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Alan Crane Productions in association with the Emergent Lights 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 240 for spring semester 2024.

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Today, Financial Markets and Institutions.

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I was expecting to have guest speakers present for the business week coming up,

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but they haven't shown up, so if they do show up, I may still give them a little bit of time.

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Other than that, we'll just roll forward with today's happy class,

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which I'm going to be adjusting your due dates, obviously,

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since we didn't have a class on Monday.

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So I'll have to extend the dates because I didn't finish with Chapter 1,

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and now we're in Chapter 2, so it's going to be a little bit of a catch-up

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over the next couple of days to get back to where we're supposed to be on the schedule.

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I was, in fact, going to give you a surprise quiz next Monday,

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but that's not going to happen now, so you don't get to be surprised.

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But other than that, let me think what I'm going to do first here.

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I guess I can get right down to it here.

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The first thing that I always do when we convene a class is I say,

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let's look at the numbers, and that is going to be a process that we go through every day here.

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And of course, oh, there it is.

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Now, the unfortunate part is that...

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Hi, I'm here for Business Week to speak on.

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I know it. I do it. It was going to happen.

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Really? Okay.

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Yeah. Bear with me a second here to stop this.

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Today, Financial Markets and Institutions.

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As I said in the first lecture, every lecture after that one,

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I will begin by looking at the numbers, and this is fair bait for quizzes and exams,

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but it's also much more importantly a way for you to become empowered

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to be able to look at numbers yourself on stocks, bonds, and other types of securities

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and know what to do instead of always listening to the talking head

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and to the investment blogs and all those people.

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I'm going to tell you how to look at numbers and the terminology we use to some extent

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to make you sound like a genius with stocks.

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First things first, I am using Yahoo Finance, which is not a great site.

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It's not real time. You get numbers that are jumbled sometimes,

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but I could use an actual trading platform within my account with Shell,

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and I don't trouble you with my account numbers.

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So we'll just use this Yahoo Finance for the time being.

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Now, starting out, when markets are up or when a stock is up,

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we would say that's a bull situation.

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The market is bullish today, or the investors are bullish on this stock.

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It's a bull market. If it is down, if there is a down stroking, that's a bear market.

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You would say, well, the investment sentiment is bearish today, or we're in a bear market.

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Right now, overall, we are in a bull market, and that's a longer term thing to say.

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What do you think? Green up, red down, green bull, red bear.

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So in this run of numbers, you look at the predominant.

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And another thing, we don't care about actual numerical values.

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All that matters in finance, as in most science, are the percentage changes.

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The percent is everything.

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Think about it this way, if you've got a $10 investment and it goes up by $1,

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that's a lot different from a $100 investment that goes up by $1.

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So the percentage is all that matters to us.

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And you'll hear these reports or see these news reports, the Dow dropped 700 points.

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Oh my God, 700. That's a very small percentage.

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So it wasn't anything at all to worry about.

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A percentage change is all that matters to us.

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Now, you see those numbers up there.

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Those are representative of markets in one way or another.

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If there is a number after a word, after a symbol or a word,

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that means that you're looking at an index portfolio.

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Stocks that have been put together and said, all right, how does this portfolio,

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this portfolio move today?

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So for example, the Dow 30 is a hypothetical portfolio of 30 of the largest companies on earth,

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oligopolies, the safest of the companies that could possibly be around, low risk.

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And so the Dow 30, it used to be called the Dow industrials.

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They're not industrials anymore because the largest companies in the world are mostly service

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and entertainment companies now.

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But that would tell you, the movement of that would tell you what the large scale of the economy is doing.

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What is it, a positive sentiment, negative sentiment?

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Has news been good for this day?

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Has news been bad for this day?

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Now, as you see with the Dow 30, that little chart is called a spark chart.

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You'll learn about those in your Excel certification, I hope.

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You can make there really nice little quick little representations of the data as a mini chart.

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Now, if you look at the spark chart for the Dow 30, you notice that at the beginning of the day,

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it opened up, which means that overnight and pre-market, the aftermarket and pre-market,

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there were more buy orders and sell orders.

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So there was upward pressure.

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And as soon as the bell ding, ding, ding, ding, the price spiked up.

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As you can see there, at the beginning it was up.

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But immediately, the bears grabbed a hold.

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Do you see how they pulled it down?

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They started dragging it down.

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It almost went down into negative.

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But then the bulls came back and we had a rally.

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That's a bull rally.

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The rally took hold there.

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And then it just kind of popped up and down, kind of up and down.

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And now we have the bears really grabbing hold here in the afternoon after the lunch hour.

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Apparently something wasn't tasty for lunch.

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And the bulls are in the bathroom barfing or something.

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I don't know what it that.

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It just dropped off a cliff.

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This is happening moment to moment.

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This is how markets work.

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The past has nothing to do with these markets.

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These are all being driven by the information of the minute.

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Good information or bad information.

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There's nothing before that matters.

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That's why charts and historical data and historical information means nothing in our world.

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The accountants have the rules and there are good reasons for those rules.

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But that's the rules that we can't abide because we have to see what's coming.

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This actually comes from a physics principle, one of Newton's laws.

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Anything in rectilinear motion will stay in rectilinear motion unless acted upon by some force.

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That's what's happening.

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A stock or a market will just drift if there's no force.

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The force in our world is information, data.

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As that comes in, that moves it from just flat straight line to an up or a down stroke.

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From minute to minute this is happening.

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Remember that this all goes back to that talk I did on the first day about greed.

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There's no sentiment in this.

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This is an animal.

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If you ever have a chance to go to the floor of an exchange, you see that animal in process.

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The yelling, the screaming, the back and forth.

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Some on this side, some on that side.

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It's pushing it back and forth.

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Whichever sentiment is the strongest about what the information is telling us,

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the information of the moment, that's what will move the market up to an up or to a down position.

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What happened there was that there was some positive information right before that drop off.

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But then see how fast it just turned on a dime as more information came in and it dropped it.

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Now the S&P 500, those are 500 really big companies.

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In your economics class, micro, you should have been taught about monopolistic competition.

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These are monopolistic competitors.

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They're fierce, scrappy.

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Their products have monopoly position in the short run.

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But then they go to perfect competition in the long run.

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They're constantly looking for the next win, the next edge over their competitors.

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These 500 constitute about two thirds of the value of the entire world.

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That's kind of scary.

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In fact, oftentimes you'll hear me talk a lot about, we'll use the concept of the world portfolio.

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This theoretical portfolio that is all the stocks and bonds of the world in it.

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The S&P 500 is kind of a pretty decent proxy for that because it has so much of the world in it.

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So this is the large picture of the world.

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But it's of those big companies that drive a lot of the economic success and failure of our economy.

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So the Dow is very large.

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Where it moves is telling us where the largest companies of the world are assessing the information

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for what it tells us about the future.

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S&P 500 is somewhat smaller companies, but a very large swath of the world.

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And then the NASDAQ.

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Now notice that the NASDAQ doesn't have a number after it.

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Because it is an exchange, an actual trading platform for many, many thousands and thousands of stocks.

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Now the NASDAQ is not physical.

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It is actually electronic.

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And it's been around forever.

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I think even I back in the 80s and 90s was trading.

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I had a penny stock house, it was the NASDAQ, back then we called it the electronic BBS.

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Because it was a bulletin board service.

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Some market maker would pop up, I got 600 shares to sell.

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And then all these other market makers around the country would see, well, I could pick up 200 of those.

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I could pick up 100.

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And that was how the markets cleared.

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It's extraordinarily more efficient now.

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But the NASDAQ is an exchange.

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The exchange that's probably quite familiar to many of you would be the New York Stock Exchange.

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NASDAQ has thousands of very small, what we call small cap companies, scrappers, fighters, and high risk companies.

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Higher risk than the S&P 500.

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And the 500 are higher risk than the 30.

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So you'll see more volatility, more sensitivity in the NASDAQ than you will most of the time in the S&P 500.

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And you will see more sensitivity, volatility in the S&P 500 than you will see in the 30, Dow 30.

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And notice what the percentages show.

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You'll see this, the Dow 30 is up only 0.07%.

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That's miserable, just barely up.

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These are huge companies.

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It takes a lot to move one of those whales, those 30 whales all in the same direction.

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The S&P 500, see how it is more sensitive.

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There's positive information.

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It's definitely a bullish day.

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See all the green?

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It's definitely a bullish day.

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But see how that bullish sentiment has more impact on the S&P 500 than it does on the Dow.

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And then there's the NASDAQ.

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Notice how it is even more sensitive.

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It is higher risk stock.

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Risk is volatility, what we call vol.

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And so there you go.

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We've got a nice, it is a bullish day.

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Now you say, wait a minute, what about that Russell 2000?

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You really don't know what, it's hard to say anything about it.

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There are literally tens of thousands of these index portfolios out there.

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Russell 2000, Wiltshire 500, PIMCO 500.

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I mean, they're just, for some reason, Yahoo just lets everyone know what the Russell is doing.

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But you can't really read any large picture in the Russell because it's not identifiable as a sector of the economy or a grouping of the economy.

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It's just 2000 stocks.

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Okay.

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That's your first round.

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Now we're going to go ahead and look at a couple of stocks here in a few minutes.

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But we need, I want to take you through one thing here.

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Now this is part of chapter two and they go into this in a little bit of detail.

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You can divide markets into all kinds of different, this one versus this one.

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One of those that you can distinguish is securities markets from commodity markets.

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In other words, things that really don't have any physical physicality to them, stocks, bonds,

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as opposed to markets that are trading in some physical thing, oil, gold, silver, copper, titanium, pork bellies, wheat, things like that, gasoline, juices even, I guess.

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But so crude oil is a commodity market.

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Now crude, now there are many, many different variations on the word crude.

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I was in the oil and gas industry many years ago and the crude that we would pull out of the ground in Texas was this stinking hot sludge, almost like tar.

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It was just miserable.

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We called it sour crude.

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Now this, however, what they are measuring here is a very different one.

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It's light sweet brent and that's kind of like a benchmark.

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Wither goes the light sweet, so goes the other ones.

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So it's like the one we look at to tell where all the others are going.

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And in this case, you see crude oil bouncing around.

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It is, commodity markets can be pretty darn volatile.

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Oil has gotten awfully volatile because on one day, you know, the reserves are full and the dirty tankers on the high seas are full.

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And there are plenty of ports open for even the very large as well as the intermediates and all that kind of stuff.

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So that would be one day, supply is up, price is down.

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Then the next day, oh my God, one of those countries is about to start torpedoing oil tankers in the Persian Gulf or something like that.

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And then everyone panics and the price goes up.

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So it pops, boom, boom, boom.

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And it's all based upon expectations.

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Nothing about what has already happened.

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It's about what's about to happen next.

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And everyone is trying to get the edge on the right information and the right direction of movement of these markets, minute to minute data on it.

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And it's amazing with the crude oil markets, there's this vast network, extremely complex,

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that even marks where every ship containing anything and what it's containing is on the high seas.

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And we'd use all that data from minute to minute.

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Oh, this one just left port.

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It's a supertanker carrying crude.

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We know where these are.

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We calculate all of this.

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And that tells us, OK, that's going to get to this port in this many days.

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So we know how to price it in this many days.

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So let's price it there now so we can get ahead of it so we can benefit from the price jump when it gets price, the price drop when it gets to the port.

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Things like that.

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It's just vast oceans of information.

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It's gotten to the point now where it's overwhelming.

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And that's one of the driving forces behind artificial intelligence, its vast capability of processing data mindlessly, mind numbingly large amounts of data.

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And it is helping to drive these trading prices and the trading strategies now.

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And I think more than people are, I'm afraid.

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But anyway, crude, it's been in a trading band from about seventy two to seventy nine a barrel for some time.

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It's bouncing.

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Now, last year or early this year, it was way up there over one hundred hundred and twenty five a barrel.

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That was last year.

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And then, of course, once the panic and the pandemic passed, then the price started sliding.

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And by the fact, it broke in.

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It usually it'll start bouncing in a trading range.

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It got into seventy two to seventy nine early.

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Oh, well, middle of last year.

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And it's been behaving itself stays pretty much in there.

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And right now, it's kind of at the lower end.

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But as you can see, see how it is quite volatile.

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See how it's going up and down and up and down and all that good stuff.

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Now, let me take you to another one.

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Move this forward here a little bit.

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The next ones you'll see are gold and silver.

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Gold is weird because most commodities are driven by pure supply and demand dynamics.

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The supply of that resource and the demand for it.

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Gold has a another fact, speculative factor.

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You have this kind of sometimes influential cadre of what we call gold bugs.

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They're always looking for some excuse.

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The world is ending tomorrow to buy gold or, oh, darn it, the apocalypse.

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We missed it.

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And gold was dropping price.

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So you have that extra dimension and gold that makes it a little bit more difficult to forecast or to think about where it's going to go next.

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It all depends on how the crazies are trying are thinking how long it is before they think the world is going to end.

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But that having been said, silver is a much more normal kind of market.

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Silver, gold and several other metals are used in industrial processes and in cosmetics, cosmetic jewelry, that kind of thing.

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So silver behaves according to the supply and demand conditions for what it's made for, for why we extract it.

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See how it's behaving differently from how gold behaves.

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They're both metals.

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They're both technically just decorative or industrial, but gold has an extra factor in it that pushes it around more than normal things.

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You, sir, are a normal person.

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You get up, you shower, you go to school, you go to work, you eat your meals.

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So you would follow a normal pattern day to day.

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You, unfortunately, are occasionally possessed by a demon.

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So even though you get up and do everything he does, every now and then suddenly you're standing on a rooftop saying, hail Satan.

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So you say, well, that's different.

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Didn't see that one coming.

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Neither did I.

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I mean, we were at dinner and you said, I'm going to eat your dog.

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And we were eating beef, but I thought, you know, if that's what you wanted, I could have found one.

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Anyway, try to stay on the topic.

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Okay.

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You understand, though, that gold's got that weird little kicker in it that knocks it around a little more than normal ones.

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Okay.

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Now, I want to teach you a little bit about currencies, but I won't do that right away.

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Let me go over here to bonds.

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Bonds, the quote, is exactly the opposite of any other quote.

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When you see, see the red?

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That means price is going up.

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The green means price is going down.

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In this course, you will, because that is showing not the price, it's showing the yield, which is mathematically inverse to the price.

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You'll learn that in Chapter 7 in this course, that price and yield are inversely related.

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So why do they show the yield? Because that's important.

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The one they're showing here, you hear, is the 10-year bond.

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It's a treasury bond.

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It's considered the benchmark.

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You see where the yield interest rate on that goes, so go interest rates in the economy.

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So they show the yield, the interest rate, instead of the price, because that's what we really care about with bonds.

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So you can see that bonds started out down.

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The yield was going down.

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That would mean that the price was going up.

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That would mean the demand was pushing price up for bonds.

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But you notice that suddenly it turned tail, and then the yields started rising.

295
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That would mean the demand backed off later in the day.

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The demand started backing away, so the price of the bonds started falling, and that makes the yields go up.

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Now, yield.

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See that 0.0320?

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That is, I would say, that's a percent.

300
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I'm sorry, I look at it wrong and I'm dead.

301
00:23:45,000 --> 00:23:48,000
Well, yeah, that's fine, 0.0320.

302
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This one is a little weird.

303
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Those are basis points.

304
00:23:52,000 --> 00:23:55,000
I would say 3.2 basis points.

305
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Every 100 basis points is 1%.

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00:24:01,000 --> 00:24:11,000
So in this case, the yield went down 0.32, rather up 0.32 basis points.

307
00:24:11,000 --> 00:24:14,000
What does that mean? Why would we care about that?

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Well, if interest rates on the bonds, those benchmarks are going up,

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that would mean that all interest rates should start to follow.

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If interest rates start rising, that will slow down the economy.

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So we care about this one, and this is one of our crystal balls for seeing what's coming.

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If interest rates on those benchmarks are sliding, that means interest rates overall are sliding,

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and that's going to help the economy, boost it.

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Companies will borrow money for more projects, people will borrow money for homes and big ticket items.

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So it's worth our while to keep an eye on.

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Now, let me take you over here.

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One thing I should mention here is that stocks and bonds have a trading day.

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All over the world there's a trading day, 8 to 5, 8.30 to 4, whatever.

319
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Commodities don't work that way.

320
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Commodities are on fire day and night. They're clockers.

321
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And so if you're into the commodities world, it's always open for business.

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There's always some country where there's a trade, where 100 trades happen.

323
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There's always some place on the high seas where a load of wheat is being hauled somewhere,

324
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or a shipload of oil or whatever is moving.

325
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These markets are all over the world, 24-7. They're clockers.

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And in this world, the people who do this, including what I used to do,

327
00:25:55,000 --> 00:26:03,000
you're always, even when you're sleeping, you've got one eye open on the trading deck of your commodities.

328
00:26:03,000 --> 00:26:07,000
Interestingly enough, though, see the Nikkei 225?

329
00:26:07,000 --> 00:26:16,000
That is an index of 225 very large company stocks on the Tokyo Exchange.

330
00:26:16,000 --> 00:26:24,000
So through this, we can see what's going on in Japan, in Asia, in East Asia.

331
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So if I look here, we see that the Nikkei 225 had a pretty bad day.

332
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It wasn't a horrible day. I mean, this isn't a...if we have a really, really, really bad day,

333
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like 5% down, 10% down, we call that a black swan.

334
00:26:42,000 --> 00:26:46,000
But this is a lot quieter than that. It was just in a pissy mood all day.

335
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And so it slid down to, down, totaled down for the day of about 0.8%.

336
00:26:53,000 --> 00:26:55,000
I'm sorry, yeah, 0.8%.

337
00:26:55,000 --> 00:27:02,000
Notice, interestingly enough, that that drop happened in stages.

338
00:27:02,000 --> 00:27:07,000
There was a drop right off the belt. Do you see how it was down when the belt opened?

339
00:27:07,000 --> 00:27:09,000
Do you see how it started down?

340
00:27:09,000 --> 00:27:13,000
That would have meant that there were more pre-market sell orders than buy orders,

341
00:27:13,000 --> 00:27:14,000
which would bring it down.

342
00:27:14,000 --> 00:27:16,000
And by the way, I'm going to do this every day.

343
00:27:16,000 --> 00:27:23,000
If you don't get what I'm saying, that's fine. That's how we do it.

344
00:27:23,000 --> 00:27:31,000
But it was down. And then it kept having...notice how it went...there was this volatile period.

345
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And then it stabilized around the later morning in Tokyo.

346
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No more information. And then something really set it off and it had another drop.

347
00:27:42,000 --> 00:27:47,000
But that was just a punch of information. It wasn't like a stream of bad information.

348
00:27:47,000 --> 00:27:49,000
Something just hit and it dropped.

349
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How do I know that it didn't keep going on? The bad news.

350
00:27:52,000 --> 00:27:55,000
See how it stabilized after that. No more news.

351
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So it goes rectilinear motion, just like Newton's law says it would.

352
00:28:00,000 --> 00:28:04,000
Now, that was when we were asleep last night.

353
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Then as the sun was setting in Tokyo, it was rising across Europe and then it rose in the British Isles.

354
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And the London market opened. FTSC is 100 big, big stocks on the London exchange.

355
00:28:21,000 --> 00:28:30,000
And we can see that they were in a pretty...the pre-market, the African market and pre-market had set up an opening pop.

356
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You see how it started up above the axis. And then it just kind of...it petered down a little bit and held.

357
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And then it had a drop, stable, a pop, and then stable. And then it had one more pop and then it stabilized.

358
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I think they're closed now for the day. Yeah. Yeah, they're closed now.

359
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Because as the sun went down in Tokyo and rose in London,

360
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the sun went down in London and it rose on the East Coast of the United States.

361
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And our markets opened up, woke up and they opened up. And that's what you saw in the first thing.

362
00:29:08,000 --> 00:29:15,000
And when the sun sets on our world, on our part of the planet, it will wake up again in Tokyo.

363
00:29:15,000 --> 00:29:22,000
And the clock will start all over again. The wheel of time moves on.

364
00:29:22,000 --> 00:29:27,000
This is how our world works. So if this is the kind of world that you kind of like,

365
00:29:27,000 --> 00:29:35,000
where there's always some place that's alive and kicking and greed is always somewhere living its dream,

366
00:29:35,000 --> 00:29:39,000
well, this is the life for you.

367
00:29:39,000 --> 00:29:42,000
Now I'm going to show you a couple of stocks.

368
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Anyone know a stock that went bananas today? Hear anything about?

369
00:29:48,000 --> 00:29:56,000
Well, let's Netflix and chill. NFX. Wow. Fine. Don't laugh.

370
00:29:56,000 --> 00:30:02,000
Look, this is a tough business and you're a tough crowd.

371
00:30:02,000 --> 00:30:09,000
Okay. Now Netflix, I want you to notice something before I call it off.

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NFLX has four letters. That's a NASDAQ stop. One, two or three that we had probably in the New York Stock Exchange stop.

373
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That's how you tell. So this Netflix, even though it's a ginormous company,

374
00:30:23,000 --> 00:30:31,000
it was a small company and it just stayed on the NASDAQ. It never promoted, it never applied to get on the NISD.

375
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Now that's interesting because on the NASDAQ you'll also see MMXT.

376
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Microsoft is a NASDAQ stop. AMCN. Amazon.

377
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So you've got these, all these like thousands and thousands of little dwarfs, A-O, A-O, is off to work.

378
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And then you've got these, they're actually playing in the same field as the NASDAQ.

379
00:30:56,000 --> 00:31:06,000
So you've got to appreciate sometimes the NASDAQ is being moved by these giants instead of the aggravation of all the tiny companies.

380
00:31:06,000 --> 00:31:13,000
But one way or the other, we're going to look at Netflix. I'm not going to do all of Netflix, but I'm going to start out with Netflix.

381
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Just to show you a few things.

382
00:31:17,000 --> 00:31:30,000
Okay, now, what happened today was that a company will estimate what its earnings are going to be before and before.

383
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And the markets will absorb that information. Netflix said, we'll be up a little bit. We think we're going to have pretty good earnings.

384
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We should have decent earnings. And so the markets said, okay, we'll take that into account and we'll surprise ourselves with that.

385
00:31:47,000 --> 00:31:55,000
And then the trading went on. And then, well, for the last night or this morning, Netflix said,

386
00:31:55,000 --> 00:32:02,000
oh, our earnings came in and they were much better than we had thought they would be.

387
00:32:02,000 --> 00:32:14,000
And so the markets went coo-coo bananas. Positive information. And that just pushed itself as the prices went absolutely bonkers.

388
00:32:14,000 --> 00:32:23,000
Buy, buy, buy. No one's selling. Buy, buy, buy. Price pushing up. Demand increases. Price increases.

389
00:32:23,000 --> 00:32:30,000
Commentarily, there it was. Look at that. See that almost 12 percent?

390
00:32:30,000 --> 00:32:39,000
That is, technically, that is incredible. That is a large price increase.

391
00:32:39,000 --> 00:32:45,000
I mean, I'm joyful when I have a quarter percent, half percent increase in a soft price.

392
00:32:45,000 --> 00:32:52,000
But here we had one that shot up by 12 percent. It actually went up a little more than that.

393
00:32:52,000 --> 00:32:58,000
One thing you'll see is that oftentimes when the price pushes way up, new information,

394
00:32:58,000 --> 00:33:03,000
there will be a point where you will have this whole profit taking.

395
00:33:03,000 --> 00:33:10,000
You know, some of those who bought in, let it go up, they'll say, eh, it's gone up enough, I'm going to sell out.

396
00:33:10,000 --> 00:33:16,000
You know, it's like my scratch. And so sometimes you'll see it go up like that and then you'll see a little dip.

397
00:33:16,000 --> 00:33:26,000
And that's what happened here. As you can see, see that the spike had already, see that at the opening bell,

398
00:33:26,000 --> 00:33:34,000
it was up through the roof. You see it? Right there at the opening. Let me show you.

399
00:33:34,000 --> 00:33:42,000
Right there. That was when ding, ding, ding happened, just the price suddenly flashed to a higher level

400
00:33:42,000 --> 00:33:49,000
because of all that demand, those stock orders that had been put in overnight and in the pre-market,

401
00:33:49,000 --> 00:33:55,000
they were filled in the first seconds or minutes and it caused the price to just pop.

402
00:33:55,000 --> 00:34:02,000
Look yesterday. See how the price yesterday, the previous close was $492.

403
00:34:02,000 --> 00:34:09,000
And then when the bell opened, it was instantly at $537.75

404
00:34:09,000 --> 00:34:16,000
because of all those orders that had been put in overnight and before the bell in the morning.

405
00:34:16,000 --> 00:34:24,000
And it kept going up for probably a half an hour, it looks like there, because orders were being filled,

406
00:34:24,000 --> 00:34:30,000
more people were buying as they heard the news. And then once, now that that news had passed,

407
00:34:30,000 --> 00:34:37,000
look, it just drifted. Do you see that? It was pushed, a force pushed it up,

408
00:34:37,000 --> 00:34:44,000
and once that information was absorbed very rapidly, then they were waiting for the next meal.

409
00:34:44,000 --> 00:34:50,000
The next meal came, so it just kind of drifted. Got a little bit of profit taking along the way there.

410
00:34:50,000 --> 00:34:57,000
The bears, yeah, well, I'm going to sell and all this kind of stuff, but you know, that happens.

411
00:34:57,000 --> 00:35:02,000
Now, a couple of things here. I'm going to use the mouse to show you what's going on with this.

412
00:35:02,000 --> 00:35:12,000
First of all, see this bid and ask. The bid is, and you can't really take Netflix too seriously on this,

413
00:35:12,000 --> 00:35:19,000
don't trade on Netflix information because it's delayed and some of the delays are worse than others and all that.

414
00:35:19,000 --> 00:35:23,000
But it's still illustrative here for this one, at least the data is clean.

415
00:35:23,000 --> 00:35:36,000
Look at this. The bid is $549.80 right now. The ask is $549.92. Now, what does that mean?

416
00:35:36,000 --> 00:35:48,000
This. The bid is what you can sell a share of Netflix at. The ask is what you will pay to buy a share.

417
00:35:48,000 --> 00:35:57,000
You think, well, that's a ripoff. No, it's not. That difference is called the bid ask spread.

418
00:35:57,000 --> 00:36:04,000
That's how the brokers make their money. That's how we make our scratch.

419
00:36:04,000 --> 00:36:16,000
My teaching assistant here, he goes out and he buys a share of Netflix at $549.92.

420
00:36:16,000 --> 00:36:24,000
Minutes later, his significant other comes into the room and says to him, you did what with almost $600?

421
00:36:24,000 --> 00:36:33,000
Whack! Sell it. Okay, yes, evil master. And what happens? He sells it at $549.80.

422
00:36:33,000 --> 00:36:44,000
He lost some money because he sold it and he'll have to sell it at the bid. He bought it at the ask. He sells it at the bid.

423
00:36:44,000 --> 00:36:53,000
That's how the markets work. So see this price up here? This is actually just kind of like an illustration.

424
00:36:53,000 --> 00:37:01,000
The action is actually in the real world of our trading is in the bid and ask and the spread.

425
00:37:01,000 --> 00:37:11,000
You notice that as soon as you buy a share of stock, you're in the hole. You're in the hole in this case, 12 cents, right?

426
00:37:11,000 --> 00:37:20,000
Just instantly because you bought it at the high price and unless this price goes on, the bid goes up, you're stuck.

427
00:37:20,000 --> 00:37:33,000
Now that bid ask spread, this is actually for the price of that stock, like $550, that's actually a very tight bid ask spread.

428
00:37:33,000 --> 00:37:43,000
I mean, if it's a wide bid ask spread, that's generally an indication that there's not a lot of trading in a stock.

429
00:37:43,000 --> 00:37:50,000
The more trading that happens in a stock, the tighter the bid ask spread gets.

430
00:37:50,000 --> 00:38:05,000
I mean, think about logic. If I am making my money on the bid ask spread, if I've got a lot of orders that I can play for the bid ask spread, I don't have to make as much on each order.

431
00:38:05,000 --> 00:38:16,000
So the bid ask spread can be tight. But if there's a thin trading volume, the bid ask, so I've got to make my scratch on maybe 10 trades in a day on a stock,

432
00:38:16,000 --> 00:38:26,000
then that spread will be wider so that I can make more, even if it's only 10, I can make some money even if it's only 10 trades that happen that day.

433
00:38:26,000 --> 00:38:33,000
So a tight bid ask spread is generally an indication that there's significant activity. Go ahead.

434
00:38:33,000 --> 00:38:38,000
So what is the times 1300 and times 1400 next to the ask in bid?

435
00:38:38,000 --> 00:38:40,000
Sizes of the orders on the little stock.

436
00:38:40,000 --> 00:38:42,000
So that's how many shares you have to do?

437
00:38:42,000 --> 00:38:46,000
It's in thousands.

438
00:38:46,000 --> 00:38:50,000
Yeah, you've got to have good questions. And I'll talk more about that.

439
00:38:50,000 --> 00:38:56,000
But like I said, you really can't trust those numbers on Yahoo because they're delayed.

440
00:38:56,000 --> 00:39:00,000
So I mean, I've seen ones where it was just appalling to me.

441
00:39:00,000 --> 00:39:03,000
The bid was above the ask.

442
00:39:03,000 --> 00:39:12,000
And I thought that can't happen that there would be an arbitrage play there because I could buy shares and then I could instantly sell them at a higher price.

443
00:39:12,000 --> 00:39:13,000
That can't happen.

444
00:39:13,000 --> 00:39:21,000
And it's, of course, because their quotation service is delayed by minutes, sometimes by more than minutes on it.

445
00:39:21,000 --> 00:39:24,000
But now let me take it down a little bit further here.

446
00:39:24,000 --> 00:39:36,000
Now, you see the days right here. See this? The days range from 530 707 to 560 2050.

447
00:39:36,000 --> 00:39:38,000
This is the day's chart.

448
00:39:38,000 --> 00:39:43,000
So that 560 250, that would probably be that peak right there.

449
00:39:43,000 --> 00:39:46,000
You see it? That would be where it hit its high for the day.

450
00:39:46,000 --> 00:39:51,000
And then the low was 530 7.

451
00:39:51,000 --> 00:39:57,000
That would probably be the opening. That was where it was at its lowest today.

452
00:39:57,000 --> 00:40:03,000
So now another one that's going to be useful to us is the 52 week range.

453
00:40:03,000 --> 00:40:08,000
How far around has it swung over the past 52 weeks?

454
00:40:08,000 --> 00:40:12,000
So I'm going to go to the 52 week chart, one year chart.

455
00:40:12,000 --> 00:40:20,000
OK, so Netflix had its low of 285 33.

456
00:40:20,000 --> 00:40:24,000
That would be that trough. See that trough, the bottom of that trough right there?

457
00:40:24,000 --> 00:40:28,000
That would be the low for the last year.

458
00:40:28,000 --> 00:40:34,000
Now, the high, of course, is where we are right now.

459
00:40:34,000 --> 00:40:39,000
If I'd shown you this last week, the high would probably have been that last peak before this one.

460
00:40:39,000 --> 00:40:41,000
But there you are.

461
00:40:41,000 --> 00:40:42,000
Now, volume.

462
00:40:42,000 --> 00:40:45,000
Now, we're not finished with the day yet.

463
00:40:45,000 --> 00:40:49,000
This is how many shares have traded today, so far.

464
00:40:49,000 --> 00:40:53,000
And it'll probably be a larger number than this by the time it's over.

465
00:40:53,000 --> 00:40:59,000
This is how many shares traded on the average day over the last 52 weeks.

466
00:40:59,000 --> 00:41:01,000
You notice a little difference there?

467
00:41:01,000 --> 00:41:04,000
This is high volume day.

468
00:41:04,000 --> 00:41:06,000
There's just so many shares.

469
00:41:06,000 --> 00:41:12,000
This is typically a stock that would trade about 4.2 million shares in a day.

470
00:41:12,000 --> 00:41:17,000
We're not finished with the day yet. We've already hit 22.5 million.

471
00:41:17,000 --> 00:41:20,000
So it's a really exciting day.

472
00:41:20,000 --> 00:41:26,000
And you can even see, let me do this one day.

473
00:41:26,000 --> 00:41:30,000
See those bars? Those are the volume bars.

474
00:41:30,000 --> 00:41:34,000
You see how all the volume happened here at the beginning of the day?

475
00:41:34,000 --> 00:41:36,000
That was those orders clearing.

476
00:41:36,000 --> 00:41:39,000
You see them? See those bars right down there?

477
00:41:39,000 --> 00:41:44,000
Matter of fact, I can...

478
00:41:44,000 --> 00:41:47,000
Oh, I'm just testing here.

479
00:41:47,000 --> 00:41:50,000
Yeah, full screen.

480
00:41:50,000 --> 00:41:54,000
Oh, really?

481
00:41:54,000 --> 00:41:57,000
There you go.

482
00:41:57,000 --> 00:41:59,000
Am I on crack?

483
00:41:59,000 --> 00:42:01,000
There it is.

484
00:42:01,000 --> 00:42:02,000
Shut up.

485
00:42:02,000 --> 00:42:03,000
Here we go. Look.

486
00:42:03,000 --> 00:42:05,000
Do you see?

487
00:42:05,000 --> 00:42:11,000
Yeah, you're going to put that stupid little window...

488
00:42:11,000 --> 00:42:14,000
Never mind. I'm making a fool of myself.

489
00:42:14,000 --> 00:42:16,000
You see how the volume was all there?

490
00:42:16,000 --> 00:42:22,000
See that volume and how the volume was on the demand side, pushing the price up?

491
00:42:22,000 --> 00:42:28,000
And then once the excitement was over, the volume just sort of pissed back down.

492
00:42:28,000 --> 00:42:31,000
There was a little spike of volume there that caused that.

493
00:42:31,000 --> 00:42:33,000
You see it right there?

494
00:42:33,000 --> 00:42:37,000
Someone probably woke up and said, Whoa, Netflix is up. Buy some.

495
00:42:37,000 --> 00:42:39,000
Yeah, something like that.

496
00:42:39,000 --> 00:42:42,000
Okay, that's fine.

497
00:42:42,000 --> 00:42:47,000
Now, let me take you down here.

498
00:42:47,000 --> 00:42:50,000
Market cap.

499
00:42:50,000 --> 00:42:59,000
The market cap is the market assessment of the total value of the ownership of Netflix.

500
00:42:59,000 --> 00:43:02,000
I'll teach you more about this.

501
00:43:02,000 --> 00:43:05,000
Now, remember this. I think I mentioned this.

502
00:43:05,000 --> 00:43:11,000
I say the same things over and over again, one lecture to another to another.

503
00:43:11,000 --> 00:43:14,000
I just keep layering it and using the terminology.

504
00:43:14,000 --> 00:43:19,000
I don't expect you to remember, memorize things the first time I say them.

505
00:43:19,000 --> 00:43:24,000
Because I want to say them again, and I'll get a little more technical each time.

506
00:43:24,000 --> 00:43:28,000
But the technical of this, and you don't need to know this yet,

507
00:43:28,000 --> 00:43:35,000
is the market cap is the number of shares of the stock that are outstanding times the price per share.

508
00:43:35,000 --> 00:43:41,000
This is the market's assessment of total shareholders' equity.

509
00:43:41,000 --> 00:43:47,000
Now, let me show you something here.

510
00:43:47,000 --> 00:43:50,000
You don't need to write this down yet.

511
00:43:50,000 --> 00:43:52,000
I'm going to take you over here.

512
00:43:52,000 --> 00:43:53,000
I did the wrong one here.

513
00:43:53,000 --> 00:43:57,000
I'm going to take you over here to the SEC.

514
00:43:57,000 --> 00:44:01,000
I'm going to look up Netflix.

515
00:44:01,000 --> 00:44:05,000
And I'm going to look at their financial statements.

516
00:44:05,000 --> 00:44:08,000
That's the Securities and Exchange Commission.

517
00:44:08,000 --> 00:44:10,000
I'll look at their last 10K.

518
00:44:10,000 --> 00:44:13,000
They've got a 10K coming out any day now.

519
00:44:13,000 --> 00:44:16,000
I can, as a matter of fact, I can even, if it's a public company,

520
00:44:16,000 --> 00:44:22,000
I can download all of its financial statements in an Excel file.

521
00:44:22,000 --> 00:44:25,000
This is a primary source.

522
00:44:25,000 --> 00:44:29,000
This is what you use for research, for term papers, Edgar File.

523
00:44:29,000 --> 00:44:35,000
Because if the company says something that is false, and it's filing to the SEC,

524
00:44:35,000 --> 00:44:43,000
then the officers and directors can be fined insanely high, and they can also be put in jail.

525
00:44:43,000 --> 00:44:46,000
So this is high quality information.

526
00:44:46,000 --> 00:44:48,000
Now, I'm going to look at the balance sheet.

527
00:44:48,000 --> 00:44:53,000
Let's see what the accountants say the total shareholders' equity is.

528
00:44:53,000 --> 00:45:02,000
Oh, the accountants say that it's $20.777 billion.

529
00:45:02,000 --> 00:45:11,000
The market says that it's $240.99 billion.

530
00:45:11,000 --> 00:45:13,000
You see a little difference there?

531
00:45:13,000 --> 00:45:21,000
Those are the same number, except that the accountants are telling the historical, using historical data.

532
00:45:21,000 --> 00:45:28,000
The markets are looking at the future, because that's where we have to trade for the future.

533
00:45:28,000 --> 00:45:32,000
And if you buy a share of stock, let's try this.

534
00:45:32,000 --> 00:45:37,000
You decide that you want to buy a share of Netflix stock, madam.

535
00:45:37,000 --> 00:45:42,000
Are you going to buy it from the accountant, or are you going to buy it from a trader?

536
00:45:42,000 --> 00:45:44,000
Yes.

537
00:45:44,000 --> 00:45:49,000
So it doesn't matter if you believe the accountants.

538
00:45:49,000 --> 00:45:53,000
The trader is going to be the one that hits you up for the bill.

539
00:45:53,000 --> 00:45:56,000
That's why the accounting data doesn't matter to us.

540
00:45:56,000 --> 00:46:04,000
It can't, because we have to live in the world where our money is going somewhere or coming from somewhere,

541
00:46:04,000 --> 00:46:12,000
and that would be the market, not from financial statements prepared according to generally accepted accounting principles consistently applied.

542
00:46:12,000 --> 00:46:16,000
So we keep that in mind at all times.

543
00:46:16,000 --> 00:46:27,000
A few more things, and I'll get into this more later, but I want to take you over, okay, take you over, what's a good company?

544
00:46:27,000 --> 00:46:31,000
If you say Netflix, I will eat you.

545
00:46:31,000 --> 00:46:40,000
Okay, let me, now, I'm going to say where I am right now.

546
00:46:40,000 --> 00:46:45,000
I can't get used, Kellogg is now called Kellenova.

547
00:46:45,000 --> 00:46:47,000
Did you know that?

548
00:46:47,000 --> 00:46:56,000
Kellenova Frosted Flakes, they're great.

549
00:46:56,000 --> 00:47:00,000
See that tight bid ask spread? Look at that, isn't that pretty?

550
00:47:00,000 --> 00:47:05,000
A lot of trading volume on it, not as much as it's usually been.

551
00:47:05,000 --> 00:47:12,000
See this number beta? That's a measure, that is our measure of finance of risk.

552
00:47:12,000 --> 00:47:16,000
And I'll teach you all about beta, but know this for now.

553
00:47:16,000 --> 00:47:25,000
A beta of 1.00 would be the risk of a theoretical portfolio of every stock and bond in the world.

554
00:47:25,000 --> 00:47:28,000
It's the market portfolio.

555
00:47:28,000 --> 00:47:32,000
So every stock we measure against beta.

556
00:47:32,000 --> 00:47:36,000
Stock, a beta of one is the market portfolio.

557
00:47:36,000 --> 00:47:44,000
We see that this one is well below one, which means that it is only about 41% as volatile as the market.

558
00:47:44,000 --> 00:47:46,000
It's a safe stock.

559
00:47:46,000 --> 00:47:52,000
A stock above one would be a risky stock relative to the world portfolio.

560
00:47:52,000 --> 00:47:57,000
So in this case, I see that Kellogg is.41.

561
00:47:57,000 --> 00:47:59,000
Of course, it's a safe stock.

562
00:47:59,000 --> 00:48:01,000
It sells basics.

563
00:48:01,000 --> 00:48:02,000
It's always going to be there.

564
00:48:02,000 --> 00:48:05,000
You're always going to have your cereal in the morning.

565
00:48:05,000 --> 00:48:07,000
You're pastries.

566
00:48:07,000 --> 00:48:10,000
It's going to be a safe investment.

567
00:48:10,000 --> 00:48:14,000
But that means it's also going to be a low expected return investment.

568
00:48:14,000 --> 00:48:18,000
The lower the risk, the lower the return that you should expect.

569
00:48:18,000 --> 00:48:23,000
The higher the risk, the higher the expected return.

570
00:48:23,000 --> 00:48:26,000
Now see that PDE ratio?

571
00:48:26,000 --> 00:48:34,000
That's actually also a measure, but it's a measure of undervaluation or overvaluation

572
00:48:34,000 --> 00:48:36,000
as explained in the textbook.

573
00:48:36,000 --> 00:48:44,000
You see if the price to earnings is low, PE will be low, undervalued.

574
00:48:44,000 --> 00:48:51,000
If the price is too high, P over E, price over earnings, will be way high.

575
00:48:51,000 --> 00:48:53,000
That would mean that it's overvalued.

576
00:48:53,000 --> 00:48:57,000
In this case, I see that Kellogg is somewhat undervalued.

577
00:48:57,000 --> 00:49:02,000
It's a low risk stock, and it might be something worth considering to buy

578
00:49:02,000 --> 00:49:05,000
because it looks like it's got some upward price movement.

579
00:49:05,000 --> 00:49:06,000
What's the number I use?

580
00:49:06,000 --> 00:49:07,000
30.

581
00:49:07,000 --> 00:49:12,000
30 would be about where the price is about intrinsic value.

582
00:49:12,000 --> 00:49:13,000
Now some will say 25.

583
00:49:13,000 --> 00:49:15,000
Some will say 40.

584
00:49:15,000 --> 00:49:18,000
I say about 30 from my years of experience.

585
00:49:18,000 --> 00:49:22,000
Let me take you over to the one that I mentioned before,

586
00:49:22,000 --> 00:49:35,000
that company that is run by he of the cloven hoof, Tesla.

587
00:49:35,000 --> 00:49:42,000
A market that was in a hurricane, or not a hurricane, but a really positive bear.

588
00:49:42,000 --> 00:49:45,000
Where do you see the beta?

589
00:49:45,000 --> 00:49:46,000
This isn't risky.

590
00:49:46,000 --> 00:49:50,000
This is risky AF.

591
00:49:50,000 --> 00:49:53,000
Look at the price earnings ratio.

592
00:49:53,000 --> 00:49:54,000
It's not high.

593
00:49:54,000 --> 00:50:01,000
It's high as F, just like Musk himself most of the time.

594
00:50:01,000 --> 00:50:03,000
He of the baked head.

595
00:50:03,000 --> 00:50:07,000
Look, no dividend.

596
00:50:07,000 --> 00:50:12,000
So as the stock price goes down, you don't recover anything with a dividend check.

597
00:50:12,000 --> 00:50:19,000
It doesn't take a rocket scientist to realize that this is not a good investment.

598
00:50:19,000 --> 00:50:22,000
This is an investment, and if you hear all the market news,

599
00:50:22,000 --> 00:50:28,000
the bankers are trying to get out from underage, the brokerage houses are scared to death to do it

600
00:50:28,000 --> 00:50:33,000
because it could cause a collapse of the price, and then their houses would fold.

601
00:50:33,000 --> 00:50:37,000
But there is no question about it that it is way overvalued,

602
00:50:37,000 --> 00:50:40,000
and it is a risky investment if ever there were one.

603
00:50:40,000 --> 00:50:46,000
It's an inappropriate investment for anyone who is not on meth.

604
00:50:46,000 --> 00:50:48,000
And I'm not opinionating.

605
00:50:48,000 --> 00:50:52,000
Yes, I am, but my opinions are right.

606
00:50:52,000 --> 00:50:53,000
Where the hell was I?

607
00:50:53,000 --> 00:50:55,000
Okay.

608
00:50:55,000 --> 00:51:00,000
Let me take you off this board here for a little bit.

609
00:51:00,000 --> 00:51:05,000
In finance, you already heard me do this before.

610
00:51:05,000 --> 00:51:07,000
Markets.

611
00:51:07,000 --> 00:51:12,000
We can divide markets into this kind of market or that kind of market.

612
00:51:12,000 --> 00:51:18,000
Now, you heard me talking about financial markets versus securities markets.

613
00:51:18,000 --> 00:51:19,000
That's one.

614
00:51:19,000 --> 00:51:23,000
But we have other ways that we can divide up the markets as well.

615
00:51:23,000 --> 00:51:30,000
Let me find my marker here to get this one done.

616
00:51:30,000 --> 00:51:36,000
We can have securities versus financial markets.

617
00:51:36,000 --> 00:51:48,000
Securities or financial markets versus commodity.

618
00:51:48,000 --> 00:51:52,000
But there are other ones too.

619
00:51:52,000 --> 00:51:57,000
Money, and I said this one before, versus capital.

620
00:51:57,000 --> 00:51:59,000
Money is short-term.

621
00:51:59,000 --> 00:52:03,000
Capital is long-term funds.

622
00:52:03,000 --> 00:52:07,000
So a company that borrows $10 million for three months,

623
00:52:07,000 --> 00:52:12,000
we call that commercial paper, that comes from money markets.

624
00:52:12,000 --> 00:52:16,000
Investors in money markets are very different animals from long-term investors,

625
00:52:16,000 --> 00:52:18,000
capital investors.

626
00:52:18,000 --> 00:52:23,000
A corporation that has a bunch of money that it doesn't need to use for a few months

627
00:52:23,000 --> 00:52:27,000
is very likely to participate in this money market,

628
00:52:27,000 --> 00:52:30,000
lending money short-term to another company.

629
00:52:30,000 --> 00:52:35,000
Capital markets, if a company issues a 30-year bond, borrows $100 million,

630
00:52:35,000 --> 00:52:41,000
oh yeah, that comes from those investors that want a place for their money for a very long time.

631
00:52:41,000 --> 00:52:47,000
Stocks come from capital markets because a company theoretically kind of like lives forever.

632
00:52:47,000 --> 00:52:53,000
Now, another one that is important is spot versus futures.

633
00:52:53,000 --> 00:52:56,000
Now, actually, the book is wrong on this.

634
00:52:56,000 --> 00:53:11,000
Futures are actually one very special kind of a much broader market called a forward market.

635
00:53:11,000 --> 00:53:17,000
You, sir, are a Colombian coffee bean grower.

636
00:53:17,000 --> 00:53:23,000
I own a chain of coffee houses in Chicagoland.

637
00:53:23,000 --> 00:53:31,000
Now, I can, when I need more coffee beans, I can buy them at spot, whatever the price is.

638
00:53:31,000 --> 00:53:38,000
But I could make an agreement with you, in six months, I shall buy 5,000 pounds of coffee from you

639
00:53:38,000 --> 00:53:40,000
at a price of $4 a pound.

640
00:53:40,000 --> 00:53:43,000
That would be a forward price.

641
00:53:43,000 --> 00:53:46,000
It's not happening now.

642
00:53:46,000 --> 00:53:49,000
Madam, do you buy gasoline?

643
00:53:49,000 --> 00:53:51,000
You're buying it at spot.

644
00:53:51,000 --> 00:53:56,000
But when you get a full-time career job at an incredible salary,

645
00:53:56,000 --> 00:54:02,000
that's a forward contract because you're going to be guaranteed $60,000, $70,000, $80,000

646
00:54:02,000 --> 00:54:06,000
for a period of time forward.

647
00:54:06,000 --> 00:54:08,000
So that's a forward market.

648
00:54:08,000 --> 00:54:14,000
When a cereal maker buys grain like corn,

649
00:54:14,000 --> 00:54:23,000
it makes arrangements for a forward price from grain brokers well in the future from where it is now.

650
00:54:23,000 --> 00:54:26,000
It doesn't buy corn on the spot market.

651
00:54:26,000 --> 00:54:28,000
It buys it forward.

652
00:54:28,000 --> 00:54:37,000
So it knows what price it'll have, get, it'll have to pay, and it will know when it's going to be delivered.

653
00:54:37,000 --> 00:54:46,000
Another one, primary versus secondary.

654
00:54:46,000 --> 00:54:52,000
You will probably never buy stock in the primary market.

655
00:54:52,000 --> 00:55:01,000
The primary market is where a company sells its stock in an IPO or in a seasoned offering.

656
00:55:01,000 --> 00:55:04,000
That is bought by investment bankers.

657
00:55:04,000 --> 00:55:08,000
And then they pump the price up and sell it to us suckers.

658
00:55:08,000 --> 00:55:14,000
When we buy and sell stocks on these trading platforms, those are secondary market transactions.

659
00:55:14,000 --> 00:55:20,000
There's just one buyer selling to one, a buyer from some seller or vice versa.

660
00:55:20,000 --> 00:55:22,000
It's not a primary transaction.

661
00:55:22,000 --> 00:55:25,000
The company doesn't see a penny of that.

662
00:55:25,000 --> 00:55:28,000
That is the only time a company sees a penny.

663
00:55:28,000 --> 00:55:33,000
It's when it sells the issue, as we call it, in the primary market.

664
00:55:33,000 --> 00:55:44,000
And that almost always will be bought immediately under guarantee at a forward price from the company,

665
00:55:44,000 --> 00:55:46,000
the investment banking syndicate.

666
00:55:46,000 --> 00:55:55,000
And then they'll pump it up and then you'll buy it after they have made a lot of money pumping it up.

667
00:55:55,000 --> 00:56:00,000
We'll get into more of this next week, but that's all I have for you today.

668
00:56:00,000 --> 00:56:03,000
I thank you.