 Good day fellow investors, welcome to the summary of the whole book The Intelligent Investor and today we discuss Chapter 5, common stocks for the defensive investor. So if you are, if you had enough of the risks, if you want to be defensive, if you want to protect what you have and have a nice healthy return over the long term, then this video is for you. The topics we are going to discuss today are four rules to follow when buying stocks, not about growth stocks and the defensive investor, dollar cost averaging and the investor's personal situation when it comes to investing. So Graham starts the chapter by discussing how in 1949 nobody wanted to look at stocks because they were considered highly speculative and the return over the last 20 years from 1929 was still very, very negative. That was a great time to buy stocks. When he discusses 1969, everybody was very, very excited about stocks, looking to get into the stock market, everybody was trading and that was a bad time to enter into stocks because then it took again, I think what, 40 years for positive real returns, somewhere in 1990, something, so 23 years. So it's again the case of when you invest, what is everybody else doing and if you look it over the long-term investment cycle, how that feels risky when you're doing what everybody else is doing. So therefore he was not so enthusiastic about stocks in 1971 because of the high valuation. Nevertheless, he says that at each point of time, we have to always be exposed to common stocks because you never know, you never can really time the market. What you can do is allocate more to bonds or cash and less to stocks depends on the stock market risk in order to be more defensive. However, on stocks, he says that stocks have protected people from inflation over the long-term that they have delivered positive returns, but those benefits from the stock market get erased if you pay too much for stocks. That's what I said from 1929, it took 25, 30 years for stocks to regain that momentum as it was the case from 1969. Now what was the case in 1971? The price-to-earnings ratio was 18.12 and Graham didn't like stocks. And you can see that it took a long time again for variations to come to those levels. Now the price-to-earnings ratio is much higher. So we could say that Graham wouldn't be enthusiastic about stocks now. However, it's important to note that in 1971 the yield on the 10-year treasury was above 6%, which made stocks even more expensive. Now the yield is 2.87%, which makes stocks look a bit better, but still definitely not cheap. Especially if yields continue to go up and it is now flirting with 3% as I am filming this. Inflation was already at 5%, so the situation for bonds was similar to the current situation where yields are close to the inflation yield. Let's go to the four rules that Graham says if we follow we should have no fear when investing in stocks even in the long term, but always with the proper portfolio location. First, adequate but not excessive diversification. So he says minimum of 10 stocks and the maximum of 30 stocks. And you should then buy only large, prominent companies with low debt and risk. Not more than 50% of that leading industry position, so leader in the position, big mode and have a larger than in this case when I reassess it for the current market valuation larger than 20 billion market cap. Each company should have a long record of continuous dividend payments at least 20 years and you should put a limit to the price you're willing to pay in relation to the earnings average over the past 7 years where the limit is 25 for the average earnings and 20 for the current earnings. I think in this market we could find such great companies with great dividends, with great earnings, with great brands, leader in companies and one stock that perhaps might fit that description is Kraft Heinz which we're going to discuss in the Sunday stock analysis. Now on growth stocks Graham doesn't like growth stocks for the defensive investor because the defensive investor doesn't have time to check the market every day, doesn't know when to sell a growth stock, when to buy. So it's more likely that a defensive investor will find money growing on trees than making money over the long term on growth stocks. If we check the Amazon chart it's up almost 500% over the last 5 years. And now you never know whether this will continue or not. If earnings contract, if the growth rate which is expected to be around 25% contracts to 20% and then earnings also contract then Amazon is a very, very risky stock. And Graham compares this to IBM that lost 50% twice in the 1960s which was a growth stocks then and to Texas Instrument that lost 80% in 1969 from $249 to $50. So that's what can happen to growth stocks and that's why he doesn't recommend growth stocks for the defensive investor. Then as for portfolio changes he doesn't see that as important for the defensive investor. You look at the portfolio once in a while with a financial advisor that you trust and then you see whether you have to rebalance or not or you just keep adding to what you have been doing. On dollar cost averaging he says that it's a great strategy but few can follow it. Few can know that their lives will be stable over the next 20-30 years that they can just keep adding and adding. So you have to see whether you or you have to fix your mind I think you have to motivate yourself to stick to dollar cost averaging over the next 40 years and then you are sure you will do extremely well. On the personal investor situation Graham gives us three excellent examples to discuss. He says what should a widow do with a million in stocks and seven children to support? A mid-career doctor with half a million in savings and the young man earning 1000 per week and saving 5000 per year. I have adjusted the numbers to the current situation and inflation. So the prescription for the widow is clear. Conservativeness with an allocation to bonds and high quality stocks 75% to 25% bonds stocks depending on the valuation in relation to bonds and stocks, thus depending on the risk. So as for the doctor he says same as for the widow because doctors like to get involved into the stock market but they don't have the time to be an aggressive investor. If you're a doctor you'll work long hours and then you can't follow two things equally. That's what Graham says contradict me in the comments if you think it's opposite. And for the young investor he says again the same because he can risk in the stock market he can lose as the investments are small but still if he is defensive he will allow to keep the cash that will allow him when he gets the knowledge when he sees that doing stupid things is not smart to have more buying power when he understands that the defensive portfolio is a very good long-term portfolio. Graham concludes with the concept of risk and safety. The problem is that risk we see risk if the stock market crashes 20% everybody calls it a risky thing but that's not risk if in there is no risk of permanent capital loss so the stock market can crash 50% but if it continues to pay dividends if stocks continue to do well then there is no real risk over the long-term because you will reinvest the dividends you will do good over the long-term so you should even pray for a stock market crash risk is something different risk is default going to zero changes in business bonds defaulting governments defaulting that's real risk because that erases your capital forever permanently and that's risk did something different than what the market sees at risk so the conclude you don't have that if you don't have that much time to be an aggressive investor Graham gives you good everlasting tips to make investing easy people forget that the return of 7.2% per year will see you double your money every 10 years which means that 100,000 investment today will end up at 1.6 million after four years with just 7.2% per year that's enough for a cozy retirement defensive if you're defensive you can reach those 7.2% year over year or a little bit higher little bit lower but 7% is what the stock market delivered it won't deliver it over the next 40 years but if you are conservative if you follow Graham's rules you will get there thank you for watching looking forward to your comments and I'll see you in the next video