Chapter Twelve The Allocation of Investment Assets The Intelligent Investor

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.

So wrote Warren E. Buffett, one of the most successful investors of our time, in his introduction to The Intelligent Investor by Benjamin Graham, surely one of the most successful investors of his time. The Intelligent Investor, in Mr. Buffett's words, “is by far the best book about investing ever written.”

The most fundamental decision of investing is the allocation of your assets: How much should you own in stocks? How much should you own in bonds? How much should you own in cash reserves? According to a recent study, that decision has accounted for an astonishing 94% of the differences in total returns achieved by institutionally managed pension funds. The results of this study have been reaffirmed in countless others. There is no reason to believe that the same relationship does not also hold true for individual investors. The 94% figure suggests that long-term fund investors might profit by concentrating more on the allocation of their investments between stock and bond funds and less on the question of which particular stock and bond ...

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