Value Investing : Long Term Defensive Investing


Long term investment in stocks, requires discipline than enthusiasm, knowledge of how the market performs and has performed matters, resisting the tendency to sell when low and buy high, and knowing how inflation plays out on investment is vital too.

This is a field that high IQ does not translate to value, or being a doctor, or a sharp engineer does not make it any easy to make the right decisions about stocks at the right time (there are studies on this you may kindly look up). Youd either need an experienced guide who has had success in the market, and hopefully some one who does not fall to the speculative waves of the market. The other option is of course to get advise from financial experts and consultants of investment.

The other option start with a small investment, an amount that you would be okay parting with even if you loose it a 100%. See how the market plays out, how do you respond to the highs and lows of the market, lets say for a full financial year. Then you can see how much you are disciplined, how much much you are driven by enthusiasm, and how much you are susceptible to speculation.

Once you decide that you are set, and can set aside a safe amount to invest in stocks, for long term, then first thing to keep in mind is, how long am I going to be investing in market. The below picture shows the trend of Markets NYSE, TASI, and NSEI, you can see two lines Pessimistic and Optimistic. There is three vertical lines showing 5 year periods, and hence 15 year period in total. Based on where you enter the market the value that you end up with after a 15 year period is on the higher side.

However this is the stock market index, and not a stock itself, so how does one choose the right stock to invest in, for a long term. Benjamin Graham provides a 4 point approach on selecting stocks which is

1. Have a stock portfolio of Min 10 to Max 30 stocks ( apply the halal criteria from trustworthy institutions for some afterlife security and safety)

2. Makes sure that the stocks you buy are 

 2.a. Large(in terms of sales or value of the company) 

2.b. Prominent(1/4th or 1/3rd quartile of a sector of industry) and 

2.c Conservatively financed (common stock (at book value) is at least half of total capitalization, including bank debt)

3.A record of continues dividend payment for 20 years

4. Price of stock in the range of 25 times average earning of 7 years, and price not more than 20 times of earnings of last 12 months

You could then apply DCA as a mans of investing across a given period that you choose, however even with that, no one is truly immune to market risks and business fluctuations.

The Grahams book is a good read especially for a a defensive investor, i.e. those investors unable to devote much time to the process or inexperienced with investing. The below is an affiliate link if you choose to buy.


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