What the enterprising investor does
Unpopular large companies, bargain issues priced below their working capital, special situations, and looking abroad.
FinanceGraham ch. 7About 5 min: 3 reading, 2 practiceUpdated
General education, not financial advice.
- Explain why Graham looked at unpopular large companies
- Calculate net current asset value per share and compare it with the price
- Explain Graham's definition of a bargain
The Intelligent Investor: Benjamin Graham's ideas: lesson 7 of 24
- Graham ch. 1
- Investment versus speculation 4 min
- Graham ch. 2
- Inflation and the investor 4 min
- Graham ch. 3
- A century of market history 5 min
- Graham ch. 4
- The defensive investor's portfolio 4 min
- Graham ch. 5
- Defensive investors and stocks 4 min
- Graham ch. 6
- What the enterprising investor avoids 4 min
- Graham ch. 7
- What the enterprising investor does 5 min
- Graham ch. 8
- Mr. Market 5 min
- Living with fluctuations 5 min
- Graham ch. 9
- Investing in funds 5 min
- Graham ch. 10
- The investor and his advisers 4 min
- Graham ch. 11
- Security analysis for the lay investor 4 min
- Graham ch. 12
- Per-share earnings and their traps 4 min
- Graham ch. 13
- Comparing four companies 4 min
- Graham ch. 14
- The defensive investor's screen 4 min
- Graham ch. 15
- The enterprising investor's screen 7 min
- Graham ch. 16
- Convertibles and warrants 6 min
- Graham ch. 17
- Four extreme case histories 7 min
- Graham ch. 18
- Eight pairs of companies 7 min
- Graham ch. 19
- Shareholders, managements and dividends 5 min
- Graham ch. 20
- Margin of safety (1): the idea 5 min
- Margin of safety (2): in practice 7 min
- Graham appendix 1
- The superinvestors of Graham-and-Doddsville 6 min
- Graham postscript
- Graham today 7 min
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Pairs with Graham, The Intelligent Investor, revised edition with commentary by Jason Zweig (HarperBusiness, 2003), chapter 7, "Portfolio Policy for the Enterprising Investor: The Positive Side"
What it is
Graham's positive suggestions for the enterprising investor:
- Relatively unpopular large companies. The market tends to overvalue glamorous growth companies and undervalue big companies going through temporary trouble. Large companies have the resources to recover, and the market notices when they do.
- Bargain issues. Graham calls a security a bargain if analysis shows it is worth at least 50% more than its price: in other words, its price is no more than about two-thirds of its value.
- Special situations ("workouts"): for example, a company being bought by another at a set price. Graham says this field had become riskier and less profitable by 1972.
The easiest bargain to spot is a share selling for less than the company's net working capital alone: current assets (cash, receivables, stock) minus all liabilities, including long-term debt and preferred stock. The buyer then pays nothing for the buildings, machinery or brand.
Quick check
Tap an answer to check it.
A company has current assets of 900, total liabilities (including preferred) of 400, and 100 shares. What is its net current asset value per share?
- Subtract all liabilities first
- Liabilities are subtracted, not added
Show answer
5. (900 − 400) ÷ 100 = 5.
Why it matters
Graham summarised what would have happened if you had bought one share of each of 85 such companies at the end of 1957 and held them two years: the group gained 75%, against 50% for a broad index of industrial stocks, and none showed a significant loss. But he adds that after 1957 such bargains became very scarce, until the 1969–70 decline produced a new crop. Zweig says true bargains are very rare, and advises buying them only by the couple of dozen and holding patiently, because any one can still fail.
Worked example
A company has 600 in current assets, 300 in total liabilities (including preferred stock) and 100 shares. Its shares trade at 2.
- Net current asset value: (600 − 300) ÷ 100 = 3 per share.
- Price ÷ value: 2 ÷ 3 ≈ 67%: exactly Graham's two-thirds margin.
Try changing the price or the liabilities:
Common mistake
Treating "cheap" as "safe" for one company. Graham's evidence is for groups of bargain stocks. A single company priced below its working capital may be losing money fast, so the working capital shrinks before the market recovers.
Key terms
- net current asset value
- current assets minus all liabilities (including preferred stock)
- working capital
- current assets minus current liabilities; Graham's "net working capital" here deducts all liabilities, including long-term debt and preferred stock
- bargain issue
- Graham: worth at least 50% more than its price
- special situation
- a share whose price depends on a specific event, such as a takeover
- unpopular large company
- a big company temporarily out of favour with the market
Practise the key terms
Tap a card to turn it over. 5 cards.
| Front | Back |
|---|---|
| net current asset value | current assets minus all liabilities (including preferred stock) |
| working capital | current assets minus current liabilities; Graham's "net working capital" here deducts all liabilities, including long-term debt and preferred stock |
| bargain issue | Graham: worth at least 50% more than its price |
| special situation | a share whose price depends on a specific event, such as a takeover |
| unpopular large company | a big company temporarily out of favour with the market |
Practice
Work it through
Current assets 1,200; total liabilities and preferred 500; 140 shares; price 3.50.
- 1,200 − 500
- 700 ÷ 140
- 3.50 ÷ 5 × 100
Quick quiz
Tap an answer to check it.
Does the stock in the last exercise meet Graham's two-thirds margin?
- 70% is more than two-thirds (about 67%)
Show answer
No: it is below net current asset value, but not by Graham's full margin. 3.50 ÷ 5 = 70% > 66.7%.
Why did Graham prefer large unpopular companies?
- Large companies can and do have bad years
Show answer
They have the resources to recover, and the market responds when they do. Resources to come back, and quicker recognition.
The other view
Zweig adds a point Graham barely touched: foreign stocks. Someone who lived in Japan in 1989, when its market was the world's favourite, and kept everything at home lost roughly two-thirds over the next decade. His lesson is not "buy foreign" but "don't bet everything on your own country", since your job and income already depend on it.
Later research on "value" strategies (buying stocks that are cheap relative to their book value) is mixed. Eugene Fama and Kenneth French (2021) found the extra return from value stocks was much lower in the second half of their 1963–2019 sample than in the first, though returns were too volatile to rule out that the expected premium was the same in both halves. Graham's methods are a discipline, not a guarantee.
Last checked: 27 October 2026.
In short
- Enterprising options: unpopular large companies, bargain issues, special situations.
- Bargain = worth at least 50% more than the price (price ≤ about two-thirds of value).
- Net current asset value = current assets − all liabilities (incl. preferred), per share.
- Buy bargains as a diversified group; any single one can fail.
Mastery check
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Check yourself
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What did Graham's 1957 group of 85 net-current-asset bargains do over two years?
Show answer
It gained 75%, against 50% for a broad industrial index, with no significant losses.
A share's value is 9. What is the highest price that meets Graham's bargain margin?
Show answer
6 (two-thirds of 9).
Why diversify among bargain stocks?
Show answer
Any one company can keep losing money; Graham's evidence is for groups.
Further reading
- Benjamin Graham, The Intelligent Investor, revised edition with commentary by Jason Zweig (HarperBusiness, 2003), chapter 7.
- Eugene F. Fama and Kenneth R. French, "The Value Premium", Review of Asset Pricing Studies 11(1), 2021, 105–121.
- On this site: Why past winners rarely repeat.
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