 Good day, fellow investors! We continue with our summary about Ben Graham's the intelligent investor and we are now at chapter 11, security analysis for the lay investor. The chapter is separated in two parts. First, I'll discuss bonds in this video and in the next video I will discuss stocks, how to analyze stocks. So let's start with bonds and how to analyze them. The key with bonds is to see okay, can the company, the government, pay the interest on their debt and can they refinance that in the future? If they can constantly refinance the interest payment is the key. And what Graham focuses on is the poorest year. So you look, I don't know, seven, ten years in the past and look at the poorest year the company has had in relation to earnings and then compare that poorest year with the interest costs. So that's perhaps the most conservative way to approach bonds but you avoid nasty surprises. The poorest year today was 2008-2009 when interest rates spiked and a lot of companies has had trouble refinancing. Other checks are size of the enterprise smaller companies have more trouble paying back the debt refinancing because those business models are less tested and might change in the next recession. Stock-to-equity ratio where he discusses market price to total amount of debt, also that market price could change and property value of course as Graham, value investor focus on the value of the assets and their earning power. A big part of the chapter is about applying common sense, simple common sense as Graham has been teaching us for the last 100 years almost. Let me show you what common sense means today. This is non-financial corporate business debt and you can see that in 2007 it was 3.2 trillion, now it is above 6 trillion. So in 10-11 years the corporate debt doubled, doubled in the United States. So companies really went on borrowing spree. Now the problem is if I apply common sense I see that a lot of companies are stretched and I see interest rates rising. This means that more and more companies will find themselves with refinancing issues at some point in time especially those who are already stretched. And Graham compares that with the 1960s 1960-1950s were great due to lower interest rates this led to over expansion in debt and then in the late part of the 1960s higher interest rates led directly into a recession stock market crash and negative returns for the next 10 or 30 years I think. So interest payments on corporate debt went from 10 billion in 1963 to 26 billion in 1970. 1971 interest payments taken 29% of corporate profits just 16 in 1963. Where we are now back of a napkin calculation corporate interest payments should be around 280 billion, S&P 500 earnings 1 trillion so we are at 40%. If interest rates double earnings go down and interest payments go up then we can soon see corporation US corporation paying 100% of their profits into their debt repayments. So Graham says in the 1970s as he said in the 1960s we are not quite ready to suggest that the investor may count on an indefinite continuance of this favorable situation low interest rates and hence relax his standards of bond selection in the industrial or any other group. The same holds today. So higher interest rates stay away from old yielding assets because if we see inflation if we see higher interest rates those bonds will do terribly and bonds are usually not a good investment when you look at the risk reward over the long term. They were a great investment over the last 45 years because interest rates went from 15% to 0. Lower interest rates good for bonds higher interest rates bad for bonds. So look at the situation if you are a bond trader then okay look where are interest rates going we probably might see higher interest rates which means that bonds will go lower for another six months year two years. At some point in time when the yield is interesting you might want to look at bonds for now it's very very risky. Thank you for watching looking forward to your comments and I'll see you in the next video.