The Intelligent Investor: The Aggressive Investor’s Portfolio with a Negative Approach

First published in 1946, Benjamin Graham’s The Intelligent Investor outlines an investment philosophy rooted in discipline and structured, well-researched decision making. Much of his advice remains relevant decades later, in an age of information overload and global market volatility. Graham offers investment and portfolio building advice based on the nature of the investor: defensive versus aggressive investor. And for the aggressive investor, he splits it into two parts: a negative approach that focuses on what to avoid, and a positive approach that identifies where true opportunities lie.

Understanding the Aggressive Investor

Benjamin Graham describes the aggressive or enterprising investor as someone willing to devote more time and effort to managing their investments in pursuit of better returns than the average investor. Unlike the defensive investor, who prioritises simplicity and stability, the aggressive investor actively searches for opportunities the market has overlooked. He frames the aggressive investor’s portfolio policy in two steps — first by eliminating unsound investments (the negative approach), and then by pursuing select undervalued opportunities (the positive side).

Building a portfolio for the aggressive investor with a strategy of avoidance

Here are some guidelines Graham lays out for an aggressive investor based on what not to buy.

• Build the base portfolio: Graham says that even an aggressive investor should start with the same foundation as a defensive investor: a mix of high-grade bonds and high-quality common stocks bought at reasonable prices. The difference lies in what comes next. Once this stable base is established, the enterprising investor may look for additional opportunities, but the core of the portfolio should remain anchored in sound, well-established securities.
• Avoid low-quality bonds: Graham strongly warns against buying second-rate bonds or preferred stocks just for higher yield. He says the additional 1–2% income rarely compensates for the risk of losing principal. In difficult market conditions, these securities tend to fall sharply and may even suspend interest or dividend payments. A better approach, Graham suggests, is to purchase high-quality bonds when they are selling at a discount.
• Be wary of businessman’s investments: Many investors justify buying riskier bonds because they “need the income,” which Graham sees as flawed. Accepting the possibility of losing principal just to gain a small increase in annual yield is, in his words, bad business. If an investor is willing to take on additional risk, it should be for the possibility of substantial capital appreciation and not a marginal increase.
• Steer clear of foreign government bonds: Graham also warns investors about foreign government bonds. Historically, these securities have suffered from frequent defaults, particularly during periods of war, economic crisis, or political upheaval. And investors typically have little legal recourse if a sovereign borrower stops paying.
• Be wary of new issues: Newly issued securities, whether bonds, preferred stocks, or common shares, should be approached with skepticism. Graham argues that new issues are usually accompanied by aggressive sales promotion from investment bankers and brokers, which calls for an equally strong degree of sales resistance from investors. These securities are typically brought to market when conditions are most favourable for the seller, meaning the buyer often pays a price that already reflects peak optimism.
• Tread with caution when it comes to IPOs: Initial public offerings are vulnerable to excessive speculation during bull markets. Early offerings in a bull market may perform well, prompting more companies to go public. But as this “IPO frenzy” grows, the quality of businesses coming to market may decline while valuations become increasingly inflated. When the market corrects, many of these fresh issues may experience price collapses, sometimes losing much of their initial value. Graham suggests that the aggressive investor is better off waiting until the excitement fades, and then purchasing the companies (if they are worth buying at all) at far more reasonable prices.

To sum it all up…

Graham’s advice to build a portfolio for an aggressive investor with a negative approach is based on disciplined restraint. By maintaining a base of high-quality securities and avoiding low-grade bonds, foreign government debt, and heavily-promoted IPOs (particularly during bull markets) the aggressive investor protects both capital and peace of mind. Risk, in Graham’s framework, should only be taken when securities are available at truly attractive prices and offer meaningful returns, rather than for small increments.