 Good day, fellow investors. We continue with our coverage, summary, discussion of Graham's book, The Intelligent Investor and today we talk about the chapter that Warren Buffett says is the most important chapter of the book, chapter 8, the investor and market fluctuations. So what to do in relation to the market that goes up and down all day long? There are two ways you can go about market fluctuations. One is look at try to time the market and the other is try to price the market. Graham is straightforward about timing. He says that all the strategies in the past work for some time but then they don't work and then investors usually get into a strategy at the wrong point in time. It's easy to look at past patterns and expect them to replicate themselves in the future. If we just check the SAP 500 over the last 20 years, everybody expects that after a crash stock rebounds, stocks rebound immediately but you'd never know if a crash will happen or if stocks will rebound again immediately. So therefore Graham's strategy is to look at the price and the value of what it's offered, the earnings, the business. So again a business attitude is key and that's the key message of the chapter, business attitude. You have to look at a stock as that you are a private owner, a private partner in the business. If there wouldn't be no stock exchange, no stock prices that go up and down, you wouldn't care about anything else and you would stick to okay what are the earnings, what are my dividends, what is the value that I get, what's the improvement in the book value per year that I get per year. That's it. Further, can you buy low and sell high? We are all attracted by market cycles. Looking at past stocks chart makes you wish you sold out in 2007 and bought more in 2009 but it all looks easy in hindsight. If we look at the SAP 500 in less 10 years, one would have been extremely happy if sold in 2011 if he bought in 2009 because the market doubled by then and then crashed in 2011-12. However, since then stocks have again doubled so he would have missed on 100% gains if sold back then. So Graham is against selling a stock just because it went up or selling a stock just because it went down. He's the key is always okay look at the intrinsic value to you as an investor, what's the return you expect, what's the risk and then when the stock is way above that intrinsic value you want to reduce your exposure and when the stock is way below that intrinsic value you want to increase your exposure. This is a key statement that he says. Most probably our holdings will advance 50% or more from their low point and decline 43% or more from the high point in the next five years. So all this stock market news 1% here and there that's something very very normal and that's something we have to accept as normal. Graham says and I agree with him each stock will probably go up 50% from the low point in the next 55 years and down at least 33% from the high point in the next three years five years. So that's a given and that's something we have to accept. The message is that you cannot those daily fluctuations don't really mean much because once you win sometimes you buy on the cheaper sometimes you buy higher but that evens out in the long term. So Graham suggests rebalancing according to valuation and looking at the stock as a part in a business not as a ticker on the stock market. I must say personally I had the fortune to follow this strategy during the last 16 years and the best investment returns that I got was when I bought into a business. I was looking at the business at the earnings at the earning sustainability over time at the yield the earnings gave me and that was the best returns that I got over time because then the market acknowledges the good earnings and then they put a premium debt. So then when that happens I sell but I try to buy good businesses that will do well over time. If you do that you don't have to worry about your investments and not even about the fluctuations because you just buy more when it drops. Something very interesting that Graham discusses is how even if you find a good business the more a business is doing good the more risk it becomes to buy. We see here Amazon that was at 66 in 1999 then it dropped 90% then it skyrocketed to the current levels. However the more Amazon goes up the more it becomes risky from a value investing perspective and that's also something we have to think about when looking at good businesses it's the price we are paying for those businesses. Graham's rules for investing are the following buy at maximum of 33% over book value buy at satisfactory ratio of earnings to price buy into financially strong company with low debt expect earnings to be maintained over the year so look for sustainable earnings. So if we follow that over the long term if with patient and we don't get into the enthusiasm the crowd does and we don't follow the crowd then we are an intelligent investor and we do good over the long term. Buying stocks just 43% about book value gives you a margin of safety because you know that there are the assets that back those things up and if you're patient you can find easily those stocks. Berkshire Hathaway traded below 1.2 price to book value just a few years ago. A stock that we discussed Kraft Heinz is now trading at 1.08 so there are always in any kind of market such investments that give you a margin of safety from a book value perspective. However there is something I have to note here that wasn't such a big deal in Graham's time but now it is and that's goodwill. When a company acquires another company the difference between the value of the assets and the price they are paying is called goodwill and that goes on the balance sheet of the company that's making the acquisition. That's intangible value that's not real tangible asset value and that's something we have to adjust when looking at price to book values and margin of safety. Then Graham introduces Mr. Market by finishing the chapter as a crazy person that offers you a quote on your stake in a business on a daily basis. His point is that you have the option to buy or to sell to that person and you have to make it an advantage to you so you have to take Mr. Market as an advantage to yourself. The conclusion is acquire businesses suitable prices when looking at the earnings yield. The message is take advantage of low price levels and take advantage of high price levels rebalancing your exposure buy when you have money but be careful what you buy so don't try to time the market don't worry about market fluctuations as you can't influence those and in the long term it evens out worry about the business you're buying avoid buying when the market has extremely high valuations look for special situations then never buy or sell something due to market moves find good management running the business be a business owner if we can follow what just said we will do very good over the long term just to repeat something his book Graham's book is divided to the defensive investor and to the enterprising investor chapter 8 is about the enterprising investor and that one who wants to be better than the average for those who want to see my research better than the average trying to be better than the average you can check my research platform in the link below those who want to see my 25 tools and go more into depth about modern value investing can check my book on amazon thank you for watching looking forward to a comments about this very interesting chapter and i'll see you in the next video