Benjamin Graham Defensive Investor
In “The Intelligent Investor” book, Benjamin Graham shared the complete roadmap to becoming a defensive investor.
Graham’s guide to becoming a defensive investor will help those new people, who are willing to invest in the stock market with proper safety and freedom from unnecessary botheration.
Especially, if you don’t have much time to analyze the market, you can choose this easy option.
Now, let’s try to understand, how is he guiding us.
Benjamin Graham’s Guide To Become A Defensive Investor
Benjamin Graham suggested that a defensive investor should divide his entire portfolio between high-quality bonds and leading common stocks (Or index funds).
The most straightforward ratio could be 50:50.
However, if you want, you can change this ratio a little, from time to time. But keep in mind, no one should be less than 25 percent and more than 75 percent.
For example, if you feel that the stock market is insanely high, you could choose to reduce the common stock’s ratio to 25 percent.
In the same way, if you feel that the prices have dropped enough and are now quite attractive to grab, you can increase the percentage maximum to 75.
What Should A Defensive Investor Expect From His Investments?
According to Benjamin Graham, in a steady market condition, a defensive stock investor should expect at least a 71/2 percent return per year from dividends and appreciation combined.
From this 71/2 percent, he could expect a dividend return between 31/2 to 41/2 percent.
On the other hand, the defensive investor could expect a 31/2 to 41/2 percent yearly return from his bonds’ investments.
On top of that, by making all these investments, a defensive investor could expect to protect the value of his money from high inflation.
Bonus Tips To A Defensive Investor
1. Common Trust Funds
Common trust funds or mutual funds could be a defensive investor’s best and easiest alternative if he wants to build a good common stock portfolio.
Especially, mutual funds could help those people who couldn’t give much time & effort to analyzing the market.
2. SIP or Dollar Cost Averaging Method
A defensive investor shouldn’t put all his money in just one shot. Nobody knows, how high and low the market will create.
Therefore, SIP or Dollar Cost Averaging is always a good idea to get rid of the market’s volatility.
It helps the investor to buy more stocks when the market is low and buy fewer stocks when the market is high.
Simply, a defensive investor should invest a certain amount of money at the interval of a certain amount of time. That time interval could be a month or a quarter.
Benjamin Graham shared the idea of the defensive investor based on the market condition between 1949 to 1965.
But, whatever, this idea is universal.
Anyone can apply it in his/her life, who is just starting out or wants to become a professional investor.
So, if you are new in the stock market, you could choose this option instead of going for day trading or irrational speculation.