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Investment Strategy Business - Research Paper Example

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Investment Strategy The recent economic recession completely changed the economic landscape. For many, the significant economic fall-out and unemployment rates were the worst they had ever experienced. These drastic changes have left investors questioning the proper strategic approach…
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Investment Strategy Business Research Paper
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Download file to see previous pages Graham’s investment strategy, as established in his now seminal text the ‘Intelligent Investor’, encourages a steady and conservative approach referred to as ‘defensive investing’. This strategy is contrasted with ‘speculative investing,’ an approach more closely linked to gambling. Graham’s strategy has lasted the test of time and drawn positive attention from billionaire investor Warren Buffet who claims it is the best investing text ever written. This essay examines Graham’s strategy in this text through an analysis of investment objectives, asset allocation, security selection process, and whether I would implement this strategy. Objectives The strategies articulated in the ‘Intelligent Investor’ are such that any sort of investor including an individual, hedge fund, or pension plan can adopt them. This is due to Graham’s deep understanding of market vicissitudes that make this strategy not simply a strategic angle on the market, but virtually the only safe approach to investment. In these regards, the only investors that this approach is not targeted for are what Graham terms ‘speculative investors’. Graham states, “every nonprofessional who operates on margin should recognize ipso facto that he is speculating…everyone who buys a so-called “hot” common-stock issue…is either speculating or gambling” (Graham, pg. 21). ...
Instead Graham’s encourages a steady and conservative approach, the returns of which will be determined by the specific market conditions of the era. Graham indicates that strategic approaches that guarantee a specific return may be successful for a period, but in the long run have consistently proved ineffective. In terms of risk, Graham indicates that risk should be determined by the investor’s specific goals. For Graham risk is largely measured in the allocation of common stocks vs. bonds. Rather than implementing a time limit, Graham instead considers that risk and return are most concentrated in common stocks and as such they necessitate longer time horizons. One such example Graham gives is that a couple that are saving to buy a home would be better served consolidating their portfolio in bonds as this are safe and easily accessible; conversely, an individual with a longer time horizon should have a higher percentage of common stock. Asset Allocation Graham’s strategy as articulated in the ‘Intelligent Investor’ functions as a comprehensive approach to portfolio management. Indeed, intrinsic to Graham’s strategy is the mitigation of risk through the successful allocation of bonds and common stocks. There are a number of considerations within this mode of understanding. In regards to precious metals, Graham recommends a relatively small allocation of such securities, indicating 2-3% of a portfolio should be dedicated to them. In terms of determining the percentage of bonds vs. stocks in the portfolio Graham provides a variety of options. Graham begins in considering a base percentage differential of 50% bonds and 50% stocks. ...Download file to see next pagesRead More
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