In his book "Championship Fighting: Explosive Punching and Aggressive Defense" (1950), the late heavyweight boxing champion Jack Dempsey asked, "What would happen if a year-old baby fell from a fourth-floor window onto the head of a burly truck driver standing on the sidewalk?

"It's practically certain that the truckman would be knocked unconscious," Dempsey noted. "He might die of brain concussion or a broken neck."

Dempsey's observations lead me to two conclusions: 1) The champ would have made a horrible babysitter; and 2) It might be wise for burly truck drivers to steer clear of the "Octomom" over the next few months.

Of course, the point behind Dempsey's unique twist on Galileo Galilei's famous experiments was to emphasize the main point of the boxer's tome, mainly that extreme force, otherwise known as a good offense, is also the best defense. It is a concept as important to investors today as it was to pugilists of yesteryear.

Lessons from GM
In these times of near-constant market turmoil, Dempsey's belief in an "aggressive defense" certainly makes sense. Consider the case of General Motors (OTC:GMGMQ). One didn't exactly need to be an expert at reading tea leaves to understand that the company was in financial trouble long before it ultimately declared bankruptcy.

A recent Reuters' report pointed out that, as early as October of 2008, GM and Chrysler were in merger talks and planning to cut jobs and close plants, as auto sales continued to slide. Yet many investors, either out of apathy or a sense of optimism more compelling than Anthony Robbins on laughing gas, refused to acknowledge the writing on the wall, which spelled "sell" in big red letters - presumably in blood. True, by that time, General Motors' stock had already lost nearly 80% of its equity value over the past year and battered stockholders were undoubtedly hoping for a rebound. But hope doesn't protect one from falling babies, does it? (You might want to check out Why do some mergers and acquisitions fall through?)

A New Day Dawns
In 338 BC, after fleeing the battlefield in a confrontation with Macedonia, Athenian orator and statesman Demosthenes responded to accusations of cowardice by saying, "The man who runs away may fight again."

Although Demosthenes would probably not be a fan favorite at UFC 99, he does make a good point. GM closed at 87 cents on Friday, June 6, down another 85% since the end of October. Those with the courage to cut their losses, back then, at least have some money to invest in other, more promising companies today.

Losing Defense
How to be an "offensive" investor:

1. Monitor your holdings more or less often as stock/economic conditions warrant.
2. In the event of bad news, consider its impact on the business. Is the news likely to have a short- or long-term effect. More importantly, will the information affect the company's fundamentals - and for how long. Remember, it is better to spot a stock going sour sooner rather than later. (Learn more in our Fundamental Analysis Tutorial.)
3. When evaluating your positions, ask yourself whether you would buy the issue again today. If the answer is no, it might be time to sell.

Related Articles
  1. Mutual Funds & ETFs

    Top 5 Japan Mutual Funds

    Discover five of the most popular and best-performing mutual funds offering investors direct exposure to equities of Japanese companies.
  2. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  3. Investing Basics

    A Primer On Investing In The Tech Industry

    The tech sector can provide fantastic returns for investors with a little know-how in the field.
  4. Mutual Funds & ETFs

    5 Mutual Funds that Hold Berkshire Hathaway Stock

    Discover the top five mutual funds most heavily weighted with Berkshire Hathaway stock, and the percentage of their assets dedicated to BRK.
  5. Mutual Funds & ETFs

    3 Mutual Funds that Hold Google Stock

    Discover the top three mutual funds that dedicate the largest percentage of their total assets to Google, Inc. stock.
  6. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  7. Mutual Funds & ETFs

    4 Mutual Funds that Hold Tesla Stock

    Obtain information on the four mutual funds that have significant allocations to Tesla Motors, Inc. in their major portfolio holdings.
  8. Mutual Funds & ETFs

    4 Mutual Funds that Hold Apple Stock

    Discover mutual funds offering the most substantial percentage of holdings in Apple, Inc. stock that investors can use to get significant exposure to Apple.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  10. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  3. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  4. The New Deal

    A series of domestic programs designed to help the United States ...
  5. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
  6. Unconstrained Investing

    An investment style that does not require a fund or portfolio ...
RELATED FAQS
  1. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  2. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  3. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!