Benjamin Graham, hailed as the "Father of Wall Street," made significant contributions not only in the field of securities investment but also in theater and linguistics. He proposed the most basic "50:50" stock-bond allocation model and emphasized maintaining a balance between stocks and bonds based on market changes.

So, what can ordinary investors learn from Graham’s asset allocation philosophy? Today, let’s explore Graham’s "Balanced Approach."

"The Intelligent Investor"

In 1894, Graham was born into a Jewish family in London, England. His father passed away during his childhood, forcing him to start working early to support his family. He took on various jobs, including salesman, tutor, milkman, and accountant.

Despite a difficult childhood, Graham’s exceptional talent and academic performance earned him admission to Columbia University, where he completed his four-year degree in just two and a half years.

In the spring of 1914, Graham was recommended by the university president to become a securities broker on Wall Street, marking the beginning of his legendary journey as the "Father of Wall Street." Interestingly, this investment master had never studied anything related to investing before graduating.

With his outstanding mathematical and quantitative analysis skills, Graham rigorously analyzed companies’ financial conditions to identify investment opportunities, quickly proving his capabilities. Later, he compiled his investment experience into books such as Security Analysis and The Intelligent Investor and continued to teach "Security Analysis" at Columbia University.

Graham once said, "Diversification of investments enhances safety." His ideas on diversification provided valuable insights into asset allocation. His courses and books benefited many, including investment legends like Warren Buffett and John Templeton, who can be considered his "disciples."

The Importance of "Rebalancing"

In 1949, Graham’s The Intelligent Investor was first published, where he introduced a simple asset allocation model—the "50:50" stock-bond allocation.

The concept involves dividing total assets into two equal parts: 50% in stocks and 50% in bonds. Investors should strive to maintain this balance by selling assets that have appreciated and buying those that have depreciated, thereby keeping the portfolio at a 50:50 ratio.

The "50:50" approach is straightforward and embodies the idea of balancing returns and risks. Coincidentally, in a very close year (1952), Harry Markowitz proposed Modern Portfolio Theory, showing that the two thinkers were "on the same wavelength."

In practice, investors don’t have to strictly adhere to a 50:50 ratio—it could be 20:80, 60:40, etc.—depending on their risk tolerance and investment preferences. However, regardless of the chosen ratio, one crucial aspect is regularly "rebalancing" based on market fluctuations.

For ordinary investors, building a stock-bond portfolio may not be difficult, but consistently maintaining periodic "rebalancing" is challenging. This requires a deep belief in asset allocation principles and long-term discipline in investment practices.

In actual investing, one can consider using stock funds and bond funds to simplify asset allocation. Later, adjustments can be made based on the performance of these funds to restore the target allocation ratio.

Graham believed that "rebalancing" replaces market speculation with trading discipline, enabling investors to make decisions based on simple and objective criteria. In other words, rebalancing helps readjust asset proportions to their initial rational levels, keeping investors calm and rational, ensuring the execution of long-term strategies, and aiding in achieving long-term investment goals.