Classical Investing, Part 4: The Golden Mean

Aristotle’s Ethics has some pretty useful insights.

Raphael: School of Athens; Source: Wikipedia

Aristotle talked about the “golden mean.” He linked happiness and virtue to finding the balance between excess and deficiency in any particular trait. For example, the mean between cowardice and recklessness is courage. In politics, the mean between anarchy and tyranny is democracy. In the investment context, Aristotle’s “golden mean” would advocate finding a “golden balance” in your portfolio.

Some have argued for “Stocks For the Long Run,” that your best returns over time are achieved with a 100% equity portfolio. But investing that way entails significant downside risk—something we’ve seen before and will see again.

By contrast, a 50/50 portfolio that includes stocks and bonds that is rebalanced when either side gets out of whack—say, 10% away from the target—gives you most of the return with about half of the risk. Aristotle’s “golden mean” can lead to golden returns. The return from an actively managed balanced portfolio almost equals that of a 100% stock portfolio, with a lot less risk.

Those dead Greeks were pretty smart. Too bad more of us don’t apply what they had to say.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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By |2017-07-17T12:23:02+00:00February 27th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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