A short transcript of an interview with the father of value investing , Sir Benjamin Graham, taken way back in 1960.Question - Can the average manager of institutional funds obtain better results than the Dow Jones Industrial Average or the S&P Index over the years?
Answer - No. In effect, that would mean that the stock market experts as a whole could beat themselves--a logical contradiction.
Question - Do you think, therefore, that the average institutional client should be content with the DJIA results or the equivalent?
Answer - No. In effect, that would mean that the stock market experts as a whole could beat themselves--a logical contradiction.
Question - Do you think, therefore, that the average institutional client should be content with the DJIA results or the equivalent?
Answer - Yes. Not only that, but I think they should require approximately such results over, say, a moving five-year average period as a condition for paying standard management fees to advisors and the like.
Question - What general rules would you offer the individual investor for his investment policy over the years?
Answer - Let me suggest three such rules:
Rule1: The individual investor should act consistently as an investor and not as a speculator. This means, in sum, that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase--in other words, that he has a margin of safety, in value terms, to protect his commitment.
Rule 2: The investor should have a definite selling policy for all his common stock commitments, corresponding to his buying techniques. Typically, he should set a reasonable profit objective on each purchase--say 50 to 100 per cent--and a maximum holding period for this objective to be realized--say, two to three years. Purchases not realizing the gain objective at the end of the holding period should be sold out at the market.
Rule 3: Finally, the investor should always have a minimum percentage of his total portfolio in common stocks and a minimum percentage in bond equivalents. I recommend at least 25 per cent of the total at all times in each category. A good case can be made for a consistent 50-50 division here, with adjustments for changes in the market level
Further Reading: Warren Buffett Interview
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