Graham's view
"The risk of paying too high a price for good-quality stocks-while a real one-is not the chief hazard confronting the average buyer of securities." - The Intelligent Investor, Ch. 14
"The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition." - The Intelligent Investor, Ch. 14
Diversification tempers errors; quality plus margin of safety drives survival.
Defensive investor guidelines
- Aim for broad but sensible diversification (e.g., 10-30 names).
- Require strong balance sheets, stable earnings/dividends, and moderate valuation.
- Keep single-name weights modest and avoid leverage.
Enterprising investor guidelines
- Can be more selective but should still hold 10-20 names.
- Demand clear margins of safety (NCAV discounts, low multiples on stable earnings).
- Tilt sizes with conviction and safety, not with excitement.
Position sizing rules of thumb
- Start with equal weights, then adjust for margin of safety and business quality.
- Cap any single position to avoid portfolio impairment from a single mistake.
- Reduce weights in thinner-safety situations; increase only when safety is robust and within your circle.
Quick checklist
- How many independent positions do I hold?
- Does any one position threaten more than a tolerable loss if wrong?
- Is sizing tied to safety and quality, not to hype or recent performance?
- Are defensive holdings truly defensive (records, balance sheets, moderate price)?
Takeaways
- Diversification is a risk-dampener; margin of safety is a risk-absorber.
- Defensive investors stay broad and high-quality; enterprising investors stay selective but still diversified.
- Let safety and competence drive size-not noise or price momentum.
Internal links and tools
- Balance-sheet events: Shares outstanding changes
- Volume tell: Interesting volume events
- Price pressure: Near-lows scanner
- Sentiment: Short interest changes
- More reading: Resources hub
Compliance note
This guide is educational and not investment advice. Do your own research or consult a professional adviser.