Defensive of in Investing, Which Are You Included?
What type of investor are you?
In the book ‘Smart Investors’, Benjamin Graham has described two types of investors – Defensive Investors and Enterprising investors.
The following is their description according to Graham:
We make a fundamental difference between two types of investors – “defensive” and “enterprising”.
Defensive (or passive) investors will place the main emphasis on avoiding serious mistakes or losses.
The purpose of both is freedom from effort, disruption, and the need to make frequent decisions.
The decisive trait of enterprising (or active, or aggressive) investors is their willingness to devote time and attention to
the selection of good and more attractive securities than the average.
“This is what Smart Investors mean by Benjamin Graham.
Although much has changed between the Graham period and the period of modern investment, the type of investor remains the same.
Even in modern times, there are two types of investors – active investors and passive investors.
However, there is also a lot of space between active and passive investors where many investors are in the world today.
Let’s discuss the main qualities of all these investors.
Passive investor
Passive investors are ‘buy and hold’ investors. Usually, the time of detention for these investors is forever.
They buy shares and then forget about it for a very long time.
Sometimes these types of investors may face occasional heavy losses due to ‘recession’ or ‘market fall’
which they do not realize because they are not actively involved.
For example, during the fall of the 2008 market, many passive investors did not take
their money from the market and therefore their investments suffered heavy losses.
However, for the long term, these investors turn out to be winners. The 2008 market fall recovered after 2 years and
those who remained investing for a long time turned out to be the winners in the end.
Active investor
Active investors are daily traders. Daily traders buy and sell stocks throughout the day to make a profit.
When they are actively involved, they are rewarded with great profits throughout the day.
However, these investors are often charged for a large number of transactions.
In addition, daily trading can also be very stressful, because these traders must devote a lot of time in active trading.
Fortunately, there are many people whose investment style lies between active investors and passive investors.
These people are not daily traders but are actively involved in the market.
Usually, what type of investor you are depends on three factors.
Time, preferences and knowledge.
Also read:
The factors that determine what kind of Investor you are:
1. Time
Let’s understand this with an example.
Suppose you are an employee, have a family & children.
You like to travel and party with friends.
So it is very unlikely that you will be able to give a lot of time to invest.
You can choose a passive investment strategy.
This will give you plenty of time to stay actively involved in your personal and social life.
Now, let’s take another example.
Here, you are very interested in the stock market and you give a lot of time to your investment.
Then, you belong to the category of active investors.
However, this is not the only possible scenario for investors.
For example, you are willing to give 5-10 hours per week for your investment.
Then, you are among active and passive investors.
2 choices
This is based on your tendency towards the market.
Some people are very interested in the stock market and prefer to give all their free time in analyzing the stock market.
Then they are actively involved.
However, if you enjoy parties in your spare time instead of reading market news or economic time, then you are passively involved.
In this case, you don’t think about your investment during these times.
There is also a third possibility based on preference.
Suppose you like partying in your free time. Even so, during parties, you also like discussing stock prices and trends with your friends.
In this case, you are somewhere between active and passive investors.
3. Knowledge
How much of your knowledge also influences your investment style.
If you are new to investing and don’t have enough knowledge, you might be inclined to invest passively.
However, when you get more knowledge, you may choose to be more actively involved in your investment.
Overall, the investor’s style can be defined by considering the amount of time he has,
his wants and preferences for investment and the level of his financial knowledge
These three factors can help you determine how active or passive you are in your investment.
