4) the Dividend History:
invest on companies which are giving dividend continuously
from 10-20 years.
5) Earning History:
Invest on companies which did not had
earning deficit from last 10-20 years.
6) Growth.
invest in companies which are growing with 3 percent every
year from 10 years.
7) cheap assets
invest in companies whose stock price should not more than
1.5 percent times from its Net Asset value.
8) Cheap Earning-
don't give much money for earning means whose P.E ratio is
less than 15 for last one year buy those.
Now many can find this very complicated hence there is an
easy alternative too, known as low risk mutual funds and index funds. if you can be happy with an average returns by
keeping your expectations low which is taught to us by Benjamin and Warren, then
these three points along with last point is important but still want to go to
high returns then 4th point will help you.
4) lesson
Enterprising Investors ,actually there
are three types of investors first- Defensive, second Aggressive about which
i've already discussed. and third type is Enterprising investors, it comes in
between defensive and aggressive.
Enterprising investors don't want an average returns like
Defensive investors ,nor they take risk on the basis of illogical speculations
like Aggressive investors. In fact they are the ones who do lot of research and
invest their lot of time and then do investment, they are actually very active
and hence usually they are the ones who able to beat the market by showing
amazing results, but the problem is to be such investors. there's a need of lot
of research and efforts and along with these two
there should be 4 more thing in such investors.
first: Patience second:Discipline third: Eagerness to learn
and 4th: lot of time
Normally people
fail to do this, hence Benjamin recommends its better to be a defensive
investor, if a person wants to be an enterprising investor then it can be done
through 4 activities.
first: Go against the market means to buy when others are
buying & when market is down and to sell when market is good and others are
buying, and this should be done by investing his minimum 25 percent to max 75
percent money compare to 50-50 percent ratio which Defensive investors do.
2nd- Buying Growth Stocks:
To buy a growth stocks an investor should buy a company
which is big but not popular.
3rd- buying bargain stocks:
Bargain stocks are those stocks which are sold in less than
its intrinsic value reason can be any try to get such companies which you get
in less amount but should be well established.
4th- by buying special cases
Here those small companies stocks will come which big
companies are going to acquired.
5) Margin of Safety
Suppose a ship writer wants to make a ship which should
handle 50 people's weight, now for this he won't create a ship which only
carries 50 people's weight, instead he will make that ship so strong that it
will be able to handle 50 or 100 people's weight, he will do that because by
that there will be a safety that ship won't sink. The consideration of this extra weight is
known as Margin of safety same thing even you should consider while investing. you
must be aware that the price of a stock in the stock market is not as same as
its real value, hence by keeping margin of safety in mind Benjamin recommends
not to give more than 2/3rd of its value. Look maximum people's problem is that
they buy 50 dollar value stock in 50 dollar only and expect that its price will
rise in future and it will benefit them, however an intelligent investor is who
keep margin of safety and buy that 50 dollar stock in 40 dollars and gets
profit immediately after buying it and don't need to be depend on the market.
These were the 5 big and important points from an amazing
book Intelligent investor.
Thank you so much
Have a nice day