Good day fellow investors, I continue with my modern perspective on the intelligent investor because that book is filled with everlasting investing wisdom. We just have to apply it to the current market and see what we can learn. So today we're going to talk about chapter 7 and which discusses where can an enterprising investor does most of you that watch this video find investment opportunities in any market. There are four things that an enterprising investor has to focus on buying low and selling high, growth stocks, bargains and special situations. The buying low and selling high will be discussed in the most important chapter of Graham's book chapter 8, which will be in the next video that I make about a book. So please subscribe and today we're going to focus on other issues. And I will use stock market examples to explain in a better way. Now first what Graham discusses are growth stocks and he defines growth stocks as one as a stock that has grown better than the average and will continue to do so. We would all love to have invested in Netflix a few years ago or to find the next Netflix to invest in. The problem with growth stocks is twofold. Usually when a company shows growth it is overpriced there is hype around it and you have to pay a big price. So even if you're right on the growth you might never seen good investment returns because you overpaid. The second thing is that nothing can grow forever and if nothing can grow forever sooner or later that growth stops and then you see the stock price crash. Graham statistically analyzes returns some investment in growth stocks and finds that those are not good. And I have also made a video in the card above growth stocks versus value stocks and we have seen that value stocks outperform growth stocks by about 3 to 4% per year and that has been the case in the last 90 years. However there is a lot of debate there there can be something growth and value which is what I'm looking for. So please subscribe to the channel because there will be a lot of stocks that we discuss like the Chinese stocks that had both growth and both value. And then another problem with this long-term growth stocks is holding to them. Let's see the Apple case. So Apple stock was at $1.48 in 2003 now it has $187. It hasn't been linear growth. There was a huge drop in 2008-2009 there was a huge drop in 2013 another huge drop drop in 2016. So you might see all these returns there was another drop in 2006 I believe. So you might see these returns and I don't know a person who bought in 2003 because they saw what Apple is doing and what it will do. So it's very rarely that people held for such a long time and this is another problem with growth stocks. You never know when to get in get out should you keep hold it is the trend over or it will grow even more and that's something very difficult that practically nobody knows. So at the end game it's just a bet because there were some other examples better than Apple at that time. The growth stocks in 2003-2004-2007 were different not Apple. Blackberry was the king of the market in 2008 alongside Nokia. However you see that their stock price is now what not even a tenth of what it was in 2008. So Graham is against investing in growth stocks because it's simply not what the intelligent investor does. However I pretend to prefer growth and value when combined but then it's again a value stock. He has different concepts that we have to look at it which are the following. So here recommends the unpopular large company something Peter Lynch also looked at bargain issues and special situation. So as the market is hyped over the netflixes, over the amazon's, over. Okay Apple's was Apple was more a value play there because of the lower valuation. It these regards big companies that are in temporary trouble. However we have to really be careful with the temporary. We have to see okay is this company just in temporary trouble or it is a long-term trouble. The good thing is with big large companies in temporary trouble is that they have the capital, they have the know-how and they have the possibility to grow make acquisition and get out of that temporary rut. A company that was in temporary trouble just two years, three years ago is Walmart. It was trading at below 60 just to jump up to above 100 in the last few weeks. Graham's strategy with out of favor stock is simple by blue chips that have the lowest price earnings ratio and are currently out of favor. However be careful with that and cyclical. Cyclical companies like car automotive companies they have when everything is good they have extremely high earnings low valuations because people expect that in a recession that will change they will have low earnings and high valuations and low stock prices. So be careful with cyclicals and cyclicals and this temporary trouble approach. Low price earnings ratio. Always apply common sense but Graham shows statistical data where if you would buy the cheapest stocks in the Dow Jones index your return would would highly outperform the market. Then the second thing Graham talks about are bargain issues. He says that the bargain issue is one that's trading below the intrinsic value of the stock that has a margin of safety that is more valuable to the private owner all tools discussed in my book Modern Value Investing and then Buffett continues in the temporary clouds environment with this quote. The market is fond of making mountains out of mole hills and exaggerating ordinary vicissitudes into major setbacks. So when there is some trouble the market doesn't like it well street says no thank you and the stock price goes down creating an opportunity. On the net working capital the net working capital comprises current assets minus total liabilities current assets cash inventories securities some ad receivables etc. So when you have a company that has let's say more cash current assets then all the liabilities then you get all the fixed assets for free just for free and that in the long term because those fixed assets are supposed to produce in the long term something then or be more valuable to the private owner because the private owner buys the assets then it might be a big investment opportunity however in this market the net working capital stocks are very very rare finds and you have to be careful with the accounting and the management behind it and their intentions. One of the net net is Amira Nature Foods that I discussed here but the management didn't meet my expectations let's say I'll make a video to give an update on Amira even if there is no news but you expect it so I'll make it sometimes. Graham also touches on small cap stocks that have outperformed in the long term alongside value also check my video value versus growth where value outperformed but small caps he says are much more risky and he urges you to really know the company before investing in smaller caps due to their volatility he prefers the bigger names and let's say a little bit more defensive investor should stick to the bigger names. The first thing are special situations and workouts special situations are merger arbitrage situations where a company offers to buy out somebody else at price of 10 but the stock price is now 8 so the market is discounting the risk that the merger won't go true so if you specialize in such situations that's also a nice way to gain returns for example Warren Buffett was of course long Mon Santo because of the buyer acquisition and the workouts are things that have to work out for example when a company is sued by another company then you never know what will be the outcome of such a lawsuit it could be positive it could be negative but Wall Street doesn't like such uncertainty and they discounted the whole even positive or negative outcome and when you can find that the stock is worth more than its trading for even if there is a negative outcome to the lawsuit then it is again a special situation you can't take advantage of it however this requires a lot of work knowing what you're doing and specialization in such cases so to conclude if you want to be an enterprising investor looking at growth stocks looking at bargain stock special situations margins of safety intrinsic values you have to be fully dedicated to what you do and really invest a lot of time to understand and take advantage of the market grand believes that we can beat the market if we are real businessmen and we dedicate ourselves to investing i am 100% dedicated to investing i hope to help you by sharing what i do a little bit showing what i research what are my ideas sharing some stock picks so i hope i can help you a little bit but if you don't have the time perhaps it's better to leave your investing to somebody else or to be a defensive investor where you have a location of stocks depending on the valuation and short term bonds now because long term bonds are very risky at these interest rates so please subscribe as the next time when we touch on this stock we will discuss grams chapter eight which is the key component for all do it yourself investors thank you and i'll see you in the next video