Classical Investing (Part 4)

Aristotle’s Ethics has some pretty useful insight for investors.

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 foolhardiness would be courage. 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’re seeing right now.

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 only half of the risk. That’s right: Aristotle’s “golden mean” can lead to gold. The returns on an actively managed balanced portfolio can almost equal those of a 100% stock portfolio, with a lot less risk.

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

Douglas R. Tengdin, CFA
Chief Investment Officer
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