Comments on: The Intelligent Investor: The Defensive Investor and Common Stocks http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/ Simple, applicable personal finance advice for the modern world Sat, 20 Mar 2010 05:08:32 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: Konrad http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-632165 Konrad Sat, 18 Apr 2009 19:18:04 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-632165 Hi, a small comment on your analysis of this chapter as I'm also reading this book. I'm pretty sure Graham fully supports dollar-cost averaging. If I may quote it the precise paragraph, "It may be objected that dollar-cost averaging, while sound in principle, is rather unrealistic in practice... It seems to me that this apparent objection has lost much of its force in recent years... The monthly amount small, but the results after 20 or more years can be impressive and important to the saver." You can reread that whole paragraph. I'm 100% certain that is an unequivocal and explicit support of dollar-cost averaging. Jason Zweig makes a similar endorsement in his commentary. Hi,
a small comment on your analysis of this chapter as I’m also reading this book. I’m pretty sure Graham fully supports dollar-cost averaging. If I may quote it the precise paragraph,
“It may be objected that dollar-cost averaging, while sound in principle, is rather unrealistic in practice… It seems to me that this apparent objection has lost much of its force in recent years… The monthly amount small, but the results after 20 or more years can be impressive and important to the saver.”
You can reread that whole paragraph. I’m 100% certain that is an unequivocal and explicit support of dollar-cost averaging. Jason Zweig makes a similar endorsement in his commentary.

]]> By: Shawn http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-420122 Shawn Sun, 16 Nov 2008 17:19:47 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-420122 I agree that if you don't have the time or desire to research individual stocks then mutual funds are the answer. However, you need not default to indexing. You can find a quality actively managed fund with little work on your end. I have been invested in Manning & Napier's Pro-Blend Maximum Term Fund (EXHAX) and it has consistently beat the market during both bull and bear environemnts(especially 2000-2002). I prefer seeking a fund that will provide down market protection, which indexing does not. Just because quite a few actively managed funds do not beat their index doesn't mean you can't find some that do. I agree that if you don’t have the time or desire to research individual stocks then mutual funds are the answer. However, you need not default to indexing. You can find a quality actively managed fund with little work on your end. I have been invested in Manning & Napier’s Pro-Blend Maximum Term Fund (EXHAX) and it has consistently beat the market during both bull and bear environemnts(especially 2000-2002). I prefer seeking a fund that will provide down market protection, which indexing does not. Just because quite a few actively managed funds do not beat their index doesn’t mean you can’t find some that do.

]]> By: Early Retirement Extreme http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417953 Early Retirement Extreme Sat, 15 Nov 2008 02:41:30 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417953 Index investing does not take away market risk. It would be equally easy to make the argument that you should not invest in index funds if you are not willing to put time into understanding the market. If you don't then you are just "saving" in stocks as if it was some special currency. Index investing does not take away market risk. It would be equally easy to make the argument that you should not invest in index funds if you are not willing to put time into understanding the market. If you don’t then you are just “saving” in stocks as if it was some special currency.

]]> By: Writer's Coin http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417768 Writer's Coin Sat, 15 Nov 2008 00:26:39 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417768 George, In your PEP example you're paying a "commission" of .2% to make that trade. With a good index fund you can pay as low as .12%, so saying fees are going to batter your returns doesn't really fly. A couple of trades a year, unless you're talking huge sums of money like J. said, will put you right where index funds are in terms of expenses. But I do agree that, if you have the time and temperament to follow individual stocks, and you're a little lucky, you'll do better than an index fund. Especially right now! Investing in Wal-Mart this year would have you up over 10% instead of down 30%. George,
In your PEP example you’re paying a “commission” of .2% to make that trade. With a good index fund you can pay as low as .12%, so saying fees are going to batter your returns doesn’t really fly.

A couple of trades a year, unless you’re talking huge sums of money like J. said, will put you right where index funds are in terms of expenses.

But I do agree that, if you have the time and temperament to follow individual stocks, and you’re a little lucky, you’ll do better than an index fund.

Especially right now! Investing in Wal-Mart this year would have you up over 10% instead of down 30%.

]]> By: George http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417681 George Fri, 14 Nov 2008 23:32:54 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417681 @J. - a) Correct. Why should I invest in the stocks that don't perform? With an index fund, you're committed to the bad with the good. Why should I invest in both FDX and UPS when, really, either one will be fine? An index fund doesn't give you that choice. It's very easy to read a financial statement and with 6-12 stocks, doesn't take that much time... that small skill helped me bail out of WM 1.5 years before it completely imploded (hey, if they're not earning enough to pay the dividend, then they've got trouble coming!). b) Maybe, maybe not... see answer to d) c) I didn't understand your statement on this d) Commissions are very low at discount brokerages. Plus there are DRIPs, even for IRAs. In general, most individuals trade too often. Hold your money and buy only once a year to reduce trading fees. If you want to follow dollar-cost averaging, use a company's DRIP. Holding for dividend growth/income is the answer to avoiding fees. If I do have a need to sell 100 shares of PEP, for instance, because I suddenly need $5,000 in cash, then the trade is about $9.99. @J. -

a) Correct. Why should I invest in the stocks that don’t perform? With an index fund, you’re committed to the bad with the good. Why should I invest in both FDX and UPS when, really, either one will be fine? An index fund doesn’t give you that choice. It’s very easy to read a financial statement and with 6-12 stocks, doesn’t take that much time… that small skill helped me bail out of WM 1.5 years before it completely imploded (hey, if they’re not earning enough to pay the dividend, then they’ve got trouble coming!).

b) Maybe, maybe not… see answer to d)

c) I didn’t understand your statement on this

d) Commissions are very low at discount brokerages. Plus there are DRIPs, even for IRAs.

In general, most individuals trade too often. Hold your money and buy only once a year to reduce trading fees. If you want to follow dollar-cost averaging, use a company’s DRIP. Holding for dividend growth/income is the answer to avoiding fees.

If I do have a need to sell 100 shares of PEP, for instance, because I suddenly need $5,000 in cash, then the trade is about $9.99.

]]> By: J. http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417606 J. Fri, 14 Nov 2008 22:24:14 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417606 George that's only true to the extent that (a) you're in a very small basket of stocks (b) you're investing large sums (c) you're making as rarely as possible and (d) you're paying low commissions for each transaction most individuals cannot buy 500 stocks (S&P 500) or even 30 (DJI) on a monthly or even annual basis, and most certainly not inside the limits of an IRA and come out ahead after trading commissions. plus you have to pay a commission now and a commission later--how often will you sell stocks to turn them into cash when you need the money? George that’s only true to the extent that

(a) you’re in a very small basket of stocks
(b) you’re investing large sums
(c) you’re making as rarely as possible
and (d) you’re paying low commissions for each transaction

most individuals cannot buy 500 stocks (S&P 500) or even 30 (DJI) on a monthly or even annual basis, and most certainly not inside the limits of an IRA and come out ahead after trading commissions. plus you have to pay a commission now and a commission later–how often will you sell stocks to turn them into cash when you need the money?

]]> By: George http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417298 George Fri, 14 Nov 2008 18:51:46 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417298 Index funds suck. There, I've said it and I feel better. :-) "Why?" Because of fees. Even the cheapest index fund has fees that are more than if you just went and bought your own basket of stocks. That's why _ALL_ index funds have underperformed the market over time. Investing in an index fund is akin to betting red/black on a roulette wheel... the "house" gets their cut all the time and you're not compensated for their take by superior investing. Why do we, as a culture, pay other people to manage our own money? Index funds suck. There, I’ve said it and I feel better. :-)

“Why?” Because of fees. Even the cheapest index fund has fees that are more than if you just went and bought your own basket of stocks. That’s why _ALL_ index funds have underperformed the market over time.

Investing in an index fund is akin to betting red/black on a roulette wheel… the “house” gets their cut all the time and you’re not compensated for their take by superior investing. Why do we, as a culture, pay other people to manage our own money?

]]> By: Rich http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417227 Rich Fri, 14 Nov 2008 18:10:16 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417227 I have the hard cover "classic test", with a forward from John Bogle. He mentions that Graham became a fan of index funds later in life as the work to find value in individual stocks became significantly more difficult. Warren Buffet has also suggested that those who cannot devote themselves full-time to stock picking should buy index funds, and I am inclined to agree. Although there is the temptation, especially amount men I think, to gloat about their stock picks and what they are invested in. Index funds are simply not sexy to most people. I have the hard cover “classic test”, with a forward from John Bogle. He mentions that Graham became a fan of index funds later in life as the work to find value in individual stocks became significantly more difficult.
Warren Buffet has also suggested that those who cannot devote themselves full-time to stock picking should buy index funds, and I am inclined to agree.
Although there is the temptation, especially amount men I think, to gloat about their stock picks and what they are invested in. Index funds are simply not sexy to most people.

]]> By: Oliver http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417146 Oliver Fri, 14 Nov 2008 16:58:26 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417146 does anyone else think chapter 5 is a little contradictory? The first point it makes is to diversify, but it then goes on to say only invest in large companies which pay dividends. You are not diversifying much at all since the correlations between those stocks will be quite high... does anyone else think chapter 5 is a little contradictory? The first point it makes is to diversify, but it then goes on to say only invest in large companies which pay dividends. You are not diversifying much at all since the correlations between those stocks will be quite high…

]]> By: JonFrance http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417077 JonFrance Fri, 14 Nov 2008 16:11:53 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417077 As this and any other good book on investing in stocks points out, before doing anything else you need to ask yourself whether you have the time and temperament needed for owning individual stocks. Ryan is saying he knows he isn't going to put the time it takes into learning how to research stocks and doing the research, so buying individual stocks isn't for him. Kevin's pointing out that it is *also* necessary to have a temperament that knows how to shield itself from the emotion of seeing the market go up and down. Which I agree with, but I don't think that Ryan was talking about that. As this and any other good book on investing in stocks points out, before doing anything else you need to ask yourself whether you have the time and temperament needed for owning individual stocks. Ryan is saying he knows he isn’t going to put the time it takes into learning how to research stocks and doing the research, so buying individual stocks isn’t for him.

Kevin’s pointing out that it is *also* necessary to have a temperament that knows how to shield itself from the emotion of seeing the market go up and down. Which I agree with, but I don’t think that Ryan was talking about that.

]]> By: Kevin http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417056 Kevin Fri, 14 Nov 2008 15:58:40 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417056 Whoops, that should say "when" not "we're". Whoops, that should say “when” not “we’re”.

]]> By: Kevin http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-417055 Kevin Fri, 14 Nov 2008 15:57:48 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-417055 Ryan - so you'd rather buy stocks at the top of the market than we're they are on sale? I wish I had more money available to invest right now since there are so many good, dividend paying stocks trading for much less than they were even one year ago. Ryan – so you’d rather buy stocks at the top of the market than we’re they are on sale? I wish I had more money available to invest right now since there are so many good, dividend paying stocks trading for much less than they were even one year ago.

]]> By: Ryan McLean http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/comment-page-1/#comment-416903 Ryan McLean Fri, 14 Nov 2008 14:20:49 +0000 http://www.thesimpledollar.com/2008/11/14/the-intelligent-investor-the-defensive-investor-and-common-stocks/#comment-416903 I don't have a massive interest in stocks, especially seeing as the stock market isn't going so well at the moment. But I love your book reviews and even though I will not read this book you always inspire me to write reviews on my blog. Thanks for your insight Im sure hard core investors will love this book. For me I love books about making money online. They are my favourite which is why I run a blog talking about that very topic I don’t have a massive interest in stocks, especially seeing as the stock market isn’t going so well at the moment. But I love your book reviews and even though I will not read this book you always inspire me to write reviews on my blog. Thanks for your insight Im sure hard core investors will love this book. For me I love books about making money online. They are my favourite which is why I run a blog talking about that very topic

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