 Good day, fellow investors. We continue with our summary of one of the best investing books out there, The Intelligent Investor by Benjamin Graham. We are at chapter 14 that gives seven key factors to watch when buying stocks for the defensive investors. So let's dig into the seven factors to watch to buy the best stocks. So the summary, you have to look at size, sufficiently strong financial condition, continued dividends for at least the past 20 years. So becoming a dividend aristocrat, no earnings deficit in the past 10 years, 10 year growth of at least one third in per share earnings, price of stock no more than 1.5 times net asset value, book value, and no more than 15 times average earnings of the past three years. There are some exemptions, we'll discuss them. So let's start with the size. It's important that it is a big company if you're a defensive investor, no less than 100 million in sales and 15 million in assets for a public utility. It was in Graham's times. Today I would go no less than 10 billion in sales and 5 billion in assets. Why look at size? Because there's much, much less trouble with established companies. Small companies have to prove to the world that their business model works. Big companies have done that. Big difference for the defensive investor. A sufficiently strong financial condition. Assets at least twice current liabilities, long-term debt should not exceed net current assets working capital. For public utilities, the debt should not exceed twice the stock equity at book value. So he doesn't like that when investing for the defensive investor. Because the higher the debt, the higher the risk is. And even if it doesn't look like now that debt is an issue, because everybody's piling, piling, piling, piling debt because of the lower interest rates, here and there the risk pile, the risk pile, pile, pile, but then it booms. And if you are a defensive investor, you don't want that in your portfolio. Earning stability, 10 years of positive earnings, because it shows that the company is stable, no matter what. Dividend record, uninterrupted payments for at least the past 20 years. Why? Your return depends on the available cash and stability. 20 years of dividends show that there will be available cash, that there is stability and that the company will probably do good. The company will do good if it has done good in the last 10 years. And that's why he wants earnings growth. At least one-third increase in earnings over the past 10 years using three-year averages. So the three-year average of, let's say in this case, 2007-89 compared to the three-year average of now, 2018, 2017-16 or whatever fits best. Moderate price earnings ratio, no more than 50 times average price earnings of the past three years. Why? Because the average earnings define your investment returns. Price earnings of 15 is a return of 100 divided by 15 equals 6.6. And you can see, okay, what will be my earnings return and that's the only return we investors can focus on. Moderate ratio of price to assets, current price should not be more than 1.5 times the book value last reported. Why? The lower the price to book, the less risk as there are assets backing the value. So if there are no assets and then when earnings disappear, which happens here and there, there is nothing to protect the stock price and the stock price crashes. And that's something you don't want to see as a defensive investor. Graham goes a little bit deeper. If the price earnings ratio is low enough, the price to book can be higher. Rule of thumb is price earnings ratio times price to book should be lower than 22.5. For example, 15 times earnings times 1.5 price to book equals 22.5. However, also nine times earnings times 2.5 book equals 22.5. As said, why? The earnings determine your long term return and the assets will protect you from nasty surprises. And then Graham discusses something very important. It's about two kind of investors. One looks at what will happen in the future and one looks at what happened in the past. So we have protection against prediction. So you have to see, okay, what kind of investor you are. If you can predict, nobody can predict what will happen. But 90% of the people love that prediction, okay, what will happen, the growth, especially when things go well. However, if you are a defensive investor, focus on protection, what happened in the past, get your value from the past. Completely opposite investing styles, but this one gives you much more safety. And over the very long term, value stocks have destroyed growth stocks over the past 90 years. So probably those will do the same over the next 90 years. So the prediction way can be called qualitative approach. The protection way can be called statistical approach. To conclude, as always, diversification margin of safety from diversification and proper exposure. Don't forget for the defensive investor, bonds and stocks between 25 and 75% of the portfolio depending on yields, returns, risks, inflation, and other metrics. When stocks are overvalued, be more in bonds as you should be if you are in defensive investor now and holding short term bonds or a plethora of bonds and repurchasing as they mature. To conclude, is it possible to find such stocks that fit all those seven criteria in this market? Well, that's a very good question. So when I'll have time, I'll dig into that because I think it will make an extremely interesting video. Thank you for watching, looking forward to your comments. If you have some stocks that fit that criteria, please share in the comments. See ya!