The Intelligent Investor still providing insight

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The bull market that began in early 2009 seems to be alive and well. But with many investors wondering just how long this run can last, and how to approach this type of market, Vice President of Investment Strategy Mike Loewengart calls attention to an old resource: Benjamin Graham’s famed guide to investing, The Intelligent Investor . Loewengart cites how timely the principles remain nearly 70 years after the book was first published, particularly Grahams’s approach to asset allocation. So, we decided to ask Loewengart about the current market relative to some of Graham’s concepts.

What might Graham say about trying to beat the current market?

As Graham once said, “Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”

The market continues to rise on strong economic data; profits at big companies are soaring; interest rates are low; and the global growth story has solid footing. The weaker dollar is likely helping too, especially for domestic exporters. But while analysts have not identified any real pockets of over-exuberance, and a number of factors could still power additional gains, the market won’t always move in this direction.

Graham emphasized that market moves are out of the investor’s control, and trying to time this, or any, market is typically a losing proposition. It’s more important for investors to control what they can (e.g., their own investment risk, expenses, and expectations), and to plan for life events that may affect how they allocate their assets. 

How does Graham's Mr. Market compare to a balanced investing approach? 

Graham created the metaphorical Mr. Market to illustrate exactly how not to approach investing, as this character favors short-term, emotion-driven investing over long-term logic and reason. Right now, Mr. Market would probably be optimistic about the market’s direction and price it on the higher end of the spectrum. The problem is tomorrow Mr. Market’s view of the current landscape would likely change, and change again the day after, as Mr. Market invests depending on his mood.   

Graham says the Mr. Markets of the world can be informative in an information-gathering sense, but that a more balanced, defensive strategy is better for most investors. And by defensive, he means avoiding serious, unnecessary mistakes. That is the type of approach at the heart of E*TRADE Capital Management’s offerings, particularly our managed account solutions, like Adaptive Portfolio. We only want clients to assume the risks they have to in order to achieve a rate of return that is consistent with their investing goals.  

How might an investor approach some tactical opportunities in this market?

Graham said whatever investment mix that is going to let you sleep soundly at night and keep you invested to capture long-term returns—that’s probably the one that’s right for you.

Importantly, Graham encourages investors not to overcomplicate asset allocation. If concerned about the market’s direction, Graham recommends a 50/50 split between stocks and bonds. If you’re quite positive, he says a 75% equity and 25% bond mix is appropriate; if bearish, 25% equity and 75% bonds. Overall, he says an investor should never have less than 25% or more than 75% in either stocks or bonds or cash. 

Benjamin Graham's general guide to asset allocation

Source: The Intelligent Investor

Of course, there is no one-size-fits-all approach to investing. Individual circumstances may call for exceptions to Graham’s framework, such as those with very short time horizons and low risk tolerance, or those with very long time horizons.

In looking at the current market environment, investors may want to consider the following as they map out their individual financial strategies:

  • Within equities—international exposure, both developed and emerging markets, as well as small-cap, dividend, or value stocks.
  • Within bonds—high quality corporates to produce an incrementally higher yield over Treasuries, short duration bonds if rising rates are a concern, or measured positions in high yield and emerging markets debt if risk tolerance is on the higher side.

Overall, Graham's approach is simple. But many times the simplest approach is the most powerful.


Mike Loewengart is the Vice President of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. 

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Graham, Benjamin. The Intelligent Investor: The Definitive Book on Value Investing, Revised Edition. New York: HarperCollins Publishers Inc., 1973.