Q&A: The Intelligent Investor – Chapter 4: General Portfolio Policy: The Defensive Investor

Below are my reflections and answers to the discussion questions posted at Modern Graham for chapter 4 – General Portfolio Policy: The Defensive Investor – of the Intelligent Investor written by Benjamin Graham.

The Intelligent Investor

1. What quote from this chapter do you think best summarizes the point Graham is making?

“It has been an old and sound principle that those who cannot afford to take risks should be content with a relatively low return on their invested funds. From this there has developed the general notion that 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. Our view is different. The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task. The minimum return goes to our passive 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.”

2. What is your portfolio’s allocation between stocks and bonds right now?

100 percent stocks.

3. What methods have you used for determining your allocation between stocks and bonds?

Graham’s framework for the enterprising investor and then also Zweig’s tests to the question “But is putting all your money into the stock market inadvisable for everyone?”

4. Graham explains several types of bonds, which bond do you prefer and why?

Neither of them. Right now I prefer stocks.

5. If you have the newer edition with Jason Zweig’s commentary, Zweig departs from Graham’s advice to never have more than 75% of your investments in stocks and instead states that some investors may be well served by having 100% in stocks (see the box on page 105).  What do you think of this idea?

I think that the approach sounds reasonable for someone that can honestly pass the tests laid out by Zweig.

6. What did you think of the chapter overall?

I like Graham’s distinction between risk and return. Still today, most people or at least the ones who makes their voice heard tend to connect returns to risks taken. I prefer to buy great companies at a fair or even cheap price. That to me is a low and acceptable risk coupled with the opportunity to get a satisfactory return.


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