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Alan Kring Productions and Associations with Emergent Light Studio presents the Illinois

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State Collegiate Compendium, academic lectures in Business and Economics.

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This is Business Finance, FIL 190 for spring semester 2024.

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Today Fundamentals of Business.

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This is actually Chapter 1.

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I'm catching up here, some of Chapter 1.

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But before I do anything in terms of content on a given day, I open up the lectures by

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saying let's look at the numbers.

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And every day we do this.

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Now some of you may be more informed about how to read the stock markets and the bond

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markets and commodity markets.

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Some of you aren't.

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But I bring you up to the speed and I use the terminology, oftentimes the lingo of the

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field.

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In other words, as a practitioner in finance having owned a penny stock house, having worked

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in the industry and provided consulting and having students, former students out there

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now, I sometimes use terminology or I give you insights that are not part of the normal

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flow.

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And understand that what I am doing in this course and what we do in finance at a university,

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one of the ranked universities of the country, we are taking you down the path of finance

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that is for finance professionals.

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Not for day traders, not necessarily for arbitrageurs, although we'll talk about those speculators.

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These are the kinds of thinking patterns and data collection that we do when we are in

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charge of a lot of money.

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Now obviously no one in here, including me, has a lot of money.

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And when I say a lot, it used to be kind of funny to talk about a billion dollars and

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now that ship is sale.

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We're now in the trillions.

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But you'll be dealing with money either in corporate life, lots of money, or you will

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be dealing in a brokerage house environment or in the real estate industry where the numbers

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are large beyond imagination and your responsibilities are serious.

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You make a mistake in these businesses.

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It can be a lot of money that is lost.

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Another warning to you, the SEC is the federal body that oversees securities law.

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It is an agency, and I'll give you this again, one of the things you'll get used to in my

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lectures is I say the same things over and over again from one lecture to the next, just

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laying on this knowledge and just beginning to use it commonly at first and then later

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giving you more firmer definitions.

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But the SEC is the heavy duty body.

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They set up regulations that are then promulgated to brokerage houses and to other industry

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participants.

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These are the thou shalt nots.

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In other words, an agency is an interpreter of laws and then the agency is responsible

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for seeing to it that those laws are turned into regulations that are doable by the industry

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in which regulations are set.

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However, there are a lot of overlapping agencies that watch us.

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Public is the SEC.

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You make a mistake, the SEC can take civil action against you.

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If you make big mistakes, they can refer for criminal action to the Department of Justice,

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the DOJ.

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That's one level.

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Then you have the states that have their own divisions of securities and other regulatory

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bodies of interest and they can come after you as they have in my past.

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In matter of fact, there are some states that I still would not go to to this day because

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of trouble that I got into.

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I'll tell you more about that in time.

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However, then there are the self-policing organizations like the NASD, the National Association

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of Securities Dealers.

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They will watch over you and they were the ones with whom I interacted the most over

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when I was working in the consulting industry.

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And then we have another body, FINRA.

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FINRA is overseeing us as well.

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They are proud of bragging about how many of these brokers and advisors that they crack

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down on and fine and get out of the business.

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Well here's the reality of FINRA.

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FINRA will go after the little people and they will squash them by literally the thousands.

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But they will leave the giants alone.

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They won't even touch them.

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That's FINRA.

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FINRA is really be careful because they're watching and they want feathers in their cap.

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I'm being honest with you about this.

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This is not the traditional text.

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FINRA is there to protect the average investor from activities that are not in the average

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investor's good.

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Bullshit.

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They'll do that at the low level but they will not do it at the high level.

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Just like the SEC is afraid at a certain level, even the SEC is not in the mood to get into

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a fight with some of the heaviest and the dirtiest players in our business.

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But that's the reality of it.

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We behave responsibly in our business.

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We're not in it for ourselves.

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We are agents of some larger entity, generally speaking.

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Now we can play for our own hand.

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Hell, I do all the time.

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And sometimes I violate my own rules about what you should and should not do.

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But when we get into that environment where we are managing a portfolio for some wealthy

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client, where we are in a corporation and we are managing cash flows, some of which

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will go to the pensions of everyday hardworking people, when we are in the real estate industry

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and our main job is not to make ourselves big wigs and fancy people but to make sure

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that housing is moved to its best possible use, that means that we have to watch what

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we're doing and we have to think in a longer term framework.

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We're not trading to make a buck tomorrow.

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We're trading over a long period of time and I will show you a lot about that.

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If you, in other words, buy and hold strategies are superior by the data, year after year

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after year, to these jump in, jump out, dance around like a chihuahua.

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No, you hold on and you don't get scared.

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I'll tell you a story about this from my own military experience many, many years ago.

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Our job is to hold our cool, stay frosty.

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Our other job is to make our enemies scatter, freak them out, make them panic.

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This goes clear back to the Roman legions, goes back to the 300 of Sparta.

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The commander would say, Spartans hold or legio hold, stand your ground, let them come

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to us and we don't panic.

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If it's a down market, I don't care if it's a black swan, a black swan is a really, really

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bad day.

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You know, a bad day where people jump off buildings.

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Even in a black swan, you don't shit yourself.

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You just stand there and say, okay, it goes down and it will come back up.

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That's the reality of it.

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During the 2008 catastrophe, the people who freaked out and ran, well, they were selling

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out after the prices had gone down.

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It took them an average of five to seven years to get back to where they were right before

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hell broke loose.

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The people who just held on, rode it down, rode it back, two and a half years they were

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back to where it had been.

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That's just reality and that's the data.

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That's not an opinion, that's the hard data of it.

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Now, it sounds like I'm getting a little harsh here, but I've got to get you guys to the

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point where you are pros.

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Pros don't panic.

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Pros don't look for the quickie, the fast deal, the arbitrage or some recommendation

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from some idiot talking head on the internet in financial news network or some blog.

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You can think for yourselves and I want to make sure you come out of my class able to

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look at these numbers that I'm going to pull up here and know for yourself what they are

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telling you.

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It's not that hard.

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There's an old rule back from my time in probability theory.

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You can either use simple statistics or statistics that need a PhD.

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If you're trying to play in the middle with self-designed weird stuff, you're wasting

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your time.

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Simple numbers can tell a story that will carry you on past this course.

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So without further ado, now I do apologize for using Yahoo!

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Fidance for these, but that's just the way it is.

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I mean, I can go into Standard Poor's Global Net Advantage and I'm going to show you that.

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You should have been shown that in your Business 100 class, but I'm going to take you into

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Standard Poor's Global Net Advantage.

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I want to take you into my own TD Ameritrade account, but I pulled that TD Ameritrade account

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up and my account number is there and I can't figure out how to get rid of it.

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I've had some of their techs help me, but no, I'm not going to let you have a chance

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at my account.

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Yeah, Drebaugh.

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Well, there's not much in there now.

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You have to be honest about this.

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Several times I'm up really good and there are other times when I am so poor, I am PO

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PO, I can't afford the OR, so I'm just PO.

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And that's what's happened a couple of times recently, so I'm down nasty.

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I was straight up, in my fund money, I was up to almost 12 grand.

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Right now I've got $600 in there.

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Boy, was that a nasty options play.

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Anyway, okay.

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Now I'm going to talk to you about the numbers.

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Listen to the words that I use.

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Whether or not you know anything about this or not, I want to use terminology.

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We're going to look at the broad numbers.

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First of all, there are two kinds of numbers that are going to come up here.

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The ones that have a number after them, see like the Standard Poor's 500, the Dow 30,

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Russell 2000, those are just index portfolios.

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They're hypothetical portfolios.

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Well we put together 500 ginormous companies and we track the portfolio day to day.

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Okay.

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That would tell you something.

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The Dow 30, that is 30 of the giants of the earth.

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We used to call it, and you may even hear me slip once in a while, the Dow industrials.

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They're not industrials anymore.

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I think the originators of the Dow 30 would turn over in their graves if they knew that

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Mickey Mouse was one of the Dow 30 now.

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But there you are.

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And then the Russell 2000.

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This is kind of a hodgepodge and it's kind of hard to say, well what does this mean?

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We're going to talk about that in this class.

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You want to get a sense of different parts of the economy.

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The NASDAQ is a full blown exchange.

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It's an actual exchange.

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It is an electronic exchange.

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It's been around forever.

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I mean I was using NASDAQ screens back in the 1980s and in my brokerage house we were

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using the NASDAQ electronic BBS for buying and selling, doing trades.

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This was in the early 90s.

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So it's purely electronic.

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There's no floor, no physical place.

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It's just everywhere.

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Now another exchange would be the giant New York Stock Exchange, the NYSE.

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I mean those are the big, big heavies that are on the NYSE and other ones are out there

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too.

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I keep bringing up the American Stock Exchange, the Amex, but it kind of doesn't exist anymore.

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But do know that exchanges are everywhere and there are not just the national exchanges.

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There are regional exchanges too like the Philly X and others like that where they're

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limited in their region and in the scale of the companies on them, but they're out there.

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Now all over the world there are exchanges and there are also index portfolios.

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Generally speaking in Europe they're not called exchanges.

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They're called BORSEs, B-O-U-R-S-E-S.

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Well the London BORSE or the Swiss BORSE or something like that.

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It's an exchange.

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I guess that's their term for it.

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The Han, the Tokyo exchange, the Hong Kong exchange and all of these.

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They're just all over the world.

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Exchanges are by country.

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Interestingly I teach in third world, third world, second world countries.

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Boy that could get me hanged in those countries, second world countries.

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And even those have their own exchanges.

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I had this experience with these representatives.

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They were delegates that I taught finance to from the Republic of Ghana and they wanted

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me to go on our exchange.

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You've got to see this.

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We have a real exchange.

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And I thought, oh, that surprises me.

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So I went on it.

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There were like a handful of companies.

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Trading volume was a couple of hundred shares a day.

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So I was polite.

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I thought, this is great.

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But look at that one.

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It just traded 10 shares.

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That company did.

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Some of them are huge.

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But it's a place where buying and selling can happen.

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The whole name of the game for us is liquidity of the markets.

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Liquidity.

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And man, that word comes up all the time for us.

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Now understand, liquidity is the efficiency with which an asset can be converted to another

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asset.

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Liquidity is the efficiency with which an asset can be converted to another asset.

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Liquidity is the efficiency with which an asset can be converted to another asset.

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By the way, if I repeat a definition two or three times,

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guarantee it's gonna be on a quiz or an exam.

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Now you gotta be careful because you go on Wiccustupedia

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or Investo-stupedia, they'll give you another definition.

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It sounds almost like mine, but it's incorrect.

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Now let me explain liquidity in terms of markets.

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You need to have enough efficiency, in other words,

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a low enough transactions cost,

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that you can get trades done quickly,

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these days, almost instantaneously.

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In fact, early in the morning, one of the places

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where you can play markets a little bit,

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and I've been successful too,

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is in those first few minutes when the market opens,

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you see the liquidity building.

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And once in a while, you'll see slight price defects,

239
00:17:29,280 --> 00:17:32,440
because there's not enough liquidity to move orders

240
00:17:32,440 --> 00:17:35,480
from the buyer-sell column that were pending

241
00:17:35,480 --> 00:17:39,000
in the overnight market out into the actual execution

242
00:17:39,000 --> 00:17:40,320
of the trade.

243
00:17:40,320 --> 00:17:41,640
So it happens.

244
00:17:41,640 --> 00:17:43,840
Now I'm using a lot of terminology here.

245
00:17:43,840 --> 00:17:46,880
Don't worry, I just keep talking about it over and over again

246
00:17:46,880 --> 00:17:48,520
until you get to the point

247
00:17:48,520 --> 00:17:50,880
where you can use the same terminology.

248
00:17:50,880 --> 00:17:53,880
But that liquidity is a very important thing.

249
00:17:53,880 --> 00:17:58,320
Our markets are so damn liquid, it's ridiculous though.

250
00:17:58,320 --> 00:18:00,640
The trading volume, let me show you something here,

251
00:18:00,640 --> 00:18:01,760
real quick.

252
00:18:01,760 --> 00:18:06,280
Let's look at the S&P 500 index portfolio.

253
00:18:08,840 --> 00:18:11,840
The average volume on a given day

254
00:18:12,720 --> 00:18:16,120
is almost four billion shares.

255
00:18:16,120 --> 00:18:17,600
This is those 500 stocks.

256
00:18:17,600 --> 00:18:20,360
The total amount of trading in those stocks

257
00:18:20,360 --> 00:18:22,480
on an average day over the last day,

258
00:18:22,480 --> 00:18:25,320
on an average day over the last 52 weeks,

259
00:18:25,320 --> 00:18:27,760
has been almost four billion.

260
00:18:27,760 --> 00:18:29,680
Now it's obviously gonna be smaller now

261
00:18:29,680 --> 00:18:32,800
because the market's just ding dinged about an hour,

262
00:18:32,800 --> 00:18:35,720
hour and a half ago, something like that, I don't know.

263
00:18:35,720 --> 00:18:37,640
But you can see that that, I mean,

264
00:18:37,640 --> 00:18:41,920
this is ludicrous kind of trading volume.

265
00:18:41,920 --> 00:18:44,040
And by the way, once in a while,

266
00:18:44,040 --> 00:18:47,440
you'll hear me use the term OBV, on balance volume.

267
00:18:48,880 --> 00:18:50,280
I'm throwing a lot at you here.

268
00:18:50,280 --> 00:18:53,120
Just get used to it, we just go keep going through this

269
00:18:53,120 --> 00:18:54,520
over and over again.

270
00:18:54,520 --> 00:18:55,900
But on balance volume,

271
00:18:57,560 --> 00:18:59,440
going back to the ancient times

272
00:18:59,440 --> 00:19:02,640
where we used paper and pencils and pens,

273
00:19:02,640 --> 00:19:06,360
we always had what's called an open order book.

274
00:19:06,360 --> 00:19:08,720
Every broker had it,

275
00:19:08,720 --> 00:19:12,360
where you would have open orders listed.

276
00:19:12,360 --> 00:19:14,720
The name, the trading symbol, whatever,

277
00:19:14,720 --> 00:19:16,040
and the number of shares,

278
00:19:16,040 --> 00:19:18,920
it's a buy or a sell and all of that.

279
00:19:18,920 --> 00:19:21,800
And through the day, you would be filling in

280
00:19:21,800 --> 00:19:24,760
that open order book, line by line, down,

281
00:19:24,760 --> 00:19:28,200
as trades came in and then they were executed.

282
00:19:29,840 --> 00:19:32,080
And then at the end of the day,

283
00:19:32,080 --> 00:19:37,080
those were aggregated and you got the on balance volume

284
00:19:39,160 --> 00:19:41,580
for the day, the OBV.

285
00:19:42,720 --> 00:19:45,960
But there are other markets now, dark markets,

286
00:19:45,960 --> 00:19:48,200
where a lot of trading is happening too.

287
00:19:48,200 --> 00:19:51,880
So when you see that almost four billion,

288
00:19:51,880 --> 00:19:55,040
it's probably maybe about a billion more than that,

289
00:19:55,040 --> 00:19:56,940
half a billion to a billion more than that

290
00:19:56,940 --> 00:19:59,120
because of the dark market activity.

291
00:19:59,120 --> 00:20:02,680
This is illegal activity.

292
00:20:02,680 --> 00:20:05,640
It's just transactions that happen in the dark web

293
00:20:05,640 --> 00:20:08,040
and with proprietary prop houses

294
00:20:08,040 --> 00:20:09,520
and all that kind of stuff.

295
00:20:09,520 --> 00:20:13,080
And so that's becoming somewhat noticeable now.

296
00:20:13,080 --> 00:20:16,440
Once in a while, now eventually,

297
00:20:16,440 --> 00:20:18,080
something that happens in the dark market,

298
00:20:18,080 --> 00:20:23,080
the trade, it will percolate back up into the open volume

299
00:20:25,160 --> 00:20:28,440
when it's traded at some point later on.

300
00:20:28,440 --> 00:20:29,640
And so sometimes you'll have,

301
00:20:29,640 --> 00:20:31,760
where the hell did that come from?

302
00:20:31,760 --> 00:20:33,160
It would probably something that happened

303
00:20:33,160 --> 00:20:35,440
in the dark markets months ago and now,

304
00:20:35,440 --> 00:20:38,120
whoever got the order filled in the dark

305
00:20:39,480 --> 00:20:41,960
when it came into the light to get rid of the order

306
00:20:41,960 --> 00:20:43,400
or something like that.

307
00:20:43,400 --> 00:20:46,040
But yeah, so this isn't the whole thing now.

308
00:20:46,040 --> 00:20:51,040
So you'll hear me say OBV, open the on balance volume,

309
00:20:51,120 --> 00:20:53,000
because that's the one we see.

310
00:20:53,000 --> 00:20:55,080
What's happening in the dark?

311
00:20:55,080 --> 00:20:56,920
There are ways that I could see parts of it,

312
00:20:56,920 --> 00:21:01,080
but it's distributed and decentralized, it's defied.

313
00:21:01,080 --> 00:21:04,280
So I couldn't tell you how much is actually there

314
00:21:04,280 --> 00:21:05,800
on any given day.

315
00:21:05,800 --> 00:21:09,760
Not even a guess would probably be legit.

316
00:21:09,760 --> 00:21:13,640
But anyway, we'll take you back up to the front end here

317
00:21:13,640 --> 00:21:16,040
and get you into this.

318
00:21:16,040 --> 00:21:21,040
Okay, now, these are indexes and exchanges, okay?

319
00:21:22,840 --> 00:21:24,840
However, they aren't the whole world

320
00:21:24,840 --> 00:21:28,280
because the world is made up of commodities as well.

321
00:21:28,280 --> 00:21:31,680
There's a pretty one right there, crude oil.

322
00:21:31,680 --> 00:21:36,680
Crude oil is a world of its own and it affects us

323
00:21:37,800 --> 00:21:42,200
because eventually wither goes the crude oil prices,

324
00:21:42,200 --> 00:21:44,720
so goes our gasoline prices.

325
00:21:44,720 --> 00:21:47,440
Now this is just one benchmark.

326
00:21:47,440 --> 00:21:49,520
This is light sweet Brent,

327
00:21:49,520 --> 00:21:54,520
but there are literally dozens of grades of oil.

328
00:21:54,800 --> 00:21:56,880
I did work in the oil and gas industry

329
00:21:56,880 --> 00:21:59,320
down in Texas years ago.

330
00:21:59,320 --> 00:22:01,760
And I mean, what came out of the ground there

331
00:22:01,760 --> 00:22:06,040
was this what we call sour sludge, almost tar,

332
00:22:06,040 --> 00:22:09,800
stunk like the dead dinosaurs it came from.

333
00:22:09,800 --> 00:22:14,800
It was just awful, worth nearly the barrel per barrel price

334
00:22:15,000 --> 00:22:17,000
of this light sweet stuff.

335
00:22:17,000 --> 00:22:18,760
And then there are grades in between,

336
00:22:18,760 --> 00:22:22,160
intermediates of all kinds, intermediate crews,

337
00:22:22,160 --> 00:22:25,320
and those all have their own prices.

338
00:22:25,320 --> 00:22:28,320
The crude that you see here is just a benchmark

339
00:22:28,320 --> 00:22:32,800
because usually the other ones follow the price of this

340
00:22:32,800 --> 00:22:34,840
and this is the price per barrel.

341
00:22:34,840 --> 00:22:38,280
It is affected by supply and demand dynamics,

342
00:22:38,280 --> 00:22:41,760
but as is the truth of all finance,

343
00:22:41,760 --> 00:22:44,800
it is not based upon what happened yesterday.

344
00:22:44,800 --> 00:22:48,360
It's what is the case now and what we think it will be

345
00:22:48,360 --> 00:22:51,520
tomorrow and the days after tomorrow.

346
00:22:51,520 --> 00:22:53,360
So when I see the price of crude,

347
00:22:53,360 --> 00:22:55,680
see how it popped a little bit this morning?

348
00:22:55,680 --> 00:22:56,720
That by the way, right there,

349
00:22:56,720 --> 00:22:59,480
what you see there is called a spark chart.

350
00:22:59,480 --> 00:23:01,640
Now you can do these for yourself in Excel

351
00:23:01,640 --> 00:23:04,320
that are kind of fun to do, make a quick note.

352
00:23:04,320 --> 00:23:08,320
So you notice that crude has been sinking

353
00:23:08,320 --> 00:23:10,480
and then something spooked the market a little bit

354
00:23:10,480 --> 00:23:12,720
and then something really spooked the market

355
00:23:12,720 --> 00:23:15,040
and it popped a little more.

356
00:23:15,040 --> 00:23:16,560
What spooked the market?

357
00:23:16,560 --> 00:23:18,720
I didn't check on what was going on today

358
00:23:18,720 --> 00:23:21,440
to be honest with you, but it's probably something like,

359
00:23:21,440 --> 00:23:24,800
oh yeah, we've got a little more activity

360
00:23:24,800 --> 00:23:27,200
among those combatants in the Middle East

361
00:23:27,200 --> 00:23:29,800
and that's going to affect the price of oil

362
00:23:29,800 --> 00:23:31,920
and if we piss off Iran too much,

363
00:23:31,920 --> 00:23:34,120
they're going to close the Strait of Hormuz

364
00:23:34,120 --> 00:23:36,880
and start putting land mines in there

365
00:23:36,880 --> 00:23:39,240
and firing sunburn and silkworm missiles

366
00:23:39,240 --> 00:23:41,000
at anything that comes through.

367
00:23:41,000 --> 00:23:43,360
That's a disruption of the supply chain

368
00:23:43,360 --> 00:23:46,920
and so that should make the price of oil go up a little bit.

369
00:23:46,920 --> 00:23:48,840
I want you to start thinking in these terms,

370
00:23:48,840 --> 00:23:51,240
supply and demand, expectations of what's

371
00:23:51,240 --> 00:23:54,160
going to happen next, not what happened yesterday,

372
00:23:54,160 --> 00:23:56,240
what's going to happen next.

373
00:23:56,240 --> 00:23:59,640
So yeah, we got a little bit of an excitement there.

374
00:23:59,640 --> 00:24:02,600
Seems like the Ukrainian situation is pretty much

375
00:24:02,600 --> 00:24:05,360
in a stable mood right now.

376
00:24:05,360 --> 00:24:08,920
There is oil shipped through the Black Sea

377
00:24:08,920 --> 00:24:13,920
and of course, that becomes a target for the combatants,

378
00:24:13,920 --> 00:24:16,280
Ukraine on one side and Russia on the other,

379
00:24:16,280 --> 00:24:19,920
although they've agreed not to shoot each other's ships

380
00:24:19,920 --> 00:24:21,640
with commodities in it.

381
00:24:21,640 --> 00:24:23,080
But anyway, there you go.

382
00:24:23,080 --> 00:24:24,320
That's crude oil.

383
00:24:24,320 --> 00:24:28,080
It tends to like to play in bands.

384
00:24:28,080 --> 00:24:30,400
In other words, right now it's got a trading ban

385
00:24:30,400 --> 00:24:35,280
from about 72 to 79 and it's going to work in there.

386
00:24:35,280 --> 00:24:38,600
Now it's popped above that band, obviously,

387
00:24:38,600 --> 00:24:39,520
a couple of years ago.

388
00:24:39,520 --> 00:24:44,120
It's skyrocketed up 125, something like that.

389
00:24:44,120 --> 00:24:47,520
But then it found its way back into this band right here.

390
00:24:47,520 --> 00:24:51,240
It went a little below that band at one point.

391
00:24:51,240 --> 00:24:55,040
So the oil prices went up.

392
00:24:55,040 --> 00:24:56,720
So that means that gas prices are

393
00:24:56,720 --> 00:25:01,400
going to go up, not necessarily and not right away.

394
00:25:01,400 --> 00:25:04,560
You also have to look at how much crude oil is

395
00:25:04,560 --> 00:25:07,880
in the reserve tanks, on the high seas,

396
00:25:07,880 --> 00:25:10,080
how much is made to the refineries.

397
00:25:10,080 --> 00:25:12,680
You also have to ask, what are the competitors

398
00:25:12,680 --> 00:25:16,680
and what are their supply conditions for that crude oil?

399
00:25:16,680 --> 00:25:19,240
Oil can be turned into gasoline, but it can also

400
00:25:19,240 --> 00:25:24,560
be turned into distillates like diesel, kerosene, jet fuel.

401
00:25:24,560 --> 00:25:28,880
So if the diesel is way high in price,

402
00:25:28,880 --> 00:25:32,320
well, there's probably going to be an effort by the refineries

403
00:25:32,320 --> 00:25:34,600
to take some of that oil that would have been used to make

404
00:25:34,600 --> 00:25:40,160
gas and use that to make some of the diesel.

405
00:25:40,160 --> 00:25:41,360
Just the way it works.

406
00:25:41,360 --> 00:25:43,920
So it's a complex scenario.

407
00:25:43,920 --> 00:25:46,560
It's not something, understand this,

408
00:25:46,560 --> 00:25:48,920
and I think I've already said this a little bit.

409
00:25:48,920 --> 00:25:51,960
You are learning and you are going

410
00:25:51,960 --> 00:25:56,000
to become more knowledgeable than easily 99%

411
00:25:56,000 --> 00:25:57,800
of the people in this country.

412
00:25:57,800 --> 00:26:02,840
It's your responsibility to know what's really going on.

413
00:26:02,840 --> 00:26:04,840
Let them have their bread and circuses.

414
00:26:04,840 --> 00:26:06,720
Let them have their conspiracy theories.

415
00:26:06,720 --> 00:26:09,120
Let them think whatever they will,

416
00:26:09,120 --> 00:26:13,080
as long as they leave us alone and let us get the real work

417
00:26:13,080 --> 00:26:15,600
done of the big people.

418
00:26:15,600 --> 00:26:19,720
So just a little elitism there.

419
00:26:19,720 --> 00:26:21,920
And don't think that you're a common person.

420
00:26:21,920 --> 00:26:25,520
You're in this class, so you ain't no common person anymore.

421
00:26:25,520 --> 00:26:26,720
Gold.

422
00:26:26,720 --> 00:26:30,120
Gold is a metal.

423
00:26:30,120 --> 00:26:33,840
Gold is a little different from silver and copper,

424
00:26:33,840 --> 00:26:38,320
because gold has this weird ass cult around it.

425
00:26:38,320 --> 00:26:40,160
We call them the gold bugs.

426
00:26:40,160 --> 00:26:42,400
You should buy gold right now, because the world

427
00:26:42,400 --> 00:26:44,480
is going to come to an end.

428
00:26:44,480 --> 00:26:45,000
Quit.

429
00:26:45,000 --> 00:26:46,440
Stop it.

430
00:26:46,440 --> 00:26:51,000
So they sometimes have surges that spike the price of gold

431
00:26:51,000 --> 00:26:54,920
when they get together on some back channel on the internet

432
00:26:54,920 --> 00:26:57,440
and start getting spooked by things.

433
00:26:57,440 --> 00:27:00,840
And then it settles back down after a while.

434
00:27:00,840 --> 00:27:03,240
More likely, you're going to get a picture of what

435
00:27:03,240 --> 00:27:06,480
the commodities are if you're interested in metals

436
00:27:06,480 --> 00:27:08,240
by looking at silver.

437
00:27:08,240 --> 00:27:12,760
So notice how gold did not pattern silver.

438
00:27:12,760 --> 00:27:18,360
Now gold and silver are gold is highly speculative.

439
00:27:18,360 --> 00:27:20,720
It has an underlying supply and demand.

440
00:27:20,720 --> 00:27:25,160
Gold for electronics, gold for cosmetic jewelry,

441
00:27:25,160 --> 00:27:26,200
that kind of stuff.

442
00:27:26,200 --> 00:27:31,720
But it is heavily affected by those loopies that come in

443
00:27:31,720 --> 00:27:34,160
and run around and then run back out.

444
00:27:34,160 --> 00:27:37,280
Silver is not so likely to be affected

445
00:27:37,280 --> 00:27:42,360
by those random, bizarre things that happen.

446
00:27:42,360 --> 00:27:45,280
Although once about a year ago, was it?

447
00:27:45,280 --> 00:27:49,680
Some idiots on Reddit told everyone to buy silver.

448
00:27:49,680 --> 00:27:51,880
And for some bizarre reason.

449
00:27:51,880 --> 00:27:55,320
So there was one of those unexpected and very rare

450
00:27:55,320 --> 00:27:57,560
odd behaviors of silver.

451
00:27:57,560 --> 00:28:02,000
But mostly silver is driven just like copper and titanium

452
00:28:02,000 --> 00:28:03,720
and all those by the supply and demand

453
00:28:03,720 --> 00:28:09,040
dynamics of the markets that are constituents for those metals.

454
00:28:09,040 --> 00:28:11,560
Now I'm going to go in next week and talk to you

455
00:28:11,560 --> 00:28:14,760
about currencies, how you think about them.

456
00:28:14,760 --> 00:28:18,480
One of the classes that I teach here is international finance.

457
00:28:18,480 --> 00:28:22,120
Currencies and international finance are actually fun.

458
00:28:22,120 --> 00:28:24,520
The math is not hard, but you get

459
00:28:24,520 --> 00:28:29,400
to talk about geopolitics and geoeconomics and stuff

460
00:28:29,400 --> 00:28:30,440
like that.

461
00:28:30,440 --> 00:28:33,760
And so they can actually be kind of fun markets.

462
00:28:33,760 --> 00:28:37,280
OK, now let me go over here.

463
00:28:37,280 --> 00:28:38,480
Bonds.

464
00:28:38,480 --> 00:28:42,720
This is a benchmark 10-year treasury.

465
00:28:42,720 --> 00:28:43,400
A benchmark.

466
00:28:43,400 --> 00:28:45,880
There are bond maturities of all kinds.

467
00:28:45,880 --> 00:28:48,040
You'll see that later in the course.

468
00:28:48,040 --> 00:28:52,080
And but we use the 10-year treasury

469
00:28:52,080 --> 00:28:56,200
as a benchmark for where all bond prices are going.

470
00:28:56,200 --> 00:28:59,680
Now understand that what you're seeing there is not a price.

471
00:28:59,680 --> 00:29:01,600
It is a yield.

472
00:29:01,600 --> 00:29:04,880
The yield and the price are mathematically inversely

473
00:29:04,880 --> 00:29:06,800
related.

474
00:29:06,800 --> 00:29:08,240
They are inversely related.

475
00:29:08,240 --> 00:29:09,520
You'll see that as I said.

476
00:29:09,520 --> 00:29:11,280
You'll see that later in the course.

477
00:29:11,280 --> 00:29:17,680
So when I see that the bond market has dropped,

478
00:29:17,680 --> 00:29:18,800
see that?

479
00:29:18,800 --> 00:29:20,920
Yields have gone down.

480
00:29:20,920 --> 00:29:23,240
That would mean that the price has gone up.

481
00:29:23,240 --> 00:29:24,560
There's buying activity.

482
00:29:24,560 --> 00:29:28,560
Demand is pushing to push prices up.

483
00:29:28,560 --> 00:29:32,280
Mathematically, that makes the yields go down.

484
00:29:32,280 --> 00:29:36,960
That's good news for us, because as those yields go down,

485
00:29:36,960 --> 00:29:40,320
that is an indication that interest rates in general

486
00:29:40,320 --> 00:29:44,720
are sliding, which will increase business activity.

487
00:29:44,720 --> 00:29:47,320
So that's kind of a good thing there.

488
00:29:47,320 --> 00:29:50,640
Yeah, apparently, all these investors are buying bonds.

489
00:29:50,640 --> 00:29:53,600
A lot of investors are grabbing up bonds.

490
00:29:53,600 --> 00:29:54,800
Demand goes up.

491
00:29:54,800 --> 00:29:56,000
Price goes up.

492
00:29:56,000 --> 00:29:57,960
Yield goes down.

493
00:29:57,960 --> 00:30:01,560
One of those chains of logic we have to rely on.

494
00:30:01,560 --> 00:30:04,520
You had your economics courses here, right?

495
00:30:04,520 --> 00:30:06,000
Yeah, OK.

496
00:30:06,000 --> 00:30:08,800
I used to teach economics.

497
00:30:08,800 --> 00:30:11,720
In a typical class, I'm assuming that you're probably

498
00:30:11,720 --> 00:30:15,720
a little sharper on remembering supply and price

499
00:30:15,720 --> 00:30:19,120
and demand and quantity demand and all that kind of stuff.

500
00:30:19,120 --> 00:30:22,000
But I'll still emphasize it over and over again in here,

501
00:30:22,000 --> 00:30:25,800
just so that you bake that into your thinking.

502
00:30:25,800 --> 00:30:30,400
You see, bonds are safer than stocks in general.

503
00:30:30,400 --> 00:30:36,280
That means that if you are worried about stock prices

504
00:30:36,280 --> 00:30:41,360
or companies and the economy, you will move.

505
00:30:41,360 --> 00:30:46,400
You will sell stocks and buy bonds.

506
00:30:46,400 --> 00:30:49,880
You'll move away from the risk.

507
00:30:49,880 --> 00:30:54,000
We call that flight to quality.

508
00:30:54,000 --> 00:30:57,720
Flight to quality is the movement

509
00:30:57,720 --> 00:31:03,440
of a large-scale movement of investors' funds

510
00:31:03,440 --> 00:31:07,280
from riskier assets to safer assets.

511
00:31:07,280 --> 00:31:12,080
It is the large-scale movement of investors' funds

512
00:31:12,080 --> 00:31:16,720
from riskier assets to safer assets.

513
00:31:16,720 --> 00:31:20,160
Flight to quality.

514
00:31:20,160 --> 00:31:25,000
There's an old saying going back decades.

515
00:31:25,000 --> 00:31:30,800
From stocks to bonds, from bonds to gold, from gold to bullets.

516
00:31:30,800 --> 00:31:35,440
Let's hope that we don't get that scared.

517
00:31:35,440 --> 00:31:38,320
But literally, you will see, sometimes, you

518
00:31:38,320 --> 00:31:41,120
will see investors bailing out of stocks.

519
00:31:41,120 --> 00:31:44,520
You'll see stock prices going down and bond yields going

520
00:31:44,520 --> 00:31:46,720
down, which means bond prices are going up.

521
00:31:46,720 --> 00:31:48,480
The investors are selling their stocks,

522
00:31:48,480 --> 00:31:52,560
using the proceeds to buy bonds.

523
00:31:52,560 --> 00:31:56,160
But if it's really bad, well, hell, we're

524
00:31:56,160 --> 00:31:59,160
going to sell our stocks and our bonds.

525
00:31:59,160 --> 00:32:01,880
We're going to buy ourselves some gold,

526
00:32:01,880 --> 00:32:05,960
because you could trade that even during the zombie apocalypse.

527
00:32:05,960 --> 00:32:09,080
And don't forget, zombie apocalypse, double tap,

528
00:32:09,080 --> 00:32:11,280
cardio, all that.

529
00:32:11,280 --> 00:32:12,760
Some of you know what I meant.

530
00:32:12,760 --> 00:32:14,400
Some of you don't.

531
00:32:14,400 --> 00:32:16,640
OK, whatever.

532
00:32:16,640 --> 00:32:19,040
But yeah, so look here.

533
00:32:19,040 --> 00:32:21,280
Look.

534
00:32:21,280 --> 00:32:21,800
OK.

535
00:32:25,120 --> 00:32:30,040
We see that the stocks are going up in price,

536
00:32:30,040 --> 00:32:32,320
and the bonds are going up in price.

537
00:32:32,320 --> 00:32:33,520
Well, that's good news.

538
00:32:33,520 --> 00:32:37,200
I mean, there's general, oh, buy some stocks, buy some bonds,

539
00:32:37,200 --> 00:32:38,520
make a nice balanced portfolio.

540
00:32:38,520 --> 00:32:39,280
Everyone's excited.

541
00:32:39,280 --> 00:32:40,520
Gold's going down.

542
00:32:40,520 --> 00:32:42,480
So no one's going for gold.

543
00:32:42,480 --> 00:32:45,120
That's a good sign when both of those markets

544
00:32:45,120 --> 00:32:49,880
are showing strength, because that means that investors are

545
00:32:49,880 --> 00:32:51,440
not in any kind of panic.

546
00:32:51,440 --> 00:32:53,480
They're just filling in their portfolios,

547
00:32:53,480 --> 00:32:55,680
balancing some stocks with some bonds,

548
00:32:55,680 --> 00:32:56,960
and all that kind of stuff.

549
00:32:56,960 --> 00:32:58,040
That's a nice day.

550
00:32:58,040 --> 00:32:59,680
It's a good day.

551
00:32:59,680 --> 00:33:03,200
Now, before I go any further, let me make a point very clear

552
00:33:03,200 --> 00:33:05,680
here.

553
00:33:05,680 --> 00:33:14,240
See that, well, S&P 500 has gone up $7.97.

554
00:33:14,240 --> 00:33:16,000
$7.97.

555
00:33:16,000 --> 00:33:16,720
Well, you know what?

556
00:33:16,720 --> 00:33:20,160
We don't give a rat's ass about that.

557
00:33:20,160 --> 00:33:22,800
All that matters are percentages.

558
00:33:22,800 --> 00:33:25,360
All that matters are percentages in our business.

559
00:33:25,360 --> 00:33:28,120
The Dow went up 700 points.

560
00:33:28,120 --> 00:33:31,760
How big whoopty-doo, who cares?

561
00:33:31,760 --> 00:33:33,960
How poor was the percentage gain?

562
00:33:33,960 --> 00:33:35,640
Let me explain.

563
00:33:35,640 --> 00:33:40,120
You buy a stock for $10, and it goes up $1.

564
00:33:40,120 --> 00:33:42,320
That's a 10%.

565
00:33:42,320 --> 00:33:44,600
Well, you also bought a stock for $100,

566
00:33:44,600 --> 00:33:46,160
and it went up $1.

567
00:33:46,160 --> 00:33:48,000
Same amount.

568
00:33:48,000 --> 00:33:51,360
But, well, spank me, Jesus.

569
00:33:51,360 --> 00:33:53,760
They are not going to be able to buy a stock.

570
00:33:53,760 --> 00:33:57,000
They are not the same.

571
00:33:57,000 --> 00:34:00,080
You see, percentages are all that matter to us.

572
00:34:00,080 --> 00:34:02,600
And it will drive people crazy sometimes

573
00:34:02,600 --> 00:34:06,080
when you just kind of ignore the prices.

574
00:34:06,080 --> 00:34:08,840
All that matters are the percentage changes

575
00:34:08,840 --> 00:34:12,200
from one minute to the next, from one day to the next,

576
00:34:12,200 --> 00:34:14,120
from one year to the next.

577
00:34:14,120 --> 00:34:16,640
Because we convert everything.

578
00:34:16,640 --> 00:34:18,680
Well, remember I told you about liquidation.

579
00:34:18,680 --> 00:34:20,680
We want everything in dollars.

580
00:34:20,680 --> 00:34:26,000
But then we want anything that's a change in percentages.

581
00:34:26,000 --> 00:34:28,000
Because the dollar amounts themselves

582
00:34:28,000 --> 00:34:29,560
really don't matter much.

583
00:34:35,240 --> 00:34:36,640
So keep that in mind.

584
00:34:36,640 --> 00:34:40,800
But here we see, before I go any further,

585
00:34:40,800 --> 00:34:47,400
you notice that the Dow at the ginormous end of the economy

586
00:34:47,400 --> 00:34:51,240
and the NASDAQ, which is small scrappy companies,

587
00:34:51,240 --> 00:34:54,240
small caps as we call them for the most part,

588
00:34:54,240 --> 00:34:56,680
they went up pretty good too.

589
00:34:56,680 --> 00:35:01,480
But there's that big giant swath in the middle, the S&P 500,

590
00:35:01,480 --> 00:35:08,760
that's just peeing along at about 15%, 16%, 5%, 0.16%.

591
00:35:08,760 --> 00:35:15,520
So apparently that big, heavy 500 big companies of the world.

592
00:35:15,520 --> 00:35:18,280
And by the way, those 500 are about 2 thirds

593
00:35:18,280 --> 00:35:21,480
of the entire world economy, which is kind of scary.

594
00:35:21,480 --> 00:35:24,440
That's the one you would look at if you wanted a world

595
00:35:24,440 --> 00:35:27,120
portfolio, which we'll talk about later.

596
00:35:27,120 --> 00:35:28,920
But it's not doing as well.

597
00:35:28,920 --> 00:35:30,320
It's still up.

598
00:35:30,320 --> 00:35:34,160
And you see all of them up for the day.

599
00:35:34,160 --> 00:35:40,360
So we have a bull market today.

600
00:35:40,360 --> 00:35:43,040
A bull market is a market going up.

601
00:35:43,040 --> 00:35:46,720
A bear market is a bear market going down.

602
00:35:46,720 --> 00:35:48,600
The old joke is if it's going up and down,

603
00:35:48,600 --> 00:35:52,000
we call it a kangaroo market.

604
00:35:52,000 --> 00:35:56,200
So tomorrow, or rather on Wednesday,

605
00:35:56,200 --> 00:35:57,880
I'll bring up the number and I'll say,

606
00:35:57,880 --> 00:36:00,120
is it a bull day or a bear day?

607
00:36:00,120 --> 00:36:01,840
And you'll say, well, it's a bull day.

608
00:36:01,840 --> 00:36:02,880
No, you say bull.

609
00:36:02,880 --> 00:36:03,840
It's a bull day.

610
00:36:03,840 --> 00:36:05,760
You've got to be positive about it.

611
00:36:05,760 --> 00:36:09,240
But this one isn't a spectacular bull day.

612
00:36:09,240 --> 00:36:12,840
I mean, I'm not going to say no to the money

613
00:36:12,840 --> 00:36:14,760
that I'm making here today.

614
00:36:14,760 --> 00:36:19,440
But it's not one of those big, big upswing days.

615
00:36:19,440 --> 00:36:21,000
But from minute to minute, notice

616
00:36:21,000 --> 00:36:26,040
how it was rolling upward at the start.

617
00:36:26,040 --> 00:36:30,040
You see all the spark charts were coming up.

618
00:36:30,040 --> 00:36:33,200
On the opening bell, there was buy pressure.

619
00:36:33,200 --> 00:36:36,840
The buy volume was larger than the sell volume.

620
00:36:36,840 --> 00:36:38,040
So that was overall.

621
00:36:38,040 --> 00:36:41,880
So that was bringing up the prices.

622
00:36:41,880 --> 00:36:47,640
But then the bears came in and they started saying,

623
00:36:47,640 --> 00:36:50,560
no, I'm not going to let you do that today.

624
00:36:50,560 --> 00:36:52,600
And so you notice that they've all topped

625
00:36:52,600 --> 00:36:56,320
and they're drifting downward now.

626
00:36:56,320 --> 00:36:58,000
Nothing major going on here.

627
00:36:58,000 --> 00:36:59,800
This is just how it works.

628
00:36:59,800 --> 00:37:02,320
You can get into this thing where you just kind of stare

629
00:37:02,320 --> 00:37:04,880
at it from minute to minute because it begins

630
00:37:04,880 --> 00:37:08,600
to have kind of a fascination all of its own.

631
00:37:08,600 --> 00:37:11,240
But keep in mind that greed is driving everyone.

632
00:37:11,240 --> 00:37:13,400
There is no charity in this.

633
00:37:13,400 --> 00:37:15,720
This is all objective.

634
00:37:15,720 --> 00:37:19,080
The heavies and the hard players,

635
00:37:19,080 --> 00:37:23,240
they don't give a rat's ass about the political environment.

636
00:37:23,240 --> 00:37:25,960
Well, this politician said, or that politician,

637
00:37:25,960 --> 00:37:28,280
we don't care about that at all.

638
00:37:28,280 --> 00:37:31,640
We're looking at our expectations of the future

639
00:37:31,640 --> 00:37:34,040
at any given point in time.

640
00:37:34,040 --> 00:37:37,760
So if I am up there at that peak, well, that's a peak.

641
00:37:37,760 --> 00:37:38,480
We better run.

642
00:37:38,480 --> 00:37:40,520
How do you know that's the peak?

643
00:37:40,520 --> 00:37:44,680
You're running because you got some news that something bad

644
00:37:44,680 --> 00:37:46,000
was going to happen.

645
00:37:46,000 --> 00:37:49,320
Not something major bad, but that gave the bears

646
00:37:49,320 --> 00:37:54,160
the incentive to ride in, sell, and the bull said, OK, I'll

647
00:37:54,160 --> 00:37:55,880
sell.

648
00:37:55,880 --> 00:37:57,440
It happens from minute to minute,

649
00:37:57,440 --> 00:38:00,360
and it's from hour to hour.

650
00:38:00,360 --> 00:38:05,200
And that's what's driving this, not some spooky conspiracy

651
00:38:05,200 --> 00:38:05,720
theory.

652
00:38:05,720 --> 00:38:10,360
These are just the actions of a physical system

653
00:38:10,360 --> 00:38:13,520
driven by greed, pure and simple.

654
00:38:17,560 --> 00:38:19,200
Mother's work is never done here.

655
00:38:19,200 --> 00:38:21,720
I've got to get down to the other part of the lecture here.

656
00:38:21,720 --> 00:38:25,080
But let me show you something real quick here.

657
00:38:25,080 --> 00:38:28,640
And no, I'm not going to do cryptocurrencies.

658
00:38:28,640 --> 00:38:31,480
If you think for one minute that I'm going to look at the crypto

659
00:38:31,480 --> 00:38:34,560
markets, you are wrong.

660
00:38:34,560 --> 00:38:36,640
But look here.

661
00:38:36,640 --> 00:38:38,280
These are just a couple.

662
00:38:38,280 --> 00:38:40,240
Notice these are indexes.

663
00:38:40,240 --> 00:38:44,200
But they are indexes from other exchanges.

664
00:38:44,200 --> 00:38:53,440
The Nikkei, that's 225 big stocks on the Tokyo Exchange.

665
00:38:53,440 --> 00:38:55,680
It gives us a sort of a pulse of what's

666
00:38:55,680 --> 00:38:59,120
going on in the overall exchange itself.

667
00:38:59,120 --> 00:39:04,620
But that market was happening last night.

668
00:39:04,620 --> 00:39:06,360
They're all asleep now.

669
00:39:06,360 --> 00:39:09,440
While we were in bed, they were rolling.

670
00:39:09,440 --> 00:39:14,120
So if you are going to be a global player, a global warrior

671
00:39:14,120 --> 00:39:19,080
in the future economies, you've got to be a clocker.

672
00:39:19,080 --> 00:39:23,760
Some place is always awake and alive and rolling.

673
00:39:23,760 --> 00:39:27,840
Now, as the sun, it was nighttime here.

674
00:39:27,840 --> 00:39:29,800
And that Nikkei was trading.

675
00:39:29,800 --> 00:39:33,240
They were yelling and chopping each other and screaming

676
00:39:33,240 --> 00:39:35,160
and all that kind of stuff.

677
00:39:35,160 --> 00:39:39,240
And then the sun set in Japan.

678
00:39:39,240 --> 00:39:43,120
And it was rising across Europe and lighting up

679
00:39:43,120 --> 00:39:44,160
their exchanges.

680
00:39:44,160 --> 00:39:47,240
And then it lit up the London Exchange,

681
00:39:47,240 --> 00:39:55,160
the Financial Times Securities Exchange, 100 stocks

682
00:39:55,160 --> 00:39:57,200
on the London Exchange.

683
00:39:57,200 --> 00:40:00,180
And then they were alive and rolling.

684
00:40:00,180 --> 00:40:03,160
And then as the sun was going down,

685
00:40:03,160 --> 00:40:07,280
the East Coast of the United States was waking up.

686
00:40:07,280 --> 00:40:09,160
And there's a little bit of an overlap

687
00:40:09,160 --> 00:40:13,400
between when the closing bell happens in London

688
00:40:13,400 --> 00:40:16,720
and when the opening bell happens in the United States.

689
00:40:16,720 --> 00:40:18,520
I think we're past it now.

690
00:40:18,520 --> 00:40:25,160
But you can see that the FTSE, I'm pretty sure that's done.

691
00:40:25,160 --> 00:40:26,880
No, it's still awake.

692
00:40:26,880 --> 00:40:28,840
You see it?

693
00:40:28,840 --> 00:40:30,800
Look, see how the numbers are still changing?

694
00:40:30,800 --> 00:40:33,240
So they're still at the end of their day.

695
00:40:33,240 --> 00:40:34,600
They're about to say, Jolly good.

696
00:40:34,600 --> 00:40:37,040
Let's go have tea and crumpets or something like that.

697
00:40:37,040 --> 00:40:40,080
And then this comes up over here, and we wake up to sausage,

698
00:40:40,080 --> 00:40:44,600
gravy, and five eggs, extra cholesterol on our side.

699
00:40:44,600 --> 00:40:46,960
And we are alive now.

700
00:40:46,960 --> 00:40:48,920
And they're getting ready to close.

701
00:40:48,920 --> 00:40:51,480
They're near to see how they're really close to the end.

702
00:40:51,480 --> 00:40:57,900
But you see how each market, each country, each exchange

703
00:40:57,900 --> 00:40:59,320
has its own players.

704
00:40:59,320 --> 00:41:05,160
But they all work on the same forward leaning analysis.

705
00:41:05,160 --> 00:41:09,560
And so over there, Nikkei had a decent day.

706
00:41:09,560 --> 00:41:14,160
But notice that it started out up.

707
00:41:14,160 --> 00:41:17,560
But then it just kind of drifted a little bit up.

708
00:41:17,560 --> 00:41:21,140
But most of the real change happened right

709
00:41:21,140 --> 00:41:24,880
off the bat in Tokyo.

710
00:41:24,880 --> 00:41:30,240
In London, you can see that it started out up.

711
00:41:30,240 --> 00:41:33,860
But then, just like it happened here, oddly enough,

712
00:41:33,860 --> 00:41:36,280
the Bears took over, drilled it, actually

713
00:41:36,280 --> 00:41:39,000
went to negative for the day, about a little

714
00:41:39,000 --> 00:41:41,280
after lunchtime in London.

715
00:41:41,280 --> 00:41:43,160
But then the Bulls came back.

716
00:41:43,160 --> 00:41:45,720
They lost their losing a little bit of their mojo

717
00:41:45,720 --> 00:41:46,760
here at the end.

718
00:41:46,760 --> 00:41:49,200
That could be some profit taking.

719
00:41:49,200 --> 00:41:52,280
You see, if I've made money through a day,

720
00:41:52,280 --> 00:41:55,800
sometimes I will dump a little bit of my stock at the end,

721
00:41:55,800 --> 00:41:59,040
take the profit, and wait for what happens tomorrow.

722
00:41:59,040 --> 00:42:01,760
So sometimes you will see a little bit of a drop

723
00:42:01,760 --> 00:42:06,320
towards the end of a day as some of the players

724
00:42:06,320 --> 00:42:10,200
what we call skim the cream off their portfolio

725
00:42:10,200 --> 00:42:13,400
and wait for what's going to be exciting for the next day.

726
00:42:13,400 --> 00:42:16,720
But whatever happened in London, then we come over here

727
00:42:16,720 --> 00:42:19,720
to the United States.

728
00:42:19,720 --> 00:42:21,560
And the opening bell.

729
00:42:21,560 --> 00:42:24,000
However, make no mistake, these markets

730
00:42:24,000 --> 00:42:29,480
are not asleep before the bell rings in the morning

731
00:42:29,480 --> 00:42:32,840
and after the bell rings to close at night.

732
00:42:32,840 --> 00:42:34,720
There is the aftermarket.

733
00:42:34,720 --> 00:42:38,040
These are buy and sell orders that are being put in

734
00:42:38,040 --> 00:42:39,520
after hours.

735
00:42:39,520 --> 00:42:41,760
And they build pressure.

736
00:42:41,760 --> 00:42:44,680
Like if there are a lot of sell order or buy orders,

737
00:42:44,680 --> 00:42:47,200
let's say, overnight, and then there's

738
00:42:47,200 --> 00:42:51,040
the pre, the pre-market, where more buy and sell orders are

739
00:42:51,040 --> 00:42:53,120
being put in before the bell rings.

740
00:42:53,120 --> 00:42:58,200
Those create pressures either for a price drop or price rise.

741
00:42:58,200 --> 00:43:02,760
So those can actually cause some interesting things to happen.

742
00:43:02,760 --> 00:43:05,440
At the beginning, you can see there on the Nikkei.

743
00:43:05,440 --> 00:43:07,480
Did you see how that thing started out up there

744
00:43:07,480 --> 00:43:08,480
in the green?

745
00:43:08,480 --> 00:43:13,360
That was a lot more on balance buy orders than sell orders.

746
00:43:13,360 --> 00:43:16,160
And when the bell opened, that floodgate

747
00:43:16,160 --> 00:43:19,160
trade because the orders were there to clear off

748
00:43:19,160 --> 00:43:22,080
the open order book.

749
00:43:22,080 --> 00:43:23,680
So you get that too.

750
00:43:23,680 --> 00:43:26,720
And sometimes, if you take one of my late classes,

751
00:43:26,720 --> 00:43:30,920
matter of fact, you'll see that all the stock price activity

752
00:43:30,920 --> 00:43:34,120
is still changing.

753
00:43:34,120 --> 00:43:37,920
But it's aftermarket activity, where the price is changing,

754
00:43:37,920 --> 00:43:41,760
but it's not official until the next trading day opens.

755
00:43:41,760 --> 00:43:43,880
And then, surprise, sometimes it's

756
00:43:43,880 --> 00:43:46,720
something big that happens.

757
00:43:46,720 --> 00:43:49,280
And that can cause some interesting things

758
00:43:49,280 --> 00:43:53,640
on liquidity in the first few minutes after the bell opens.

759
00:43:53,640 --> 00:43:57,200
As those orders start getting executed, your liquidity

760
00:43:57,200 --> 00:44:01,880
can drain out if it's a lot of sell orders real fast.

761
00:44:01,880 --> 00:44:04,880
Or suddenly, the liquidity could go through the roof

762
00:44:04,880 --> 00:44:10,280
within seconds if it's a lot of buy orders that are suddenly

763
00:44:10,280 --> 00:44:13,800
being filled, and that liquidity is flowing into the brokerage

764
00:44:13,800 --> 00:44:16,720
house coffers.

765
00:44:16,720 --> 00:44:18,160
Had enough of that?

766
00:44:18,160 --> 00:44:20,520
I'll take you through a stock on Monday,

767
00:44:20,520 --> 00:44:23,240
and we'll start looking at the nuts and bolts

768
00:44:23,240 --> 00:44:27,360
of financial, of basic investment analysis.

769
00:44:27,360 --> 00:44:28,640
It's not hard.

770
00:44:28,640 --> 00:44:32,360
You just have to remember what numbers tell you what things.

771
00:44:32,360 --> 00:44:38,400
But for the remainder of this class for today,

772
00:44:38,400 --> 00:44:42,560
I've got to step back here a little bit.

773
00:44:42,560 --> 00:44:45,360
Most of what I am going to tell you here

774
00:44:45,360 --> 00:44:48,560
and what's in the book, you should have

775
00:44:48,560 --> 00:44:51,280
been taught in business 100.

776
00:44:51,280 --> 00:44:53,920
In some cases, you didn't hear it.

777
00:44:53,920 --> 00:44:55,200
You're a new student.

778
00:44:55,200 --> 00:44:59,160
In other cases, they didn't even push it too hard on you.

779
00:44:59,160 --> 00:45:01,360
But in our world, we have to know these things.

780
00:45:03,840 --> 00:45:06,880
Let's see.

781
00:45:06,880 --> 00:45:11,840
You, sir, you are an entrepreneurial sort.

782
00:45:11,840 --> 00:45:14,880
You have decided that you want to make some money,

783
00:45:14,880 --> 00:45:17,220
a side hustle.

784
00:45:17,220 --> 00:45:21,080
So you buy yourself a lawn mower and a truck,

785
00:45:21,080 --> 00:45:26,560
and you go around and you mow lawns for rich people.

786
00:45:26,560 --> 00:45:28,920
Well, who do I make this check out to?

787
00:45:28,920 --> 00:45:29,680
It's you.

788
00:45:29,680 --> 00:45:31,520
You are that company.

789
00:45:31,520 --> 00:45:33,680
You are that company.

790
00:45:33,680 --> 00:45:36,960
That means, for one thing, that all of the money

791
00:45:36,960 --> 00:45:40,120
that you make after you pay bills is yours.

792
00:45:40,120 --> 00:45:42,080
There's no question about it.

793
00:45:42,080 --> 00:45:44,200
But so is all of the risk.

794
00:45:44,200 --> 00:45:47,160
You're going along mowing some rich person's house here

795
00:45:47,160 --> 00:45:51,200
in town, and you don't see their poodle.

796
00:45:56,200 --> 00:45:59,720
Oh, you give that animal a show dog trim.

797
00:45:59,720 --> 00:46:02,480
Well, they sue you.

798
00:46:02,480 --> 00:46:06,360
They can sue everything they are suing you.

799
00:46:06,360 --> 00:46:07,840
They will take your mower.

800
00:46:07,840 --> 00:46:09,640
They will take your truck.

801
00:46:09,640 --> 00:46:12,400
And they will take, as a matter of fact,

802
00:46:12,400 --> 00:46:16,560
they will shoot your dog, sell your Bible on Craigslist,

803
00:46:16,560 --> 00:46:19,440
and make your parents wear furries.

804
00:46:19,440 --> 00:46:22,280
They can do that.

805
00:46:22,280 --> 00:46:23,640
Because you are all at risk.

806
00:46:23,640 --> 00:46:26,600
You are a sole proprietor.

807
00:46:26,600 --> 00:46:28,000
You are a sole proprietor.

808
00:46:31,240 --> 00:46:34,080
You are all at risk.

809
00:46:34,080 --> 00:46:36,240
And when you die, the company dies.

810
00:46:39,000 --> 00:46:40,120
That's all there is to it.

811
00:46:43,160 --> 00:46:45,680
There's nothing else about this.

812
00:46:45,680 --> 00:46:46,840
It's very simple.

813
00:46:46,840 --> 00:46:50,040
Simplest organizational form there is.

814
00:46:50,040 --> 00:46:53,080
And it has been happening by volume.

815
00:46:53,080 --> 00:46:57,520
Sole proprietorships are the largest category

816
00:46:57,520 --> 00:47:00,600
of businesses on Earth.

817
00:47:00,600 --> 00:47:01,520
We're pretty sure.

818
00:47:01,520 --> 00:47:06,440
We know sole proprietorships go back far into the past

819
00:47:06,440 --> 00:47:10,560
to the Romans, the Greeks, the Egyptians.

820
00:47:10,560 --> 00:47:12,920
We have some reason to believe that we even

821
00:47:12,920 --> 00:47:18,040
saw pre-modern humans that were engaging in business.

822
00:47:18,040 --> 00:47:23,080
From some of the evidence of production activity happening

823
00:47:23,080 --> 00:47:26,160
on some of the Greek islands, possibly Neanderthals

824
00:47:26,160 --> 00:47:32,320
were going there to get the really nice flints and all

825
00:47:32,320 --> 00:47:32,640
that.

826
00:47:32,640 --> 00:47:33,880
And then they were taking them back.

827
00:47:33,880 --> 00:47:36,880
And we find those same flints from those islands

828
00:47:36,880 --> 00:47:37,800
all over the place.

829
00:47:37,800 --> 00:47:39,480
So they must have been doing some kind

830
00:47:39,480 --> 00:47:41,200
of entrepreneurial work.

831
00:47:41,200 --> 00:47:45,600
But that's the sole proprietorship.

832
00:47:45,600 --> 00:47:50,640
Now understand that this puts you all at risk.

833
00:47:50,640 --> 00:47:52,480
As you know, I have my own company,

834
00:47:52,480 --> 00:47:54,400
I Emergent Light Studio.

835
00:47:54,400 --> 00:47:57,960
It began as a sole proprietorship many years ago.

836
00:47:57,960 --> 00:48:02,360
And it was called, at that time, it was Digital Images

837
00:48:02,360 --> 00:48:04,040
by Alan Crane.

838
00:48:04,040 --> 00:48:08,080
And then you can actually change the name

839
00:48:08,080 --> 00:48:10,960
so that you have a fictitious name.

840
00:48:10,960 --> 00:48:12,880
You're allowed to do that.

841
00:48:12,880 --> 00:48:18,280
In almost every state, you can file some forms and paperwork

842
00:48:18,280 --> 00:48:19,640
and wait a while.

843
00:48:19,640 --> 00:48:25,200
And you can actually have a usable alternate name.

844
00:48:25,200 --> 00:48:29,240
In my case, just many years ago, I

845
00:48:29,240 --> 00:48:32,680
filed forms with the state of Illinois

846
00:48:32,680 --> 00:48:35,960
to change it to Emergent Light Studio.

847
00:48:35,960 --> 00:48:39,000
So I could go to my bank, and I'd

848
00:48:39,000 --> 00:48:41,280
show them that I was authorized to use this name.

849
00:48:41,280 --> 00:48:44,160
And they'd say, OK, if a check comes in under Emergent Light

850
00:48:44,160 --> 00:48:46,600
Studio, that's your bank account.

851
00:48:46,600 --> 00:48:47,520
You can do that.

852
00:48:47,520 --> 00:48:49,280
If you're interested, I can tell you how.

853
00:48:49,280 --> 00:48:49,840
It's not hard.

854
00:48:49,840 --> 00:48:52,920
It may cost about $50, something like that.

855
00:48:52,920 --> 00:48:56,960
But you can do that too.

856
00:48:56,960 --> 00:48:58,600
But it's still you.

857
00:48:58,600 --> 00:49:01,640
It's still you, even if you have an assumed name

858
00:49:01,640 --> 00:49:05,080
or a fictitious name, depending on what state you're in.

859
00:49:05,080 --> 00:49:06,920
They call it different things.

860
00:49:06,920 --> 00:49:07,760
That's fine.

861
00:49:07,760 --> 00:49:10,200
It's a good thing.

862
00:49:10,200 --> 00:49:12,800
And you do have to fill out.

863
00:49:12,800 --> 00:49:15,200
You have to report your income.

864
00:49:15,200 --> 00:49:19,640
You fill out your ordinary income from your W-2.

865
00:49:19,640 --> 00:49:22,480
But then you fill out an extra form called this.

866
00:49:22,480 --> 00:49:24,080
You don't need to know this yet.

867
00:49:24,080 --> 00:49:31,680
But it's called Schedule C. And you just say, OK,

868
00:49:31,680 --> 00:49:35,200
I made this extra money, and I had these extra expenses,

869
00:49:35,200 --> 00:49:37,560
and this is how much net I made.

870
00:49:37,560 --> 00:49:42,120
And then that reports straight as a line on your 1040.

871
00:49:42,120 --> 00:49:44,320
Unfortunately, there's another form

872
00:49:44,320 --> 00:49:46,960
you report that profit to.

873
00:49:46,960 --> 00:49:48,640
That's called the Schedule SC, where

874
00:49:48,640 --> 00:49:51,520
they calculate your Social Security tax.

875
00:49:51,520 --> 00:49:56,080
And then that number goes to your total taxes owed.

876
00:49:56,080 --> 00:50:00,120
So you get whacked twice on this.

877
00:50:00,120 --> 00:50:02,200
That becomes taxable income.

878
00:50:02,200 --> 00:50:04,280
And then there's the extra tax that you

879
00:50:04,280 --> 00:50:08,760
have to add on to your regular income tax.

880
00:50:08,760 --> 00:50:11,920
And it gets to be kind of a hurtful thing.

881
00:50:11,920 --> 00:50:14,880
And the IRS has gotten very aggressive

882
00:50:14,880 --> 00:50:18,320
in catching these little small enterprises

883
00:50:18,320 --> 00:50:20,320
over the last 10 years.

884
00:50:20,320 --> 00:50:24,080
I have found that I go to art shows.

885
00:50:24,080 --> 00:50:27,400
And these big art shows, you've got a lot of mom and pop

886
00:50:27,400 --> 00:50:30,960
operations selling soy candles or whatever.

887
00:50:30,960 --> 00:50:33,000
And you get these people all coming in and looking

888
00:50:33,000 --> 00:50:33,840
at your stuff.

889
00:50:33,840 --> 00:50:36,520
And some of them just ask too many questions.

890
00:50:36,520 --> 00:50:38,920
You can tell they're field agents for the IRS

891
00:50:38,920 --> 00:50:41,320
trying to catch the non-reporters,

892
00:50:41,320 --> 00:50:44,360
the small businesses that are non-reporters.

893
00:50:44,360 --> 00:50:46,580
So you do have to watch it, because they're

894
00:50:46,580 --> 00:50:49,360
getting more aggressive now.

895
00:50:49,360 --> 00:50:51,840
A little small entrepreneurs are destroying

896
00:50:51,840 --> 00:50:56,960
the national treasury, ruining our budget, and all that.

897
00:50:56,960 --> 00:51:01,440
Anyway, so that's the game with the sole proprietorship.

898
00:51:01,440 --> 00:51:05,240
Now, there's a little step up where you can get

899
00:51:05,240 --> 00:51:06,800
a couple of people together.

900
00:51:09,520 --> 00:51:12,240
It's a little more of a formality.

901
00:51:12,240 --> 00:51:18,200
You decide that you're going to do a business with this person.

902
00:51:18,200 --> 00:51:20,000
Now, you have to understand that that

903
00:51:20,000 --> 00:51:23,640
means that you are both jointly and severally

904
00:51:23,640 --> 00:51:28,520
liable for anything that happens bad.

905
00:51:28,520 --> 00:51:33,760
So if he screws up, you have screwed up.

906
00:51:33,760 --> 00:51:35,220
What are you going to do about it?

907
00:51:35,220 --> 00:51:38,440
Well, aside from beat the shit out of him,

908
00:51:38,440 --> 00:51:42,960
you are stuck as much as he is.

909
00:51:42,960 --> 00:51:46,240
And if either of you dies, the partnership is dead.

910
00:51:46,240 --> 00:51:50,760
It's gone, because it was nothing but two mortals.

911
00:51:50,760 --> 00:51:53,280
Just like the sole proprietorship, when he dies,

912
00:51:53,280 --> 00:51:56,840
well, I'm going to give this business to my daughter.

913
00:51:56,840 --> 00:51:57,720
No, you're not.

914
00:51:57,720 --> 00:51:59,280
The business is dead.

915
00:51:59,280 --> 00:52:01,520
As soon as you're dead, the business is dead.

916
00:52:01,520 --> 00:52:03,920
Same thing, as soon as one of the partners in a partnership

917
00:52:03,920 --> 00:52:06,160
is dead, then the business is dead.

918
00:52:06,160 --> 00:52:08,120
And you're saying, now, wait a minute, fat boy.

919
00:52:08,120 --> 00:52:11,680
I've seen these partnership law firms where a partner dies

920
00:52:11,680 --> 00:52:13,640
and the partnership doesn't go away.

921
00:52:13,640 --> 00:52:15,720
That's because they formed it properly

922
00:52:15,720 --> 00:52:17,520
with the articles of formation, which

923
00:52:17,520 --> 00:52:21,120
you have to file with the state for a partnership.

924
00:52:21,120 --> 00:52:24,800
You can make it so that it folds up and becomes

925
00:52:24,800 --> 00:52:30,640
a new partnership under the same name in the blink of an eye.

926
00:52:30,640 --> 00:52:32,880
But you have to form the partnership well

927
00:52:32,880 --> 00:52:35,400
to be able to pull that off.

928
00:52:35,400 --> 00:52:36,960
That's a partnership.

929
00:52:36,960 --> 00:52:38,480
Now, there's an intermediate form

930
00:52:38,480 --> 00:52:40,040
that I won't go through here with you,

931
00:52:40,040 --> 00:52:44,600
because in the United States, it's being done so wrong.

932
00:52:44,600 --> 00:52:48,640
And it just keeps the limited liability companies.

933
00:52:48,640 --> 00:52:53,360
Very briefly, limited liability companies

934
00:52:53,360 --> 00:52:57,160
are supposed to be limited in the liability.

935
00:52:57,160 --> 00:53:00,000
In other words, the company bears

936
00:53:00,000 --> 00:53:04,480
the liability of everything.

937
00:53:04,480 --> 00:53:08,120
But there are a couple of caveats on that.

938
00:53:08,120 --> 00:53:10,120
Membership, once the members have,

939
00:53:10,120 --> 00:53:13,080
they're called members, the owners of an LLC.

940
00:53:13,080 --> 00:53:18,160
Once the members are there, you can't really get rid of them

941
00:53:18,160 --> 00:53:21,640
or bring in new members, not without collapsing the whole

942
00:53:21,640 --> 00:53:23,560
thing and starting over.

943
00:53:23,560 --> 00:53:26,480
A cool thing about limited liability companies

944
00:53:26,480 --> 00:53:31,640
is that you can separate owners into two types, one that

945
00:53:31,640 --> 00:53:34,240
gets the cash flows and the other that

946
00:53:34,240 --> 00:53:38,720
gets the proceeds at the closure of the LLC.

947
00:53:38,720 --> 00:53:40,160
And that's the key.

948
00:53:40,160 --> 00:53:44,360
LLCs are not supposed to go forever.

949
00:53:44,360 --> 00:53:46,760
They are supposed to be a project.

950
00:53:46,760 --> 00:53:49,360
And then when that project is over,

951
00:53:49,360 --> 00:53:52,400
you go on with your life.

952
00:53:52,400 --> 00:53:54,680
The LLC collapses.

953
00:53:54,680 --> 00:53:58,200
They are ideal, and I found them ideal back many years ago

954
00:53:58,200 --> 00:54:00,640
when I was in consulting, for certain types

955
00:54:00,640 --> 00:54:05,760
of entertainment projects where you could set up, OK,

956
00:54:05,760 --> 00:54:09,080
we're going to be the distributors of a movie,

957
00:54:09,080 --> 00:54:09,920
an indie movie.

958
00:54:09,920 --> 00:54:11,400
That's all we're going to do.

959
00:54:11,400 --> 00:54:15,640
We will distribute the movie for, let's say, two years.

960
00:54:15,640 --> 00:54:20,120
And then we'll spin it off on VHS and beta.

961
00:54:20,120 --> 00:54:21,760
Yes, it's that old.

962
00:54:21,760 --> 00:54:24,600
And we will just give it over to a large retailer

963
00:54:24,600 --> 00:54:26,280
to deal with from there.

964
00:54:26,280 --> 00:54:29,480
So we'll get the distribution for a few years,

965
00:54:29,480 --> 00:54:31,640
and then we'll walk away from it.

966
00:54:31,640 --> 00:54:35,240
Now, there's a version of this called a limited partnership,

967
00:54:35,240 --> 00:54:39,280
which I did a number of, where you have one class of partners,

968
00:54:39,280 --> 00:54:40,880
general partners.

969
00:54:40,880 --> 00:54:42,520
They're paid salaries.

970
00:54:42,520 --> 00:54:44,920
They pay themselves big salaries.

971
00:54:44,920 --> 00:54:47,680
But then there's a limited partners.

972
00:54:47,680 --> 00:54:50,880
They put in the money, and then they

973
00:54:50,880 --> 00:54:56,040
get the benefits of the free cash flows.

974
00:54:56,040 --> 00:54:58,080
The limited partners are not allowed

975
00:54:58,080 --> 00:55:01,000
to do any management whatsoever.

976
00:55:01,000 --> 00:55:03,280
They have to stay on the sidelines.

977
00:55:03,280 --> 00:55:06,040
To give you an idea of one that I did a couple of times

978
00:55:06,040 --> 00:55:09,920
with several entrepreneurial types, low income

979
00:55:09,920 --> 00:55:13,200
housing for the elderly, there was a program,

980
00:55:13,200 --> 00:55:16,760
the state and the feds were both supporting,

981
00:55:16,760 --> 00:55:19,080
where if you raised a certain amount of money,

982
00:55:19,080 --> 00:55:22,880
they would match it, the state and the fed, either grants

983
00:55:22,880 --> 00:55:26,080
or zero interest loans to make nice housing.

984
00:55:26,080 --> 00:55:28,120
So the way we played it was this.

985
00:55:28,120 --> 00:55:33,240
OK, we're going to sell units of this limited partnership,

986
00:55:33,240 --> 00:55:35,480
$50,000 each.

987
00:55:35,480 --> 00:55:41,840
We'll raise $5 million, and then the state and federal government

988
00:55:41,840 --> 00:55:45,280
will match it with $5 million more.

989
00:55:45,280 --> 00:55:47,720
And then we will also get a guarantee

990
00:55:47,720 --> 00:55:50,400
from the federal government and from the state

991
00:55:50,400 --> 00:55:53,560
that they will subsidize the housing, the rent,

992
00:55:53,560 --> 00:55:54,640
of old people.

993
00:55:54,640 --> 00:55:56,400
We'll build them for old people.

994
00:55:56,400 --> 00:56:00,640
Really nice painted walls, a nice kitchenette,

995
00:56:00,640 --> 00:56:04,440
and a community area, community and all that,

996
00:56:04,440 --> 00:56:07,680
and maybe some kind of lightweight medical nurse

997
00:56:07,680 --> 00:56:10,120
on duty some hours during the day.

998
00:56:10,120 --> 00:56:12,960
And we ran them.

999
00:56:12,960 --> 00:56:16,800
Three times I was involved in it.

1000
00:56:16,800 --> 00:56:20,080
We paid ourselves really, really good salaries.

1001
00:56:20,080 --> 00:56:24,720
And then we would send the investors two documents, K1.

1002
00:56:24,720 --> 00:56:28,640
One would recognize the profit we had made for them,

1003
00:56:28,640 --> 00:56:32,080
and the other would recognize the depreciation.

1004
00:56:32,080 --> 00:56:36,040
Now in both of those cases, those investors

1005
00:56:36,040 --> 00:56:39,160
were getting negative numbers.

1006
00:56:39,160 --> 00:56:45,480
Massive losses on cash flow, massive losses

1007
00:56:45,480 --> 00:56:49,600
on the depreciation.

1008
00:56:49,600 --> 00:56:52,720
And they loved it, because then they

1009
00:56:52,720 --> 00:56:56,000
had those to write off against their real income.

1010
00:56:56,000 --> 00:56:59,160
They were professionals, doctors, lawyers, dentists,

1011
00:56:59,160 --> 00:57:01,000
architects, things like that.

1012
00:57:01,000 --> 00:57:04,160
We would give them these for $50,000.

1013
00:57:04,160 --> 00:57:09,440
They would get maybe five to seven years of huge losses

1014
00:57:09,440 --> 00:57:12,960
that would take down what was their income that

1015
00:57:12,960 --> 00:57:17,080
was taxable on their 1040s.

1016
00:57:17,080 --> 00:57:19,680
And they would call us, when are you going to do the next one?

1017
00:57:19,680 --> 00:57:21,560
We love this.

1018
00:57:21,560 --> 00:57:25,560
So in other words, it was a tax loss vehicle.

1019
00:57:25,560 --> 00:57:27,320
And all we did, we didn't care.

1020
00:57:27,320 --> 00:57:28,980
We made our money off the salary.

1021
00:57:28,980 --> 00:57:32,600
And then at the end of the time, we would end the partnership.

1022
00:57:32,600 --> 00:57:37,040
We would close it out and sell the complex

1023
00:57:37,040 --> 00:57:40,200
to some real estate management company.

1024
00:57:40,200 --> 00:57:42,120
So there you go.

1025
00:57:42,120 --> 00:57:43,400
Partnerships can be cool.

1026
00:57:43,400 --> 00:57:44,680
LLCs can be cool.

1027
00:57:44,680 --> 00:57:47,120
Just don't abuse them.

1028
00:57:47,120 --> 00:57:50,360
Finally, the ultimate, the corporation.

1029
00:57:53,640 --> 00:57:59,160
Corporations, the perception often

1030
00:57:59,160 --> 00:58:03,320
is that corporations are a pretty modern thing.

1031
00:58:03,320 --> 00:58:08,280
A corporation separates the liabilities

1032
00:58:08,280 --> 00:58:12,680
from the owner's equity.

1033
00:58:12,680 --> 00:58:19,000
In other words, the corporation is a legal entity.

1034
00:58:19,000 --> 00:58:24,280
It is fully recognized as a person

1035
00:58:24,280 --> 00:58:28,240
under the laws of the United States.

1036
00:58:28,240 --> 00:58:32,760
It is responsible for its own bills.

1037
00:58:32,760 --> 00:58:39,440
It has no, well, let me put it this way.

1038
00:58:39,440 --> 00:58:42,520
The owners are just the owners.

1039
00:58:42,520 --> 00:58:45,200
They could be partly the management, the board

1040
00:58:45,200 --> 00:58:46,800
of directors, whatever.

1041
00:58:46,800 --> 00:58:49,160
But they are not the corporation.

1042
00:58:52,320 --> 00:58:56,920
11 years, no, 12 years ago in February,

1043
00:58:56,920 --> 00:59:01,600
I think February the 12th, I had a Business 100 class

1044
00:59:01,600 --> 00:59:03,560
and it was in the evening.

1045
00:59:03,560 --> 00:59:07,960
And I went in and I said, I'm going, with you watching

1046
00:59:07,960 --> 00:59:10,560
and giving me a little help, I'm going

1047
00:59:10,560 --> 00:59:13,880
to turn my sole proprietorship, Emergent Light Studio,

1048
00:59:13,880 --> 00:59:17,800
into a corporation under Illinois law.

1049
00:59:17,800 --> 00:59:19,480
Did it that in front of them.

1050
00:59:19,480 --> 00:59:22,920
It was quite a kind of a rush for them too.

1051
00:59:22,920 --> 00:59:25,760
But understand, first of all, corporations

1052
00:59:25,760 --> 00:59:27,440
are state entities.

1053
00:59:27,440 --> 00:59:30,720
They are not federal entities.

1054
00:59:30,720 --> 00:59:33,640
They are formed in a state.

1055
00:59:33,640 --> 00:59:39,480
So Emergent Light Studio, my company, is domestic in Illinois.

1056
00:59:39,480 --> 00:59:42,880
It is foreign in all other states.

1057
00:59:42,880 --> 00:59:46,560
So when I do a show in New York, I'm

1058
00:59:46,560 --> 00:59:52,640
a foreign company doing a business operation

1059
00:59:52,640 --> 00:59:59,080
in the state of New York or in Missouri or in some other place.

1060
00:59:59,080 --> 01:00:00,720
It's a state entity.

1061
01:00:00,720 --> 01:00:03,200
Now the feds get involved in all kinds of ways,

1062
01:00:03,200 --> 01:00:05,000
and I'll talk about that in a minute.

1063
01:00:05,000 --> 01:00:10,200
But anyway, they had just started it online.

1064
01:00:10,200 --> 01:00:11,760
You could incorporate online.

1065
01:00:11,760 --> 01:00:13,240
So I brought it up.

1066
01:00:13,240 --> 01:00:15,240
It was in this building on the first floor.

1067
01:00:15,240 --> 01:00:20,440
I remember distinctly over on that side

1068
01:00:20,440 --> 01:00:23,480
or on the south side.

1069
01:00:23,480 --> 01:00:27,160
And you fill out, well, what's the name of the corporation?

1070
01:00:27,160 --> 01:00:28,160
What business?

1071
01:00:28,160 --> 01:00:32,560
How many shares are authorized, which is hugely important?

1072
01:00:32,560 --> 01:00:35,960
Because once you've authorized, let's say, a million shares,

1073
01:00:35,960 --> 01:00:38,560
you cannot sell more than a million shares.

1074
01:00:38,560 --> 01:00:39,400
That's it.

1075
01:00:39,400 --> 01:00:42,280
That's your cap forever.

1076
01:00:42,280 --> 01:00:46,040
So that's why you'll see, I learned my lesson,

1077
01:00:46,040 --> 01:00:49,000
it's a double edged sword.

1078
01:00:49,000 --> 01:00:51,240
But normally, in this one, it was

1079
01:00:51,240 --> 01:00:53,440
going to be a private corporation.

1080
01:00:53,440 --> 01:00:56,120
I was going to own the majority of shares,

1081
01:00:56,120 --> 01:00:59,000
and then I might grant some shares

1082
01:00:59,000 --> 01:01:02,480
through a very carefully crafted private sale.

1083
01:01:02,480 --> 01:01:05,520
But overall, it was going to be a private corporation.

1084
01:01:05,520 --> 01:01:08,840
So I authorized 1,000 shares, and I gave myself

1085
01:01:08,840 --> 01:01:10,840
501 of those shares.

1086
01:01:10,840 --> 01:01:14,920
So I would have majority even if I sold all the other shares.

1087
01:01:14,920 --> 01:01:17,080
OK, so anyway.

1088
01:01:17,080 --> 01:01:21,160
OK, where is its primary business operation?

1089
01:01:21,160 --> 01:01:23,600
And then they want you to name the agent

1090
01:01:23,600 --> 01:01:26,120
for the service of process and the address.

1091
01:01:26,120 --> 01:01:28,360
So in other words, give them a name and an address

1092
01:01:28,360 --> 01:01:31,040
so that if there's any legal paperwork of any kind,

1093
01:01:31,040 --> 01:01:32,560
they know where to send it.

1094
01:01:32,560 --> 01:01:35,080
And there were all these other things.

1095
01:01:35,080 --> 01:01:38,640
And then I went through, and I looked, OK.

1096
01:01:38,640 --> 01:01:41,000
And I submitted it.

1097
01:01:41,000 --> 01:01:45,720
And I thought, back in the old days with paper, six weeks.

1098
01:01:45,720 --> 01:01:48,920
You filed the Articles of Incorporation on paper,

1099
01:01:48,920 --> 01:01:51,160
triplicate, and the Secretary of State

1100
01:01:51,160 --> 01:01:55,800
of the State of Incorporation looked at it six weeks later.

1101
01:01:55,800 --> 01:01:56,720
But this came back.

1102
01:01:56,720 --> 01:01:59,040
I was actually shocked.

1103
01:01:59,040 --> 01:02:03,040
Within 10 minutes, it came back qualified.

1104
01:02:03,040 --> 01:02:07,480
Now, the government never approves anything.

1105
01:02:07,480 --> 01:02:09,680
The term is qualified.

1106
01:02:09,680 --> 01:02:14,920
In other words, you have met the minimum requirements

1107
01:02:14,920 --> 01:02:16,840
for this.

1108
01:02:16,840 --> 01:02:18,960
And so it was qualified.

1109
01:02:18,960 --> 01:02:20,440
That was a birth certificate.

1110
01:02:20,440 --> 01:02:25,240
It showed the number of my corporation.

1111
01:02:25,240 --> 01:02:29,760
The Articles of Incorporation was qualified on it.

1112
01:02:29,760 --> 01:02:33,160
That's a birth certificate, just like a child.

1113
01:02:33,160 --> 01:02:35,240
But then you don't stop there, because then you

1114
01:02:35,240 --> 01:02:37,080
go to the federal government, and you

1115
01:02:37,080 --> 01:02:40,800
apply for an FEIN, a Federal Employer Identification

1116
01:02:40,800 --> 01:02:41,960
Number.

1117
01:02:41,960 --> 01:02:43,000
And there you go.

1118
01:02:43,000 --> 01:02:44,160
I filed that.

1119
01:02:44,160 --> 01:02:48,640
And it was kind of interesting, because the FEIN, it said,

1120
01:02:48,640 --> 01:02:52,000
what did you put in this box on your articles?

1121
01:02:52,000 --> 01:02:53,240
What did you put here?

1122
01:02:53,240 --> 01:02:55,880
Back and forth, just shuttling between the two.

1123
01:02:55,880 --> 01:03:01,880
And I hit Go, and it was 30 seconds, and I got an FEIN.

1124
01:03:01,880 --> 01:03:05,400
That's a corporation's social security number.

1125
01:03:05,400 --> 01:03:06,840
It is like a child.

1126
01:03:06,840 --> 01:03:11,840
It is fully recognized under the law as its own legal entity.

1127
01:03:11,840 --> 01:03:15,600
It has a birth certificate, and it has a Social Security

1128
01:03:15,600 --> 01:03:16,440
Number.

1129
01:03:16,440 --> 01:03:18,800
The birth certificate is the Qualified Articles

1130
01:03:18,800 --> 01:03:20,360
of Incorporation.

1131
01:03:20,360 --> 01:03:22,720
The Social Security Number is the Federal Employer

1132
01:03:22,720 --> 01:03:24,200
Identification Number.

1133
01:03:24,200 --> 01:03:26,160
So there you go.

1134
01:03:26,160 --> 01:03:29,160
That is how you create a corporation.

1135
01:03:29,160 --> 01:03:32,960
But just like a corporation, just like a child,

1136
01:03:32,960 --> 01:03:35,760
the corporation is a corporation.

1137
01:03:35,760 --> 01:03:40,080
The corporation must be stewarded.

1138
01:03:40,080 --> 01:03:42,680
That would be the board of directors.

1139
01:03:42,680 --> 01:03:47,680
They oversee the corporation on behalf of the shareholders.

1140
01:03:47,680 --> 01:03:55,560
Their job is to maximize the wealth of the shareholders.

1141
01:03:55,560 --> 01:03:57,520
That's all their job is.

1142
01:03:57,520 --> 01:04:02,000
They are the parents of that little entity

1143
01:04:02,000 --> 01:04:06,440
called a full corporation under US law.

1144
01:04:06,440 --> 01:04:08,000
And that's why the board of directors

1145
01:04:08,000 --> 01:04:10,240
carries a major responsibility that I'll

1146
01:04:10,240 --> 01:04:11,800
get to later in the course.

1147
01:04:11,800 --> 01:04:14,440
It's called fiduciary responsibility,

1148
01:04:14,440 --> 01:04:17,480
and it is not being taught these days,

1149
01:04:17,480 --> 01:04:19,560
but it is the reality of it.

1150
01:04:19,560 --> 01:04:24,920
So now you have a corporation, and it will live forever,

1151
01:04:24,920 --> 01:04:26,440
theoretically.

1152
01:04:26,440 --> 01:04:29,240
Because it's not like, madam, did you

1153
01:04:29,240 --> 01:04:32,360
know you're going to die someday?

1154
01:04:32,360 --> 01:04:33,680
It's true.

1155
01:04:33,680 --> 01:04:36,240
And I mean, most people kind of think in their early years

1156
01:04:36,240 --> 01:04:37,040
now.

1157
01:04:37,040 --> 01:04:40,680
But someday, you'll start getting old like I am,

1158
01:04:40,680 --> 01:04:43,040
and then you'll bitch and fuss, and finally you'll die,

1159
01:04:43,040 --> 01:04:44,200
and everyone will be happy.

1160
01:04:44,200 --> 01:04:46,000
You're not fussing anymore.

1161
01:04:46,000 --> 01:04:47,160
That's the reality of it.

1162
01:04:47,160 --> 01:04:49,120
A corporation doesn't have that limit.

1163
01:04:49,120 --> 01:04:51,920
Sure, corporations die all the time by their own stupidity

1164
01:04:51,920 --> 01:04:54,400
or whatever, but they don't have to.

1165
01:04:54,400 --> 01:04:56,000
That's why a major part of this course

1166
01:04:56,000 --> 01:04:59,840
is going to be free cash flows we've

1167
01:04:59,840 --> 01:05:02,240
got to see forever out into the future

1168
01:05:02,240 --> 01:05:04,320
and collapse those back to the present,

1169
01:05:04,320 --> 01:05:08,080
because the corporation is a going concern,

1170
01:05:08,080 --> 01:05:10,600
as the accountants call it.

1171
01:05:10,600 --> 01:05:12,560
It will live forever.

1172
01:05:12,560 --> 01:05:16,520
Unlike us, and we will all be dust at some point,

1173
01:05:16,520 --> 01:05:20,680
but the companies that we create will go on.

1174
01:05:20,680 --> 01:05:24,800
And that's why it is such a major responsibility

1175
01:05:24,800 --> 01:05:30,440
to be a business person in a developed country.

1176
01:05:30,440 --> 01:05:32,320
We are living well past ourselves.

1177
01:05:32,320 --> 01:05:36,720
What we do, as King Leonidas said, what we do in this life

1178
01:05:36,720 --> 01:05:38,520
echoes an eternity.

1179
01:05:38,520 --> 01:05:39,800
Don't ever forget that.

1180
01:05:39,800 --> 01:05:41,040
That's all I have for you today.

1181
01:05:41,040 --> 01:05:41,640
I thank you.

1182
01:05:41,640 --> 01:05:55,280
Thank you.