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Alan Kring Productions and Associations with Emergent Light Studio presents

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the Illinois 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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Hey, look at the numbers.

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First things first, I use the terminology day over day, and this is early in the market's morning.

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Remember, the market is an hour different from us.

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So tell me right now, sir, is this a bull day or a bear day shaping up?

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I don't know.

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Okay, let's see. Let's get that a little bit brighter.

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Turn down the lights. I apologize for that.

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There we go. And get that idiotic ad off the screen.

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If you ask Google, I don't want to see your ad.

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Okay, now, you, madam, is this a bull day or a bear day?

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Bull day.

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You say bull. It's a bull day.

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You got to be positive about it.

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It's not necessarily a rift snorting bull day, but it is starting off on the right foot.

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And as you can see, it has been rising through the early morning.

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Started out and then it rose.

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Now, a couple of things here.

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Notice, first of all, we always look at percentages, never at the numbers themselves.

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So the Dow 30 is up a quarter of a percent.

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Then we see that the S&P 500 is up 0.65 percent and the NASDAQ is up 1.10 percent.

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That's a normal pattern because you're moving to higher risk portfolios.

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As you go through the Dow, these are the lumbering giants of the earth.

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Very low risk portfolio.

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They're not going to die. They're oligopolies, all of them.

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So they tend to have lower risk and that is always, always associated with lower expected return.

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That is one of our axioms in finance.

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I will refine that twice from where it is right now with you.

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But right now, the lower the risk, the lower the return.

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That is normal. That is the way it works.

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If you want to take higher risk, the only reason you would do that is because you expect a higher return on it.

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You, sir, we're going to go up to the top floor, up above the fourth floor, and I am going to give you $20, $10, to jump off the roof of this building.

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$10. You want to do it? Hell no. Why not? Why does that offer you $10,000?

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I think that could cover my debt.

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Yeah, just wait until a couple of squirrels walk by so they can have a thought.

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You're going to take a higher risk so you expected a higher return for taking that risk.

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That's how life is. You don't take stupid risk and markets know that.

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They know that for a fact. And that drives market performance, market behavior.

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It drives our economic behavior as well, that risk-return relationship.

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So this low-risk Dow 30 portfolio, 30 of the giants of the earth, it's not going to have as much push on it as the S&P 500.

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The S&P 500 is the 500 largest companies, pretty much, in the world.

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These are generally, if you remember from your economics learning, if they did it right, these are monopolistic competitors.

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They are monopolistic in their products in the short run, competitive in those products in the long run.

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They are the scrappers, the fighters. Most of you will work for a Fortune 500, an S&P 500 company,

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or your company will be dependent upon resources as far as purchases or sales from 500 to 500.

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They're higher risk. They have to fight for their dinner.

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Unlike the giants that just sit there, they can't be brought down.

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S&P 500s have to fight for every dollar that they have for dinner.

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So you'll see them have a, normally, typically on an unusual day, they'll either be up more or down more than the Dow.

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And then the NAS get back. It's just thousands and thousands of small, high competition, fierce competitors.

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There are a few giants in the NASDAQ that never moved to the NYSC, but they are generally going to be higher risk companies.

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They have lower prices, so they have more room to jump up.

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But that is why you will see this tend to have a higher up or a greater down than the S&P 500.

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And again, it's percentages that matter. You can't compare these numbers. These are different indexes.

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So you have to look at the percentages.

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And the Russell, God knows what that thing is measuring.

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But crude oil. Now you notice that the crude, well, before I go on here,

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notice that if you look at those spark charts, the market started the day up.

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It was a pop. See how in every one of those sparks, it began above the baseline.

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That would have been pre-market, after market and pre-market pressure was on the buy side.

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And it just exploded when the bell ding, ding, ding.

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OK, so now you've got that part of it.

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Then you go on and you see that right away, the bull said, no.

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I mean, look at what they did. They dropped the Dow almost back to the baseline for the opening.

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But it started to recover. And the NASDAQ, same thing.

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You see, the markets tend to move together, except in a more magnified fashion,

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the greater the risk of the portfolio you're looking at.

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It doesn't always happen that way. Don't get me wrong.

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We'll see days where things are just all kind of come bobbled.

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But anyway, going over here to crude. Crude is volatile AF right now.

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And it is up, down, around. And you do the hokey pokey and you turn yourself around.

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And then it's up in the sky. There is volatility. That's something that's important to us.

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You'll hear the word vol in our business.

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And I'm talking our business now because I'm with finance majors.

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The word vol can actually mean one of two things, volume or volatility.

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Now, volatility is nasty. Normally, finance people don't like volatility.

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It's not our friend. And volatile markets tend to be lower.

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That pushes down prices. The volatility does.

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But one way or the other, volatility in general, in finance, is an undesirable thing.

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There is one market, and I'll talk some about it today, where I go into that class

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and I say volatility is God to us. But in general, it is Satan to us.

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Crude markets right now are highly volatile because God knows what's going to happen next in the world.

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Up, down, oh God, the supply of crude is going to be cut because of this war or that conflict.

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Or the price of oil is going to fall because there's so much oil on the high seas and the dirty tankers.

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And the ports are open that can take them. Good news. So it's up and down.

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Rumors are much more impactful in markets like this.

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In normal markets, stock markets, rumors will move stocks a little bit. Boom, boom.

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But in these kinds of markets, everything is leverage.

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And that's a big problem. That leverage makes a tiny movement.

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A rumor on this end has a great movement on the other end of the fulcrum.

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Moving around here a little bit through the grinder.

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Now, I do want to point out something. The $2,000 per ounce for gold is kind of like, I don't know,

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it's sort of like some golden level. Above it and below it are kind of interpreted differently.

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Right now, for a while, for the past few weeks or so, I guess,

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the gold has been on the top side of that $2,000 an ounce.

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Like neckline, as we call it.

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It's kind of, you can see that it rolled up there overnight.

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By the way, these commodity markets, they're on all the time.

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There's no bell. Well, there is in the futures version.

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Our trading day is eight hours, six hours, something like that, six and a half hours.

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In the commodities markets, it's literally the world is alive.

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There are commodities moving back and forth, trades happening day and night,

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across the planet. So those markets don't sleep.

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So you see that there's, look over here.

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See how the spark charts for the day's trading are short for the stocks?

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You see that? They just started a while ago.

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Okay, over here, see the crude oil? See the gold? See the silver?

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Those are just, they've been rolling. They're always there. They're always on.

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So actually, and at this point in the course, I'm just giving you some fill in,

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some knowledge, some of that background that we in finance kind of take to be our,

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our bailiwick, our wheelhouse. All of what I'm saying here is,

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whether or not you go into anything like this, you go into investments or commodities or whatever,

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or you go into banking or real estate, this kind of basic knowledge is how we talk.

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Now you see the 10-year bond? Oh, that took a butt bath at the opening this morning.

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Did you see that? Boom. It was way down. It's been groveling back up.

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Now these are yields. They're not prices. The price is the other way.

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So this is saying that on the opening bell, the benchmark 10-year treasury bond,

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and that's the one we use as our benchmark.

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There are lots and lots of different bonds, obviously, classes of bonds and all that.

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But it started out with a big price spike, which meant a big yield dip.

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And then as the day has gone along, the yield has been crawling back up,

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which means that the price has been falling, the mirror image of it,

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as less and less demand for bonds has begun to seep in.

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That early punch of demand pushing the price up has kind of vanished,

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and so the price is tailing back down. It's almost flat.

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Right now, we see that the yield on the 10-year benchmark treasury is down 1.8 basis points.

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Now a hundredth of a percent is called a basis point.

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So I see that this is down almost, in my jargon I say, down almost two basis points so far.

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But it was down a lot more basis points earlier in the day, but it's been crawling back up.

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And I'll deal with currencies another day when I'm drunk, maybe, or had a lot of coffee.

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Now, go over here. Tokyo.

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Last night, when we were all asleep, Tokyo was in full gear, cranking along.

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I noticed Tokyo didn't have a very good day. It never did break even from the opening price.

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From the opening, it dropped right away.

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The bulls came back and tried a little bit of festivities, but the bears took over,

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and then everyone was quiet, fighting back and forth for stability.

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And then there was something that scared the markets a little more,

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and the price overall of those 225 major stocks on the Tokyo exchange, overall their composite dropped.

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And then after that, it just kind of gently crawled a little bit back up through the day.

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But overall, it finished the day down 0.8%.

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London, on the other hand, it's kind of interesting that I see the same pattern.

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They're still trading right now. It's near the end of their day, but it's not nearing the end of their day.

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But you notice how it started out up like ours did, and then it had that bear hit,

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just like ours have been showing, and then it found a little bit of steam,

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some rumors or some information came in, and then it kind of drifted along,

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and then there was a little more excitement somewhere along there, and it had another push upward.

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Now, again, well, not necessarily again, markets work on information.

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Physicality in, well, there is no real physicality in stock markets, bond markets.

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It's all an information game, and it works by one of the most fundamental physics principles, one of Newton's laws.

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An object in rectilinear motion will tend to stay in rectilinear motion unless acted upon by a force.

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In other words, something in space, if something is going in a straight line,

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the only reason it will stop going in a straight line is if something pushes it, accelerates it,

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pushes it down, pushes it up, or pushes it forward faster.

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That's what happens in stock and bond markets, too, except information is the force.

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If there's no new information coming in, a stock or a bond will just stay drifting.

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It's only on some rumor, some information, some data point, new one, nothing old matters.

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It's got to be something new, and that will bump it up or down.

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So in this case, you would see, for example, that there was this period in here

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where there wasn't anything pushing those 100 stocks one way or the other.

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And then some kind of information came in, and it was positive information,

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and that was an accelerant that lifted it.

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And then later there was something that pushed it down a little nut.

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That's how markets, stock markets, that's how individual stocks and bonds work.

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They work on new information that generally has enough of an impact

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that traders will act on it in such a way as to get the price to fall.

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It was just a little fart of a piece of rumor by one trader,

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unless that trader is important or noticeable, it won't do much.

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It has to be something that moves oceans, because these markets are huge.

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You saw the S&P 500, typical day, three, four billion shares.

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It has to be something that moves, has a lot of force,

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and has a lot of influence on a lot of traders in the market.

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Oh, mother's work is this.

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Now, first time we're going to look at an individual stock, NFLX.

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Now, I will tell you right now that Netflix plays on, is traded on the NASDAQ.

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How do I know that? Four letters.

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NFLX, NASDAQ.

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MSFT, NASDAQ.

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Something like Kroger, KR, that'd be an NYSC.

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Two letters, one, two, or three letters, probably NYSC, or an affiliated market.

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Let's go look at Netflix and chill.

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That was humor, for God's sake.

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Humorless crowd. This is a rough crowd tonight.

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Okay, now here we go. 12.48%.

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That ain't natural. That's a lot of jump.

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I mean, most of the time we're dancing, oh wow, it was up a quarter of a percent today.

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This one was up 12.44%.

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Now, that is really exciting.

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Now, what was that about?

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The expectation, Netflix was going to announce its earnings.

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It had said what it was expecting those earnings to be,

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and the market was having its expectation of what was going to happen.

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What happened?

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Netflix came in with earnings that were way above anyone's expectation.

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New information, positive information.

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That is a slap in the ass upward in the stock.

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That's what drove the stock price up.

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No, it wasn't some crossing of MACD lines or something like that, or moving averages.

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It's hard, raw information that moves stocks around.

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And this was a Jim Dandy of a day.

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I mean, that was...

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Okay, now we're going to look at some numbers.

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And when you look at these numbers, the first week or two,

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if you're not experienced with this or you don't do this,

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which some of you may do already,

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these are just going to look like a mass, well, what the hell does this mean,

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or what does that mean, all that kind of stuff.

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And I'm going to say this over and over, day in, day out,

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to the point where it begins to get into your blood,

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where you look, how you think, and how you interpret the numbers.

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And I'll give you some different, for some things, somewhat different interpretations.

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And this is the lightweight version,

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and I'll just keep doing it every day, a little more formally sometimes.

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And I'll give you a little more formal definition.

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But for the purposes of today, we're just talking,

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just a bunch of good old friends at the bar ordering boat drinks

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to take out to Cabo San Luca.

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First things first, the previous close, that was at the closing bell last night.

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The price per share of that stock was $492.19.

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Now, back in the day, you would have heard me talk more about round lots.

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It used to be that you had to buy 100 shares.

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Now, I mean, I'm still stuck in the old school,

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you don't have to do it that way anymore.

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So, in other words, a round lot of Netflix would have cost you

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just a stupid whopping $4921.90 at the closing bell yesterday.

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And then it opens at a different level.

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Do you see this? Look at this.

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That was buying pressure in the overnight and the pre.

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And when the bell opened, ding, ding, ding, pop, it was up there at the opening bell.

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So, this was the opening price this morning, $537.75.

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Now, here's the big one, bid and ask.

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The bid is what you can sell a share of NFLX at.

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00:20:43,000 --> 00:20:46,000
The ask is what you would buy it at.

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Now, Yahoo's numbers are wonky, they're not real time,

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so it can look a little weird.

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And you're saying, well, do you notice something here

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that in order to buy a share, you would have to pay $553.86,

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00:21:01,000 --> 00:21:09,000
but if you sold a share, you would get only $553.68.

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00:21:09,000 --> 00:21:11,000
Do you see that? Look right here.

241
00:21:11,000 --> 00:21:14,000
Look, see these two right here, bid and ask?

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There's your dinner right there.

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00:21:17,000 --> 00:21:24,000
Now, the reason is simple, and I speak as a former owner of a brokerage house.

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I've got to make money some way.

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So, you come in here and you say,

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I should like to buy a share of Netflix.

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00:21:33,000 --> 00:21:35,000
And I'll say, well, of course you do.

248
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And I'll say, that'll be $553.86.

249
00:21:38,000 --> 00:21:41,000
And you say, now wait a minute there, fat boy.

250
00:21:41,000 --> 00:21:45,000
I know he just sold you a share, he just sold a share,

251
00:21:45,000 --> 00:21:48,000
and you paid him only $553.68.

252
00:21:48,000 --> 00:21:50,000
So, why am I not getting?

253
00:21:50,000 --> 00:21:53,000
And I'm saying, I want to eat, okay?

254
00:21:53,000 --> 00:21:57,000
I'm kind of big on eating, even if it's spam.

255
00:21:57,000 --> 00:22:01,000
Spam is nutritious, especially the cheese version.

256
00:22:01,000 --> 00:22:05,000
You understand what I'm saying here is that there has to be a bid ask spread.

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Now, that is actually for a stock price that high, that is a very tight bid ask spread.

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00:22:11,000 --> 00:22:16,000
Now, oftentimes, the width of the spread as a percentage of one or the other of them

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00:22:16,000 --> 00:22:21,000
is going to be dependent upon how much trading activity there is in the stock.

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So, in other words, if it's a low volume stock, not a lot of buying and selling,

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I'll have a bigger bid ask spread.

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00:22:29,000 --> 00:22:32,000
I've got to make more money on each trade.

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If it's a high activity stock, that bid ask spread will tighten, it'll get really close.

264
00:22:39,000 --> 00:22:42,000
And you'll see that over and over again with stocks.

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It's that the bid ask spread kind of tells you how much interest, how much activity there is.

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But notice one thing.

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You decide, I'm going to buy that for $553.86.

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So you buy a share.

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And then your significant other walks into the room and says, are you on crack?

270
00:23:03,000 --> 00:23:04,000
We owe rent.

271
00:23:04,000 --> 00:23:05,000
What?

272
00:23:05,000 --> 00:23:08,000
Sell it.

273
00:23:08,000 --> 00:23:12,000
Well, you're going to lose 18 cents.

274
00:23:12,000 --> 00:23:14,000
Yeah, I know, right?

275
00:23:14,000 --> 00:23:18,000
You're going to say, you lost 18 cents?

276
00:23:18,000 --> 00:23:22,000
Yes, evil master.

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You understand what's going on there.

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You're in the hole.

279
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As soon as you buy a share of stock, you're in the hole.

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00:23:28,000 --> 00:23:29,000
Right off the bat.

281
00:23:29,000 --> 00:23:31,000
You've got to crawl over the spread.

282
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Of course, this one.

283
00:23:34,000 --> 00:23:37,000
Yeah, interestingly enough.

284
00:23:37,000 --> 00:23:41,000
Yeah, but like I said, don't take the Yahoo numbers too seriously.

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00:23:41,000 --> 00:23:50,000
You can go to an actual quotation platform like TD Ameritrade, Thicker Swim, or Robinhoods to see the real time.

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Because you really don't want to trade if you don't have real time data.

287
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Because things can go really nasty in seconds.

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And you didn't know it.

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But this is illustrative of the process here.

290
00:24:03,000 --> 00:24:05,000
Now I want you to look at something.

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Today's range is, and this is really not too much to talk about at this early hour of the day.

292
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But the stock has swung so far today between $357.07 and $537.07 and $562.50.

293
00:24:24,000 --> 00:24:28,000
So it has had not much, that's not much of a swing.

294
00:24:28,000 --> 00:24:36,000
And if you look at the chart so far today, can you see, see how there's really not been a lot of vol.

295
00:24:36,000 --> 00:24:38,000
There was this spike here.

296
00:24:38,000 --> 00:24:42,000
That was probably the bottom right there was that.

297
00:24:42,000 --> 00:24:48,000
And now probably right there was the peak so far today.

298
00:24:48,000 --> 00:24:52,000
Now the next one.

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The 52-week range.

300
00:24:54,000 --> 00:24:56,000
A little more interesting to us.

301
00:24:56,000 --> 00:25:02,000
Over the past 52 weeks, and let me show you one year chart.

302
00:25:02,000 --> 00:25:05,000
Will you stop hawking that crap.

303
00:25:05,000 --> 00:25:07,000
There.

304
00:25:07,000 --> 00:25:15,000
Over the past 52 weeks it has swung from a low of 285.33 to 562.50.

305
00:25:15,000 --> 00:25:22,000
So that 285.33, that's probably that trough right there.

306
00:25:22,000 --> 00:25:24,000
You see it?

307
00:25:24,000 --> 00:25:27,000
That trough right there is parked.

308
00:25:27,000 --> 00:25:30,000
And then the high is right now.

309
00:25:30,000 --> 00:25:33,000
It's at its 52-week high right now.

310
00:25:33,000 --> 00:25:39,000
So in other words asking, well is it closer to its high, 52-week high or 52-week low.

311
00:25:39,000 --> 00:25:44,000
Well right now it's at its high for the last past year.

312
00:25:44,000 --> 00:25:49,000
And notice, you see these are your volume bars.

313
00:25:49,000 --> 00:25:53,000
And you'll notice that oftentimes volume is associated.

314
00:25:53,000 --> 00:25:57,000
See how you had this hard volume through here.

315
00:25:57,000 --> 00:26:02,000
And then this vol right here was part of that spike.

316
00:26:02,000 --> 00:26:05,000
And then you had something spook the hell out of the markets.

317
00:26:05,000 --> 00:26:13,000
But it tends to see this volume spike right here that began this up run, this last run up.

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00:26:13,000 --> 00:26:17,000
Something got the markets to look favorably.

319
00:26:17,000 --> 00:26:22,000
Some information about Netflix said, well this company is going to go places.

320
00:26:22,000 --> 00:26:29,000
So there was a volume spike there that was the accelerant that pushed it up to where it is now.

321
00:26:29,000 --> 00:26:32,000
Now we can't see the volume spike here.

322
00:26:32,000 --> 00:26:35,000
But I'll bet there will be a heavy one today.

323
00:26:35,000 --> 00:26:38,000
Once we got past today you'll start to see that bar.

324
00:26:38,000 --> 00:26:41,000
But anyway, moving along here.

325
00:26:41,000 --> 00:26:46,000
Volume so far today.

326
00:26:46,000 --> 00:26:55,000
The volume so far today, and remember we're still in the morning, is 15.871 million shares.

327
00:26:55,000 --> 00:27:07,000
The daily average over the last 52 weeks for the whole day was only 4.2, 4.3 million shares.

328
00:27:07,000 --> 00:27:10,000
So in other words this is a very high volume day.

329
00:27:10,000 --> 00:27:16,000
That's all that buying activity on the unexpected earnings report.

330
00:27:16,000 --> 00:27:19,000
Okay now, going over to the other side.

331
00:27:19,000 --> 00:27:22,000
I'm going to just say this now and we'll talk about it a lot more later.

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00:27:22,000 --> 00:27:23,000
Market cap.

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00:27:23,000 --> 00:27:28,000
That's the price per share times the number of shares outstanding.

334
00:27:28,000 --> 00:27:36,000
It's the market's measurement of how much ownership, how much the total ownership of Netflix is worth.

335
00:27:36,000 --> 00:27:38,000
It's the market cap.

336
00:27:38,000 --> 00:27:43,000
In accounting we would call that the total stockholder's equity.

337
00:27:43,000 --> 00:27:48,000
But that number will almost never be even close to this number.

338
00:27:48,000 --> 00:27:53,000
The markets don't give a rat's ass what the accountants have calculated.

339
00:27:53,000 --> 00:28:02,000
Because the accountants will basically, they are meaningless to us.

340
00:28:02,000 --> 00:28:08,000
This is what the market says the total value of owner's equity is.

341
00:28:08,000 --> 00:28:10,000
As a matter of fact, give me a second here.

342
00:28:10,000 --> 00:28:11,000
You don't have to worry about doing this.

343
00:28:11,000 --> 00:28:16,000
Real quick.

344
00:28:16,000 --> 00:28:20,000
I have no bookmarks here.

345
00:28:20,000 --> 00:28:22,000
No, not Edgar Allen Poe for God's sake.

346
00:28:22,000 --> 00:28:24,000
Edgar is the reporting system.

347
00:28:24,000 --> 00:28:26,000
And I'll mention a little bit about this.

348
00:28:26,000 --> 00:28:28,000
I'm going to go over here to filings.

349
00:28:28,000 --> 00:28:32,000
This is a primary resource.

350
00:28:32,000 --> 00:28:37,000
You don't go anyplace except here to get financial information.

351
00:28:37,000 --> 00:28:44,000
And the last 10K they filed would be a 10K in January.

352
00:28:44,000 --> 00:28:48,000
Whoa, they're due for a report the next day or two.

353
00:28:48,000 --> 00:28:52,000
But let's just look at them as of last interactive data.

354
00:28:52,000 --> 00:28:54,000
I'm just going to look at this one.

355
00:28:54,000 --> 00:29:00,000
I'll tell a company I can download the Excel sheet of all of its financial statements.

356
00:29:00,000 --> 00:29:01,000
That is awesome.

357
00:29:01,000 --> 00:29:02,000
And we're going to do that.

358
00:29:02,000 --> 00:29:08,000
I'm going to get you so that you can pull down these Excel financial statements like a boss.

359
00:29:08,000 --> 00:29:12,000
Sometimes you've got like 50 tabs, but man, you can't beat it.

360
00:29:12,000 --> 00:29:14,000
And it's primary data.

361
00:29:14,000 --> 00:29:19,000
No other data that you could put in a report or term paper has the quality of this.

362
00:29:19,000 --> 00:29:23,000
Because you are reporting this to the SEC.

363
00:29:23,000 --> 00:29:29,000
And if you lie on these reports, the SEC can make you some hard timers old lady.

364
00:29:29,000 --> 00:29:32,000
Yeah, that's how serious it is.

365
00:29:32,000 --> 00:29:34,000
Let's go down here to financial statements.

366
00:29:34,000 --> 00:29:43,000
I'm going to look at the can anyone just simply say balance sheet anymore?

367
00:29:43,000 --> 00:29:45,000
There we go.

368
00:29:45,000 --> 00:29:52,000
Here is what the total shareholders equity of the company is according to the accountants.

369
00:29:52,000 --> 00:29:57,000
It's 20,777,000,000.

370
00:29:57,000 --> 00:30:01,000
Now here is what the market says the company is worth.

371
00:30:01,000 --> 00:30:05,000
242.308,000,000.

372
00:30:05,000 --> 00:30:09,000
Do you notice there's a little difference between what the accountants say the value is

373
00:30:09,000 --> 00:30:12,000
and what the markets say the value is?

374
00:30:12,000 --> 00:30:14,000
Do you notice a slight difference?

375
00:30:14,000 --> 00:30:16,000
22,000,000,000 the accountants say.

376
00:30:16,000 --> 00:30:19,000
The market says 242,000,000,000.

377
00:30:19,000 --> 00:30:21,000
Now which one is right?

378
00:30:21,000 --> 00:30:23,000
That's pretty easy.

379
00:30:23,000 --> 00:30:28,000
If the book and I disagree, who's right?

380
00:30:28,000 --> 00:30:30,000
You.

381
00:30:30,000 --> 00:30:33,000
Oh yeah, don't even pause on that bro.

382
00:30:33,000 --> 00:30:38,000
You're out on the Africans, on an African safari.

383
00:30:38,000 --> 00:30:43,000
You've got a field guide to animals on the Serengeti.

384
00:30:43,000 --> 00:30:46,000
Here you see a lion coming at you.

385
00:30:46,000 --> 00:30:50,000
I'm going to eat your lions.

386
00:30:50,000 --> 00:30:52,000
You open your guide and it says,

387
00:30:52,000 --> 00:30:54,000
Lions are very tame and they're afraid of people.

388
00:30:54,000 --> 00:30:56,000
They can even be made into pets.

389
00:30:56,000 --> 00:30:58,000
Now who are you going to believe?

390
00:30:58,000 --> 00:31:07,000
The lion who is coming at you with a dinner fork or the field guide?

391
00:31:07,000 --> 00:31:09,000
Yeah, yeah, you see.

392
00:31:09,000 --> 00:31:11,000
Now here's another one.

393
00:31:11,000 --> 00:31:17,000
When you buy a share of stock, are you going to buy it from an accountant or from a market player?

394
00:31:17,000 --> 00:31:20,000
Yeah, the accountant.

395
00:31:20,000 --> 00:31:22,000
I don't know how to do that kind of stuff.

396
00:31:22,000 --> 00:31:24,000
I sit here and play with my numbers.

397
00:31:24,000 --> 00:31:27,000
They let me out two hours every day for sunshine.

398
00:31:27,000 --> 00:31:30,000
No, you're going to easy down the down.

399
00:31:30,000 --> 00:31:31,000
Don't get hurtful.

400
00:31:31,000 --> 00:31:33,000
I'm going to save really great things for battle accountants and slaves.

401
00:31:33,000 --> 00:31:34,000
No I won't.

402
00:31:34,000 --> 00:31:36,000
Yes I will.

403
00:31:36,000 --> 00:31:38,000
Okay, moving on.

404
00:31:38,000 --> 00:31:43,000
Beta, I got, damn it, I can't use beta on this one.

405
00:31:43,000 --> 00:31:45,000
I'm going to have to pull up another one.

406
00:31:45,000 --> 00:31:47,000
I'm going to have to pull up another stock.

407
00:31:47,000 --> 00:31:49,000
If you say Tesla, I will eat you.

408
00:31:49,000 --> 00:31:50,000
Apple.

409
00:31:50,000 --> 00:31:52,000
Well, there we go.

410
00:31:52,000 --> 00:31:54,000
AAPL.

411
00:31:54,000 --> 00:31:56,000
Not a big fan of Tesla?

412
00:31:56,000 --> 00:31:59,000
He of the cloven hoof can't run a company.

413
00:31:59,000 --> 00:32:02,000
I mean he's the biggest con man.

414
00:32:02,000 --> 00:32:04,000
God, that guy.

415
00:32:04,000 --> 00:32:12,000
I mean right now the bankers, I mean in the back channels, everyone is trying to figure out how to quietly get out.

416
00:32:12,000 --> 00:32:18,000
The bankers are on the hook, the brokers on Wall Street are on the hook for hundreds of billions of dollars.

417
00:32:18,000 --> 00:32:22,000
And they can't dump the stock or they will wipe themselves out.

418
00:32:22,000 --> 00:32:25,000
But they want out so bad right now.

419
00:32:25,000 --> 00:32:26,000
Okay, here we go.

420
00:32:26,000 --> 00:32:28,000
Let me show you this.

421
00:32:28,000 --> 00:32:30,000
See this beta?

422
00:32:30,000 --> 00:32:38,000
This is our most important measure of risk of a security or a portfolio.

423
00:32:38,000 --> 00:32:43,000
I don't spend a lot of time on beta, but the concept is simple.

424
00:32:43,000 --> 00:32:49,000
This is the risk of that stock in a well-diversified portfolio.

425
00:32:49,000 --> 00:32:53,000
A 1.00 is the full.

426
00:32:53,000 --> 00:32:59,000
1.00 would be the risk of the entire world portfolio.

427
00:32:59,000 --> 00:33:01,000
If you own everything.

428
00:33:01,000 --> 00:33:06,000
Every stock, every bond in the world.

429
00:33:06,000 --> 00:33:09,000
It's a theoretical 1.00.

430
00:33:09,000 --> 00:33:12,000
And then we use that as the full curve.

431
00:33:12,000 --> 00:33:21,000
If you see a security below one, with a beta below one, we tend to see that as a relatively safe security.

432
00:33:21,000 --> 00:33:25,000
It is less volatile than the market.

433
00:33:25,000 --> 00:33:29,000
But only if you have it in a well-diversified portfolio.

434
00:33:29,000 --> 00:33:36,000
So you can have a stock that has a beta of 0.6, which is well less than the world.

435
00:33:36,000 --> 00:33:39,000
So that would be a very safe stock.

436
00:33:39,000 --> 00:33:42,000
But only if it's in a well-diversified portfolio.

437
00:33:42,000 --> 00:33:51,000
On its own, naked as a single investment, that thing could be a son of a bitch as far as its volatility, its risk is concerned.

438
00:33:51,000 --> 00:33:54,000
Beta is a professional's measure.

439
00:33:54,000 --> 00:34:03,000
We don't talk about metrics of risk in the same way that an amateur would.

440
00:34:03,000 --> 00:34:13,000
It's the difference between talking about the safety features of a car that a professional driver would note and talk about the numbers.

441
00:34:13,000 --> 00:34:19,000
And the things that some hillbilly redneck would say about a car.

442
00:34:19,000 --> 00:34:23,000
He would measure its quality in yee-haw.

443
00:34:23,000 --> 00:34:27,000
We can't do that in the professional world.

444
00:34:27,000 --> 00:34:33,000
We have to talk in terms of what would the responsible marginal investor do.

445
00:34:33,000 --> 00:34:35,000
Well, why do we have to talk about that?

446
00:34:35,000 --> 00:34:44,000
Because those are the Wall Streets, and the Londons, and the Zurichs, and the Hans, and the Hong Kongs.

447
00:34:44,000 --> 00:34:51,000
Those are the ones we are in the world of, because they are the ones who write the rules, make the marginal moves.

448
00:34:51,000 --> 00:34:59,000
So we have to work with their numbers, their terminology, because if we go off on our own, well, they can squash us like an ant.

449
00:34:59,000 --> 00:35:04,000
So we have to use the pro terminology in our business, in our world.

450
00:35:04,000 --> 00:35:12,000
Now this is a step up from where you've been in a lot of your courses, where you go through the course and it's, well, let's talk about the history of the American Revolution.

451
00:35:12,000 --> 00:35:17,000
Or let's talk about the proper grammar for punctuation marks.

452
00:35:17,000 --> 00:35:19,000
This matters beyond us.

453
00:35:19,000 --> 00:35:29,000
We are now, you are now, in the world of us, in the heavies, in the big long house.

454
00:35:29,000 --> 00:35:38,000
Okay, so now we see that Netflix is a relatively risky stock in a well-diversified portfolio, 1.29 beta.

455
00:35:38,000 --> 00:35:40,000
Just remember that one. That one's our biggie.

456
00:35:40,000 --> 00:35:43,000
We have some other metrics of risk too.

457
00:35:43,000 --> 00:35:49,000
One that is kind of popular is the price earnings ratio.

458
00:35:49,000 --> 00:35:53,000
Price of the stock right now divided by the earnings per share of the company.

459
00:35:53,000 --> 00:35:56,000
It's sort of a measure.

460
00:35:56,000 --> 00:36:08,000
One way to interpret it, how many dollars are investors right now willing to pay to claim one dollar of the company's earnings?

461
00:36:08,000 --> 00:36:11,000
Because that belongs to the shareholders, that bottom line does.

462
00:36:11,000 --> 00:36:18,000
So in this case, investors are saying, we'll pay about 32 bucks.

463
00:36:18,000 --> 00:36:24,000
Because we think that one dollar that they earn for us, they'll be able to turn it into about 32 bucks.

464
00:36:24,000 --> 00:36:27,000
That's basically what it's saying in a simple nutshell.

465
00:36:27,000 --> 00:36:31,000
You can get really technical with it, and I don't really care for that.

466
00:36:31,000 --> 00:36:36,000
Now, what's a good PE ratio, what's a bad PE ratio?

467
00:36:36,000 --> 00:36:47,000
Here's the thing, if the price is too high relative to the earnings, well, the PE ratio is going to be way up there.

468
00:36:47,000 --> 00:36:55,000
If the price is too low relative to the earnings, well, the price is going to be, the PE ratio is going to be down there.

469
00:36:55,000 --> 00:37:02,000
So now I'm going to give you my rule, and this is one, this kind of an old school, and you'll have to choose your own.

470
00:37:02,000 --> 00:37:09,000
Generally speaking, if I see a PE ratio that's too high, I say the stock is overvalued.

471
00:37:09,000 --> 00:37:12,000
You know, buy it when it's overvalued, or you sell it if it's overvalued.

472
00:37:12,000 --> 00:37:17,000
If I see that PE ratio is quite low, well, hell, that's undervalued.

473
00:37:17,000 --> 00:37:21,000
And I probably, that would be something I would go and grab.

474
00:37:21,000 --> 00:37:26,000
Well, where's the fulcrum? My rule is 30.

475
00:37:26,000 --> 00:37:30,000
You'll hear some people say 25, other people say 40.

476
00:37:30,000 --> 00:37:43,000
If I see 30 as about fair, the PE ratio of 30 tells me that the stock is near its intrinsic, long-term intrinsic value.

477
00:37:43,000 --> 00:37:44,000
That's just my rule.

478
00:37:44,000 --> 00:37:46,000
And you can choose your own.

479
00:37:46,000 --> 00:37:49,000
Like I said, you'll hear others say 25, 40.

480
00:37:49,000 --> 00:37:59,000
I mean, when I first started teaching back in the early 1980s, we would say a PE ratio of 10 is too high.

481
00:37:59,000 --> 00:38:05,000
But, you know, those days are gone now.

482
00:38:05,000 --> 00:38:13,000
But as you can see, this is actually probably about near its fair market value right now.

483
00:38:13,000 --> 00:38:16,000
Neither undervalued nor overvalued.

484
00:38:16,000 --> 00:38:18,000
And that's just my call.

485
00:38:18,000 --> 00:38:24,000
Now, the EPS, in this case, its earnings per share is positive.

486
00:38:24,000 --> 00:38:29,000
Take total earnings divided by the number of shares. If that's positive, the company's profitable.

487
00:38:29,000 --> 00:38:31,000
If it's negative, the company's not.

488
00:38:31,000 --> 00:38:33,000
Okay, good news.

489
00:38:33,000 --> 00:38:39,000
This company pays a dividend, which means that even if the stock price goes into the toilet, at least you get a check in the mail.

490
00:38:39,000 --> 00:38:41,000
So there you go.

491
00:38:41,000 --> 00:38:42,000
That's how I look at these.

492
00:38:42,000 --> 00:38:45,000
And we'll do this over and over and over again.

493
00:38:45,000 --> 00:38:48,000
Now, I'm going to show you Tesla.

494
00:38:48,000 --> 00:38:51,000
TSLA.

495
00:38:51,000 --> 00:38:58,000
Run by the baked ham himself, baked from his marijuana and ham because he keeps showing off on stage.

496
00:38:58,000 --> 00:39:03,000
Tesla.

497
00:39:03,000 --> 00:39:07,000
What do you see about the beta?

498
00:39:07,000 --> 00:39:08,000
High, right?

499
00:39:08,000 --> 00:39:13,000
That's not just high. That's high AF.

500
00:39:13,000 --> 00:39:14,000
That is high.

501
00:39:14,000 --> 00:39:21,000
Now, that hits that very special level of a high beta where we call the beta stupid.

502
00:39:21,000 --> 00:39:24,000
This is one of the riskiest stocks you can get.

503
00:39:24,000 --> 00:39:27,000
Oh, look at the P-E ratio.

504
00:39:27,000 --> 00:39:32,000
Well, spank me, Jesus. It is overvalued.

505
00:39:32,000 --> 00:39:38,000
Why don't we look at what the market is finally, Cluville has been calling the market.

506
00:39:38,000 --> 00:39:41,000
And well, let's look at the one year. That'll do it.

507
00:39:41,000 --> 00:39:46,000
See how the declining tops and the declining bottoms?

508
00:39:46,000 --> 00:39:56,000
Yeah, the market is slowly trying to peel itself away from this mess over time.

509
00:39:56,000 --> 00:40:10,000
And notice how the volume has been sinking over time, too, as more investors are just quietly selling a few shares and only the fools are buying into it.

510
00:40:10,000 --> 00:40:16,000
And I mean, this is one of the most important rules and it's an informal rule. It's called the greater fool theory.

511
00:40:16,000 --> 00:40:25,000
You're a fool for buying a stock. Your job is to find a greater fool who will buy it from you.

512
00:40:25,000 --> 00:40:32,000
I shouldn't turn you into cynics. Well, yes, I should. I need some people to sit with me and bitch about the world over coffee.

513
00:40:32,000 --> 00:40:39,000
Okay, now, let me take this off. That was enough for one day. I spent more time than I usually will.

514
00:40:39,000 --> 00:40:43,000
And every day we're just going to do this until it begins to bake into you.

515
00:40:43,000 --> 00:40:57,000
Now, let me go through. I keep talking about these things called markets. These things called markets.

516
00:40:57,000 --> 00:41:06,000
I don't even know if these, actually these glass things work or not.

517
00:41:06,000 --> 00:41:12,000
Oh, okay, now let me make sure that I can get off there so I don't have to blame you if it leaves a permanent mark.

518
00:41:12,000 --> 00:41:18,000
Okay, we're good.

519
00:41:18,000 --> 00:41:27,000
Here's the thing. You'll see this a lot in this class where I can divide a word into two sides.

520
00:41:27,000 --> 00:41:34,000
Like later I'll talk about the difference between statutory law and common law, both under the heading of law.

521
00:41:34,000 --> 00:41:41,000
Here I'm going to, I've said a couple of these, but now I want to formalize them.

522
00:41:41,000 --> 00:41:48,000
Money markets, and this is about markets.

523
00:41:48,000 --> 00:41:56,000
Money versus capital markets.

524
00:41:56,000 --> 00:42:06,000
Money markets are short term. Funds that are moving for less than a year, for up to a year.

525
00:42:06,000 --> 00:42:13,000
You hit me up for $20 and you promised you'll pay me back in two weeks. That's a money market.

526
00:42:13,000 --> 00:42:16,000
You have access to money markets.

527
00:42:16,000 --> 00:42:26,000
Many very large corporations access money markets at large scale.

528
00:42:26,000 --> 00:42:32,000
They issue a kind of debt security called commercial paper.

529
00:42:32,000 --> 00:42:39,000
It's due in 30, 60, 90 days and it's a discount paper.

530
00:42:39,000 --> 00:42:55,000
In other words, Microsoft might borrow $9,990,000 and promise to pay back $1 million in 30 days.

531
00:42:55,000 --> 00:42:59,000
That is a huge market, very thick.

532
00:42:59,000 --> 00:43:05,000
See a lot of investing places that have money, the surplus economic units.

533
00:43:05,000 --> 00:43:10,000
They have cash on hand that is just sitting there looking stupid.

534
00:43:10,000 --> 00:43:18,000
They look for these kinds of opportunities to make a little scratch on it for 30 days, 90 days or whatever.

535
00:43:18,000 --> 00:43:22,000
That's a money market.

536
00:43:22,000 --> 00:43:30,000
However, if a company goes out and issues a bond, a 30 year bond for $100 million,

537
00:43:30,000 --> 00:43:35,000
they are seeking funds from the capital market.

538
00:43:35,000 --> 00:43:37,000
30 years is a long time.

539
00:43:37,000 --> 00:43:46,000
That is a very different kind of source of funds than the company,

540
00:43:46,000 --> 00:43:55,000
a money house that has some funds to kick out, to do without for 30 days.

541
00:43:55,000 --> 00:44:00,000
Money markets have their own world.

542
00:44:00,000 --> 00:44:04,000
My teaching assistant recalls the course.

543
00:44:04,000 --> 00:44:08,000
We have a course in short term, cash management.

544
00:44:08,000 --> 00:44:12,000
It's an entire world of its own in the corporate world.

545
00:44:12,000 --> 00:44:19,000
It's a very important place where you get paid a lot of money to know how to work in the money markets,

546
00:44:19,000 --> 00:44:25,000
know what they are, all the different varieties, all the math that's in that world.

547
00:44:25,000 --> 00:44:27,000
Capital markets are their own world.

548
00:44:27,000 --> 00:44:30,000
Okay, so there's one way of the world.

549
00:44:30,000 --> 00:44:32,000
There's one way.

550
00:44:32,000 --> 00:44:36,000
Another market we could talk about, two markets.

551
00:44:36,000 --> 00:44:42,000
Spot versus...

552
00:44:42,000 --> 00:44:47,000
Okay, your book uses the word futures.

553
00:44:47,000 --> 00:44:50,000
It's actually technically not correct.

554
00:44:50,000 --> 00:44:53,000
The right word to use is forward markets.

555
00:44:53,000 --> 00:44:58,000
Now, there are forward markets that qualify to be called futures markets.

556
00:44:58,000 --> 00:45:03,000
Futures are really formal forward markets.

557
00:45:03,000 --> 00:45:13,000
Let me explain spot and forward.

558
00:45:13,000 --> 00:45:18,000
You, sir, you are a coffee grower in Columbia.

559
00:45:18,000 --> 00:45:28,000
And you decide, I'm a roaster, a coffee roaster who has coffee houses all through Chicago.

560
00:45:28,000 --> 00:45:32,000
Now, I need to buy coffee beans.

561
00:45:32,000 --> 00:45:36,000
Now, I could just, when I need them, buy them.

562
00:45:36,000 --> 00:45:40,000
I would pay spot, price.

563
00:45:40,000 --> 00:45:44,000
But instead, I could make an arrangement with you.

564
00:45:44,000 --> 00:45:54,000
I shall buy from you 5,000 pounds of coffee beans at $4 per pound in six months.

565
00:45:54,000 --> 00:45:56,000
And you could agree to that.

566
00:45:56,000 --> 00:46:00,000
That $4 would be a forward price.

567
00:46:00,000 --> 00:46:06,000
These forward contracts are all over the world, all the time.

568
00:46:06,000 --> 00:46:11,000
Making agreements to buy at a specific price in the future.

569
00:46:11,000 --> 00:46:18,000
Now, suppose at that six months, the price of coffee, the spot is $4.35.

570
00:46:18,000 --> 00:46:22,000
Well, you've lost money because you have to sell it to me at $4.

571
00:46:22,000 --> 00:46:27,000
And I've gained because I didn't have to pay the spot at $4.35.

572
00:46:27,000 --> 00:46:33,000
Now, on the other hand, if the price of coffee is $3.75 at spot in six months,

573
00:46:33,000 --> 00:46:36,000
I leave because I have to pay $4.

574
00:46:36,000 --> 00:46:39,000
I could have paid spot at $3.75.

575
00:46:39,000 --> 00:46:41,000
He gained because he sold it at spot.

576
00:46:41,000 --> 00:46:48,000
He would have gotten only $3.75.

577
00:46:48,000 --> 00:46:51,000
However, in fact, both of us win.

578
00:46:51,000 --> 00:46:52,000
You understand?

579
00:46:52,000 --> 00:46:54,000
It doesn't matter what these spot prices.

580
00:46:54,000 --> 00:47:03,000
Because I know six months before exactly what I'm going to pay for coffee in six months.

581
00:47:03,000 --> 00:47:11,000
He knows six months before exactly what he's going to get for coffee in six months.

582
00:47:11,000 --> 00:47:14,000
In other words, the future is not an expectation.

583
00:47:14,000 --> 00:47:16,000
It is a reality.

584
00:47:16,000 --> 00:47:22,000
It makes it much easier for both of us to do our financial planning.

585
00:47:22,000 --> 00:47:30,000
Because no matter what the spot price is, we already know one of the driving forces, the price.

586
00:47:30,000 --> 00:47:36,000
So we have a perfect crystal ball on at least one important number.

587
00:47:36,000 --> 00:47:41,000
For me, a cost, and for you, a revenue.

588
00:47:41,000 --> 00:47:42,000
And that is worth gold.

589
00:47:42,000 --> 00:47:44,000
You know how to look at risk drives price added?

590
00:47:44,000 --> 00:47:47,000
Risk is something we don't want.

591
00:47:47,000 --> 00:47:51,000
Forward contracts make that a moot point.

592
00:47:51,000 --> 00:47:52,000
We know.

593
00:47:52,000 --> 00:47:55,000
So forward markets are rather popular.

594
00:47:55,000 --> 00:47:59,000
And in fact, in many cases, you'll pay spot.

595
00:47:59,000 --> 00:48:03,000
You go for gasoline at the station, you're paying spot.

596
00:48:03,000 --> 00:48:08,000
However, you madam, I'm an employer.

597
00:48:08,000 --> 00:48:15,000
Well, yes, I shall hire you at $60,000 for your first year and then we'll have a pay review.

598
00:48:15,000 --> 00:48:17,000
Well, that's a forward.

599
00:48:17,000 --> 00:48:21,000
Because you know for the next year what you're going to get.

600
00:48:21,000 --> 00:48:23,000
Got it?

601
00:48:23,000 --> 00:48:28,000
So you guys are going to live in a world of both spot and forward.

602
00:48:28,000 --> 00:48:32,000
Prices, markets.

603
00:48:32,000 --> 00:48:34,000
Now another one.

604
00:48:34,000 --> 00:48:41,000
Primary versus secondary.

605
00:48:41,000 --> 00:48:45,000
You will, I don't think, I might be wrong about this,

606
00:48:45,000 --> 00:48:48,000
but I don't think you'll ever be in a primary market.

607
00:48:48,000 --> 00:48:53,000
Well, Facebook did its IPO, and it's a couple of dollars.

608
00:48:53,000 --> 00:48:55,000
And it was bought up.

609
00:48:55,000 --> 00:48:59,000
Boy, the people buying that IPO made a lot of money.

610
00:48:59,000 --> 00:49:00,000
No, they didn't.

611
00:49:00,000 --> 00:49:05,000
There was no one except for the underwriting houses, the IDs, the investment bankers.

612
00:49:05,000 --> 00:49:08,000
You don't buy stock from a company.

613
00:49:08,000 --> 00:49:13,000
You will almost never buy stock from a company.

614
00:49:13,000 --> 00:49:18,000
The primary market is where the company gets the money.

615
00:49:18,000 --> 00:49:25,000
When I go in and I buy Netflix or Tesla or Kroger or Pfizer,

616
00:49:25,000 --> 00:49:27,000
that's a secondary market transaction.

617
00:49:27,000 --> 00:49:31,000
Just some other whole handle, sell it, and me buy.

618
00:49:31,000 --> 00:49:33,000
Or me, go ahead.

619
00:49:33,000 --> 00:49:34,000
I went there and raised.

620
00:49:34,000 --> 00:49:39,000
Well, that's a little complicated because it so usually goes through the IB.

621
00:49:39,000 --> 00:49:41,000
It's a good point though.

622
00:49:41,000 --> 00:49:43,000
Interesting.

623
00:49:43,000 --> 00:49:44,000
No, that was great.

624
00:49:44,000 --> 00:49:46,000
I like that one.

625
00:49:46,000 --> 00:49:53,000
Interestingly enough, but the normal thing is that we trade, we live in the secondary market.

626
00:49:53,000 --> 00:49:59,000
Now, interestingly enough, there is a federal law, and I'll get into that later,

627
00:49:59,000 --> 00:50:04,000
that governs and controls the primary market.

628
00:50:04,000 --> 00:50:08,000
And there's another one that handles the secondary market.

629
00:50:08,000 --> 00:50:10,000
They're not the same.

630
00:50:10,000 --> 00:50:17,000
Players in the primary market are generally, unless it's a private placement,

631
00:50:17,000 --> 00:50:20,000
you have some private company selling some stock.

632
00:50:20,000 --> 00:50:26,000
If it's a public company, those are done by the investment bankers.

633
00:50:26,000 --> 00:50:35,000
A group of investment banking houses works with a company to agree to buy the company's issue of stock.

634
00:50:35,000 --> 00:50:37,000
That's what IBs do.

635
00:50:37,000 --> 00:50:46,000
And then they hold on to it, hype it up, drive the price up, and then they sell it to you suckers and to me sucker.

636
00:50:46,000 --> 00:50:50,000
You see, you don't buy in the offering.

637
00:50:50,000 --> 00:50:57,000
Now, the investment bankers might play through their props and all that kind of stuff.

638
00:50:57,000 --> 00:51:00,000
Hey, you want to get in on the IPO of Facebook?

639
00:51:00,000 --> 00:51:02,000
Well, you're not.

640
00:51:02,000 --> 00:51:05,000
They bought it, and then they're going to dump it to you.

641
00:51:05,000 --> 00:51:09,000
They might also share it with their very powerful, wealthy clients,

642
00:51:09,000 --> 00:51:15,000
so that they all benefit from the pump before the dump.

643
00:51:15,000 --> 00:51:19,000
But, yeah, that's neither here nor there for us right now.

644
00:51:19,000 --> 00:51:23,000
But, yeah, that's primary versus secondary market.

645
00:51:23,000 --> 00:51:39,000
Now, financial versus physical.

646
00:51:39,000 --> 00:51:54,000
Sir, do you ever buy yourself dinner?

647
00:51:54,000 --> 00:51:55,000
Yeah.

648
00:51:55,000 --> 00:51:59,000
Do you visit like electronic dots that you eat?

649
00:51:59,000 --> 00:52:00,000
No.

650
00:52:00,000 --> 00:52:02,000
No, it's in.

651
00:52:02,000 --> 00:52:08,000
Not good food, and health for most of us, not nutritious, or healthy, but that's a physical market.

652
00:52:08,000 --> 00:52:13,000
You buy a share of stock, that's a financial market.

653
00:52:13,000 --> 00:52:18,000
It doesn't exist in reality in a physical form.

654
00:52:18,000 --> 00:52:23,000
It's becoming less and less attached even to something physical.

655
00:52:23,000 --> 00:52:33,000
Now, technically, a stock, a share of stock, represents a share of ownership in a corporation, technically.

656
00:52:33,000 --> 00:52:47,000
But, even at that though, you're just relying upon common and statutory law for that financial asset to have any meaning whatsoever.

657
00:52:47,000 --> 00:52:50,000
Otherwise, it's just a piece of paper.

658
00:52:50,000 --> 00:52:52,000
It's nothing.

659
00:52:52,000 --> 00:53:08,000
So, these rely entirely upon the rule of law and the understanding of the participants in that, under that set of laws.

660
00:53:08,000 --> 00:53:11,000
Now, the next one.

661
00:53:11,000 --> 00:53:20,000
Public versus private.

662
00:53:20,000 --> 00:53:27,000
A private company does not answer to anyone except the IRS, and to its owners, its own owners.

663
00:53:27,000 --> 00:53:34,000
A public company, in order to go public, you go through hell.

664
00:53:34,000 --> 00:53:37,000
And that was one of the things I did as a consultant.

665
00:53:37,000 --> 00:53:39,000
I took little companies public.

666
00:53:39,000 --> 00:53:46,000
You have to fill out ungodly scads of paperwork with the SEC.

667
00:53:46,000 --> 00:53:54,000
You also will have to fill out similar paperwork with the states in which you will offer and sell that stock.

668
00:53:54,000 --> 00:54:07,000
And then, if you qualify, if you are qualified, you will have the privilege of selling that stock to the public.

669
00:54:07,000 --> 00:54:22,000
If you don't go through that process, either one, if you try to raise money selling the stock, either one, you will do it under one of the exemptions that the SEC offers.

670
00:54:22,000 --> 00:54:25,000
Or, you will go to prison.

671
00:54:25,000 --> 00:54:27,000
One or the other.

672
00:54:27,000 --> 00:54:38,000
So, if you are going to just sell ownership, I got some stock in this company, and I am going to see if I can get my buds together to buy some of it so we can start this, get some money going.

673
00:54:38,000 --> 00:54:41,000
You are walking on thin ice.

674
00:54:41,000 --> 00:54:44,000
I mean really thin ice.

675
00:54:44,000 --> 00:54:50,000
I had several clients who went right around my advice and they sold some of their stock to friends and family.

676
00:54:50,000 --> 00:54:52,000
They did not invoke an exemption.

677
00:54:52,000 --> 00:54:56,000
And I will tell you about the exemptions and what you have to do to get those exemptions.

678
00:54:56,000 --> 00:55:04,000
They just went out and sold it and the three top people went to jail for it.

679
00:55:04,000 --> 00:55:15,000
So, if you are going to do a private placement, you damn well better know that you have done it in accordance with the exemptions, with the rules of the exemptions.

680
00:55:15,000 --> 00:55:17,000
That is just the reality of it.

681
00:55:17,000 --> 00:55:25,000
In general though, if you do a public offering, now, if it is the first time you have done it, it is called your IPO.

682
00:55:25,000 --> 00:55:28,000
Your initial public offering.

683
00:55:28,000 --> 00:55:36,000
Now, if you have done one before and you are just selling more stock in your company, that is called a seasoned offering.

684
00:55:36,000 --> 00:55:38,000
Because you have done it before.

685
00:55:38,000 --> 00:55:41,000
You have gone through it.

686
00:55:41,000 --> 00:55:44,000
But you still will have to do all the paperwork.

687
00:55:44,000 --> 00:55:50,000
Now, some companies do a trick where they will register.

688
00:55:50,000 --> 00:55:51,000
This is called registration.

689
00:55:51,000 --> 00:55:55,000
They will register a ginormous amount of stock.

690
00:55:55,000 --> 00:56:03,000
But then they will sell only part of that at any given time over a year or two.

691
00:56:03,000 --> 00:56:05,000
That is called a shelf registration.

692
00:56:05,000 --> 00:56:12,000
In other words, you are registering stock to put it on a shelf and then pull it off and sell it as you need capital.

693
00:56:12,000 --> 00:56:14,000
And it is capital.

694
00:56:14,000 --> 00:56:16,000
Stock markets are capital markets.

695
00:56:16,000 --> 00:56:17,000
It is long term.

696
00:56:17,000 --> 00:56:19,000
Corporations live forever.

697
00:56:19,000 --> 00:56:24,000
So theoretically, you are buying an entity that is going to go on forever.

698
00:56:24,000 --> 00:56:39,000
Now, in the same regard, another term by the way for a private corporation is a close or a closed corporation.

699
00:56:39,000 --> 00:56:44,000
My company, Emergent Light Studio, is a close corporation.

700
00:56:44,000 --> 00:56:49,000
It is an S Corp.

701
00:56:49,000 --> 00:56:53,000
But I would not even dream of trying to sell stock to anyone.

702
00:56:53,000 --> 00:56:57,000
Because it is just a really scary thing.

703
00:56:57,000 --> 00:57:04,000
If you do not have good lawyers behind you and a lot of clout, you can make a mistake and you do not even mean it.

704
00:57:04,000 --> 00:57:08,000
Those guys I told you about that went to jail, they did not mean to make a mistake.

705
00:57:08,000 --> 00:57:14,000
They were some of the nicest guys, smartest, hardworking.

706
00:57:14,000 --> 00:57:15,000
They still went to jail.

707
00:57:15,000 --> 00:57:25,000
And it was partly because the SEC, small potatoes, but the state, all of those were politically ambitious sons of bitches.

708
00:57:25,000 --> 00:57:29,000
And they wanted to have as many feathers in their cap as they could.

709
00:57:29,000 --> 00:57:32,000
So do not make yourself one of their snackies.

710
00:57:32,000 --> 00:57:35,000
Play it clean on that.

711
00:57:35,000 --> 00:57:47,000
Now, in regard to that, there are actually a lot of, even the concept of stock, there is preferred stock and there is common stock.

712
00:57:47,000 --> 00:57:51,000
Normally you will buy in common stock market.

713
00:57:51,000 --> 00:57:53,000
You will buy common stock.

714
00:57:53,000 --> 00:57:57,000
But even within common stock, there can be classes of stock.

715
00:57:57,000 --> 00:58:05,000
You see the stockholders have the voting power to elect and kick out the board of directors.

716
00:58:05,000 --> 00:58:14,000
But in some companies, there is a class of stock that has super majority voting rights.

717
00:58:14,000 --> 00:58:16,000
Which drives you crazy.

718
00:58:16,000 --> 00:58:24,000
Because you will have one share, you will have one vote for each open seat on the board.

719
00:58:24,000 --> 00:58:26,000
Each elected seat.

720
00:58:26,000 --> 00:58:33,000
Now in some cases, in some bylaws, you can concentrate all of your votes on one place.

721
00:58:33,000 --> 00:58:38,000
Like for example, you are the president of the board of directors and you piss me off.

722
00:58:38,000 --> 00:58:47,000
I could use all, I have one share for five seats, I could use all of my five to vote you out.

723
00:58:47,000 --> 00:58:49,000
That is not in all corporations.

724
00:58:49,000 --> 00:58:51,000
But there is also the super majority.

725
00:58:51,000 --> 00:58:55,000
Let me show you something real quick here.

726
00:58:55,000 --> 00:58:59,000
Turn this back on.

727
00:58:59,000 --> 00:59:06,000
We are going to look at a company, are any of you familiar with a company called Berkshire Hathaway?

728
00:59:06,000 --> 00:59:12,000
Run by Warren Buffet.

729
00:59:12,000 --> 00:59:19,000
Now let me show you Berkshire Hathaway B.

730
00:59:19,000 --> 00:59:22,000
These are the baby Berks.

731
00:59:22,000 --> 00:59:25,000
$376 each.

732
00:59:25,000 --> 00:59:27,000
Kind of a pricey stock.

733
00:59:27,000 --> 00:59:29,000
You don't even get a damn dividend.

734
00:59:29,000 --> 00:59:31,000
Look at that, see? No dividend.

735
00:59:31,000 --> 00:59:35,000
Safe, undervalued. Nice.

736
00:59:35,000 --> 00:59:42,000
So in other words, you get a vote for Warren Buffet as the chairman of the board.

737
00:59:42,000 --> 00:59:45,000
And a vote for the other. One vote for each of them.

738
00:59:45,000 --> 00:59:52,000
Well do you think Warren is going to be stupid enough to let control of his baby be that?

739
00:59:52,000 --> 00:59:55,000
Let's look at Berkshire Hathaway again.

740
00:59:55,000 --> 01:00:00,000
Those Berks, that Berkshire Hathaway I showed you, those are called the baby Berks.

741
01:00:00,000 --> 01:00:04,000
Here is a big Berk.

742
01:00:04,000 --> 01:00:10,000
This is one share.

743
01:00:10,000 --> 01:00:16,000
$571,558 for one share.

744
01:00:16,000 --> 01:00:26,000
You have super majority voting rights and you get to sit in the same room and breathe the same air at the annual shareholders meeting as Warren himself.

745
01:00:26,000 --> 01:00:33,000
So you might want to check for a change under the seat of your car if you want to grab up one of these little sons of bitches.

746
01:00:33,000 --> 01:00:34,000
Look at that thing.

747
01:00:34,000 --> 01:00:36,000
You got the money to buy a...

748
01:00:36,000 --> 01:00:40,000
You get super...see that's how he maintains control.

749
01:00:40,000 --> 01:00:46,000
It's because only he and his cronies have these shares.

750
01:00:46,000 --> 01:00:50,000
And Wall Street people, Wall Street players.

751
01:00:50,000 --> 01:00:55,000
So they can keep any baby Berk concentration.

752
01:00:55,000 --> 01:01:02,000
All the baby Berks could get together and they might have 1% of the voting power of the corporation.

753
01:01:02,000 --> 01:01:05,000
So there you go. Kind of sad isn't it?

754
01:01:05,000 --> 01:01:08,000
But anyway, that's that.

755
01:01:08,000 --> 01:01:10,000
One other thing, one last thing.

756
01:01:10,000 --> 01:01:12,000
Public versus private markets.

757
01:01:12,000 --> 01:01:16,000
Now, you can sell...there's one other thing.

758
01:01:16,000 --> 01:01:20,000
What's called restricted stock, founder stock.

759
01:01:20,000 --> 01:01:31,000
If you gave yourself shares when the corporation started or you got shares to give you an incentive to join the company,

760
01:01:31,000 --> 01:01:36,000
those you can't sell whenever you want to.

761
01:01:36,000 --> 01:01:40,000
You are restricted under Rule 144.

762
01:01:40,000 --> 01:01:42,000
And I'll emphasize that more later.

763
01:01:42,000 --> 01:01:48,000
There are only windows in which you can sell a portion of your stock.

764
01:01:48,000 --> 01:01:53,000
Any other time, insider sales would be illegal.

765
01:01:53,000 --> 01:01:58,000
So Rule 144 for restricted stock is stock.

766
01:01:58,000 --> 01:02:04,000
And you get your dividend and all that kind of stuff and it counts for your asset value individually or whatever.

767
01:02:04,000 --> 01:02:09,000
But it's not what we call freely tradeable.

768
01:02:09,000 --> 01:02:11,000
Freely tradeable.

769
01:02:11,000 --> 01:02:13,000
So a private placement.

770
01:02:13,000 --> 01:02:19,000
You sell some stock under the rules, but it's a private placement, you didn't register it.

771
01:02:19,000 --> 01:02:21,000
That's Rule 144 stock, that's restricted.

772
01:02:21,000 --> 01:02:23,000
You can't trade that.

773
01:02:23,000 --> 01:02:30,000
Unless you either register it or you get that window under Rule 144.

774
01:02:30,000 --> 01:02:32,000
That's all I have for you.

775
01:02:32,000 --> 01:03:01,000
Go home.