Reflecting on the wisdom shared by Benjamin Graham - The Intelligent Investor, we can corral together two groups of Investors. First is the Enterprise Investor. They are typically highly focused on Charts and Momentum. They are aggressive and overly optimistic, when particular Stocks are rising. Purchasing at inflated prices and, "Jumping Aboard," the sinking ship. The Enterprise Investor typically follows the emotions of the Market participants. Second is the Defensive Investor. In simple terms, they commonly ask, "How much?". Evaluating an entry and exit point based on equation and logical calculations.
To put the current Market (or Investors) in perspective, one derived from a seasoned Defensive Investor, thoughts are being driven largely by emotion and desire for inflated gains. The Market has done so well many Investors believe it will continue on that same course. Here it is where a Defensive Investor realizes that many Stocks have become expensive and thereby impose significant risk. Here it is where a Defensive Investor should remind himself that a glorified and inflated Market increases the potential for great loss through many, and most, Investment Mechanisms. For here, or soon to come, we must remember that successful Investing is not in gains alone but thereafter Capital Preservation through loss prevention alone. Defensive Investors understand inherent risks of expensive Stocks are significantly greater and grossly disquieting.
Only Enterprising Investors' were excited and aggressive when the DOW was approaching Fourteen Thousand during the previous fall. A Defensive Investor continually seeks to avoid mistakes. That is, as a matter of fact, the advantage of the Defensive Investor. In times of great growth the feeding optimism an Enterprising Investor feels, signals the Defensive Investor to a bubble or retraction. A good time to consider redistributing assets weighted to Bonds and light on Stocks? It is the constant reality that the perceived pendulum will reverse direction.
