Ben Graham gave a couple interviews in 1976, after the final, 1973 edition of The Intelligent Investor, where he talks about the "group approach" or the idea of "buy[ing] groups of stocks that meet some simple criterion for being undervalued -- regardless of the industry and with very little attention to the individual company." The Rediscovered Benjamin Graham, by Janet Lowe (John Wiley & Sons, Inc., 1999), p. 270. Graham details a simple, mechanical way of generating strong investment returns by purchasing a group of unleveraged stocks with low PE's and selling them based on a mechanical sales rule. Id. at 259-275.
When Graham gave these interviews he had his fullest, most complete investing perspective, with over 50 years of investing experience. Over this time he authored multiple versions of Security Analysis and The Intelligent Investor. With this perspective and experience in mind, Graham ultimately concluded as follows:
"Yes, well now I have lost most of the interest I had in the details of security analysis which I devoted myself to so strenuously for many years. I feel that they are relatively unimportant, which, in a sense, has put me opposed to developments in the whole profession. I think we can do it successfully with a few techniques and simple principles."
Id. at 270.
To me these quotes mean an investor should follow an investing process that tries to be right on a group basis rather than a process that tries to be right about each individual stock pick. I think too many investors get hung up on being right about each stock pick, which is inherently difficult, when they only need to be right on a group, average basis.
The beauty of a diversified group approach is that you can follow simple buy/sell rules, be wrong about individual decisions or stock picks, and still get good results. The more concentrated you are the more right you have to be about each individual stock, versus just being right about the larger group.
Investors who focus on being right about each stock pick often forgo investments that could be prudently and profitably included in a mechanically chosen, well-diversified group of low PE, low debt stocks. It's hard to be contrarian when you're concentrated in just a few positions and you feel the need to be right about each pick.
The author is not an investment advisor or CFA and readers should consult an investment advisor before buying or selling any publicly traded stock. The views expressed in this article are the author's personal opinions and should not be construed as investment advice.