Monday, February 10, 2020
Investment Strategy Business Research Paper Example | Topics and Well Written Essays - 1250 words
Investment Strategy Business - Research Paper Example GrahamÃ¢â¬â¢s investment strategy, as established in his now seminal text the Ã¢â¬ËIntelligent InvestorÃ¢â¬â¢, encourages a steady and conservative approach referred to as Ã¢â¬Ëdefensive investingÃ¢â¬â¢. This strategy is contrasted with Ã¢â¬Ëspeculative investing,Ã¢â¬â¢ an approach more closely linked to gambling. GrahamÃ¢â¬â¢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 GrahamÃ¢â¬â¢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 Ã¢â¬ËIntelligent InvestorÃ¢â¬â¢ are such that any sort of investor including an individual, hedge fund, or pension plan can adopt them. This is due to GrahamÃ¢â¬â¢s deep understanding of market vicissitudes that make this strategy not simply a s trategic 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 Ã¢â¬Ëspeculative investorsÃ¢â¬â¢. Graham states, Ã¢â¬Å"every nonprofessional who operates on margin should recognize ipso facto that he is speculatingÃ¢â¬ ¦everyone who buys a so-called Ã¢â¬Å"hotÃ¢â¬ common-stock issueÃ¢â¬ ¦is either speculating or gamblingÃ¢â¬ (Graham, pg. 21). ... Instead GrahamÃ¢â¬â¢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 investorÃ¢â¬â¢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 GrahamÃ¢â¬â ¢s strategy as articulated in the Ã¢â¬ËIntelligent InvestorÃ¢â¬â¢ functions as a comprehensive approach to portfolio management. Indeed, intrinsic to GrahamÃ¢â¬â¢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.