Do you know what is investing, and why should it be done? It’s surprising, but not that many people actually understand what investing entails. Sure, they might of heard about investing, but most people do not know how it is done. Even less actually do it themselves. There are even people who do invest, but they don’t really know what they are doing.
Defensive investors on therefore, are those who take the safety first approach, always making sure their investments are safe, yet still looking for good returns.
So now we know what investing is, we need to choose a style. Going back to Benjamin Graham’s book, there are two major types of investing styles.
Aggressive investors are the ones who try for the highest possible returns, while also trying to make sure that their investments are going to be relatively secure.
To learn about investing, look no further than the world’s richest investor: Warren Buffet.
In Benjamin Graham’s respected book, The Intelligent Investor, Mr. Buffet says that there is a big difference between speculating and investing. According to him, investing is when the gamble is carried out with enough personal analysis that the person investing can be certain that he or she will receive an adequate return. For every investment that was not thought through and does not offer a likely promise of good returns, this can be termed “speculation”.
So, in order to be a good investor, according to Mr. Buffet, you need to take time to research anything you are thinking of investing in, and ensure that you find not only good evidence that you will get returns on that investment, but also make sure that the protection from risk is strong.
It would seem that many of the world’s investors are really not investors after all. Consider the spectacular economic downfall just a few years ago (which we are even now suffering from). Lots of the people who lost money then thought they were investors, but circumstances have shown that they were in fact speculators.
Now then, most investors do not fit into this mould, but rather, they fit somewhere between the two. For example, Graham suggests that an investment cut between 25 percent to 75 percent in bond investments and common shares is a very safe defensive investment. A 50-50 split therefore is the neutral’s choice, with more defensive investors upping their percentage of bond investments, as these are thought to be safer investments.
But don’t forget, there is always some risk, so pick your strategy carefully!
All the Best Henk
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