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Posted by BGFan on March 1, 2008, 3:34 pm
I have read Intelligent Investor by Benjamin Graham.
One more thing (other than my earlier Q about selling),
I am not so clear about is what kind of diversification in the
equity part of your portfolio does BG recommed?
I got mixed messages.in the book. At one place, I felt
that he didn't recommend too much diversification - i.e
hold a max of 5-6 stocks only in your portfolio. At other
places he seemed to recommend 20 odd stocks. Another
confusing thing is that I seem to lose track of what was
BG's recommendation & what was Jason Zweig's?
(the chap who wrote the notes at the end of each chapter)
Does someone have an answer?
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Posted by dapperdobbs on March 2, 2008, 12:33 am
...> One more thing (other than my earlier Q about selling),
> I am not so clear about is what kind of diversification in the
> equity part of your portfolio does BG recommed? ...
Decent question - BG's focus is on analysis of companies. I prefer the
1964 edition "Security Analysis" over the later revision "The
Intelligent Investor." On page 55 of my preferred he points to the
high safety of T-Bills (and consequently little need for
diversification) as opposed to lower safety and thus a "prudent"
requirement consistent with margin of safety. He also makes the point
that highly reliable information reduces the need for diversification,
and that many fortunes have been concentrated in the stock of only one
company. The entire chapter 4 "Investment and Speculation" speaks to
the limitations of analysis, the advisability of analysis, and the
assurances of safety pursuant thereunto. :-)
Your ballpark numbers of 5 to 20 stocks sounds familiar, and generally
practical, since one is subject to work limitations in trying to keep
track of more than 20 or 30 companies with any degree of accuracy.
I'll look through my 1973 4th revised edition of "TII" and see if I
can find anything else. Btw, I didn't see any notes by Jason Zweig - I
thought it was Marty Zweig who is well-known as a writer on Wall
Street in any event. Which edition do you have?
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Posted by Will Trice on March 2, 2008, 12:38 pm
BGFan wrote:
> I have read Intelligent Investor by Benjamin Graham.
> One more thing (other than my earlier Q about selling),
> I am not so clear about is what kind of diversification in the
> equity part of your portfolio does BG recommed?
> I got mixed messages.in the book. At one place, I felt
> that he didn't recommend too much diversification - i.e
> hold a max of 5-6 stocks only in your portfolio. At other
> places he seemed to recommend 20 odd stocks.
In _Security Analysis_, the textbook that Graham wrote with David Dodd,
diversification is seemingly given somewhat short shrift. The book even
seems to derisively imply that diversification has come to replace
quality as the dominant factor in security selection.
However, Graham's popular investing book, _The Intelligent Investor_,
emphasizes diversification for the individual. Graham explicitly
recommends that the defensive investor hold between 10 and 30 stocks in
the equity portion of the investor's portfolio. However, he later
mentions that an investor should have at least 20 stocks to achieve a
portfolio margin of safety.
Interestingly, Graham implies that the enterprising investor should have
at least 100 stocks to be widely diversified, unless that investor is
the rare bird who can dependably pick winning issues, like Warren
Buffett. However, Buffett describes a 100+ stock portfolio as
"diversified enormously" in his appendix to Jason Zweig's revision of
the Fourth Edition of _The Intelligent Investor_, and eschews
diversification in general.
-Will
william dot trice at ngc dot com
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Posted by on March 3, 2008, 8:38 pm
> In _Security Analysis_, the textbook that Graham wrote with David
> Dodd, diversification is seemingly given somewhat short shrift. The
> book even seems to derisively imply that diversification has come to
> replace quality as the dominant factor in security selection.
Twain apparently said, and Buffett apparently quoted him in saying
it this way:
Behold the fool saith, "Put not all thine eggs in the one
basket"--which is but a manner of saying, "scatter your money and your
attention," but the wise man saith, "Put all your eggs in the one
basket and WATCH THAT BASKET."
Buffett also said "Diversification is protection against ignorance."
I'm not sure it was meant all that derisively, though. He's also
made it clear that those who don't have the time or energy or
ability (and he considers his stock picking/managing ability to
be a gift just like athletic ability) - he's made it clear that
most folks would do a lot better just buying an index than
messing around. (several of his letters to investors, as well
as in a speech he gave last year at the Berky annual meeting -
google for "Buffett Index Funds")
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Posted by Will Trice on March 4, 2008, 6:37 pm
BreadWithSpam@fractious.net wrote:
> Buffett also said "Diversification is protection against ignorance."
>
> I'm not sure it was meant all that derisively, though. He's also
> made it clear that those who don't have the time or energy or
> ability (and he considers his stock picking/managing ability to
> be a gift just like athletic ability) - he's made it clear that
> most folks would do a lot better just buying an index than
> messing around. (several of his letters to investors, as well
> as in a speech he gave last year at the Berky annual meeting -
> google for "Buffett Index Funds")
Sorry, I didn't mean to imply that Buffett was derisive about
diversification, I was referring to _Security Analysis_. In fact, in
his appendix to _The Intelligent Investor_, Buffett lauds the investment
records of some of those he describes as "diversified enormously."
-Will
william dot trice at ngc dot com
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