The Defensive Investor vs. The Enterprising Investor

 

Benjamin Graham’s The Intelligent Investor is a foundational text on value investing, emphasizing the importance of rational decision-making, long-term thinking, and risk management in building wealth through the stock and bond markets. Benjamin Graham’s distinguishes between the Defensive Investor and the Enterprising Investor.

The Defensive Investor seeks to achieve satisfactory returns with minimal effort. The Defensive Investor is not interested in poring over balance sheets or actively managing a portfolio. For the Defensive Investor, Graham recommends a simple, disciplined approach—such as allocating funds between high-grade bonds and a diversified portfolio of reliable, established stocks. For the Defensive Investor, the goal is stability and protection from major losses, not out-performance. Graham advises periodic re-balancing and refraining from market timing.

In contrast, the Enterprising Investor is willing to put in substantial time, research, and emotional discipline to achieve better-than-average returns. The Enterprising Investor conducts extensive analysis to identify securities that are undervalued due to market overreactions or neglect. Graham lays out strategies for identifying undervalued securities in The Intelligent Investor and his other text Security Analysis. Graham cautions that success as an Enterprising Investor is far from guaranteed and requires accounting knowledge, independence of mind, and emotional resilience to withstand market volatility.

Graham does not argue that either investing style is superior. Graham stresses that investors must honestly assess their own capabilities, time available for researching investments, and emotional resilience when choosing a strategy.

1. Graham, Benjamin. The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel. Revised ed., commentary by Jason Zweig, Harper Business, 2006.

2. Graham, Benjamin, and David L. Dodd. Security Analysis. 6th ed., edited by Seth Klarman, McGraw-Hill, 2009.

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