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

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State Collegiate Compendium, academic lectures in Business and Economics.

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

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Today, financial institutions and then we'll move on to financial statements.

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But before we do that, as always, we're going to look at the numbers as we have in the past.

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Now if you look at these numbers, I usually ask is this a bull day or a bear day, but

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in this case, it is an utterly flat day for most of the markets.

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Look at this, you've got it's actually if there was a bull run right, it's a bell.

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You see that bull run as the bell came on and then it just sort of dropped off and then hit

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the bottom and bounced.

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NASDAQ is still all over the place, but it's still up and then the Russell is achieved a little bit.

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The thing here is that what seems to be going on is a lot of weight and see a couple of big

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things.

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The heavies in the SP 500, some of the heavies are releasing earnings this week.

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And on one hand, you know, they might be good.

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On the other hand, they might not be bad, but we just don't seem to have a direction right now.

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Another wild card is the Federal Reserve.

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There are some who are thinking that the Federal Reserve for the first time in some years is going

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to actually cut the discount rate at its next meeting.

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I don't personally think they're going to do that.

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I think they're going to hold the rate where it is for the time being, even though we seem to have

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finally beaten down the inflation, there's still some worried that the expected inflation is still

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there and that's the critical one.

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It's not inflation that is of concern in financial markets, it's expected inflation.

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That is the one that is hard to kill.

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After you kill the inflation, the market will still expect it and put an inflation premium into

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interest rates.

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We've got to make sure that that is drained out.

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In other words, strangle down the economy until it cries on.

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But that may still be a while, the Fed may not lower.

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But right now, it's just one of those markets where the players are staying on the sidelines.

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They're going to keep the volume low for a while.

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Just see what comes next.

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Now also, there is some concern.

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Wars generally, rumors of war don't really rattle markets too much unless there is something

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really significant going on.

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And we're at that point now where we've had another attack by Iran backed forces and now

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there's and it kills a few of our soldiers.

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So we have some concern that the president is going to act aggressively against Iran.

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And our hope is that that's not going to be what happened.

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It will take some hardcore action but it won't be bombing the whoopie doo out of the country

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itself.

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Crude oil, notice that it is coming down, commodity.

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And that's always of course good news for gas prices.

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And we do want these gas prices to stay low because those are the fuel as it were that

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moves goods from one place to another.

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And so we like to have that oil price down there in some calm, comfortable place so that

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we don't have high gasoline, diesel and jet fuel prices.

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Now coming over here, gold had a little, as you can see, there's been this wavy up and

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down and up and then it's coming back down.

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Like I said, there is something of a neckline, sort of a psychological $2,000 an ounce line

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there.

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So it seems to still be staying above that but it's not really too spectacular right

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now.

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So that's good and the silver is quiet too.

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They're both dropping off the cliff right now so that's kind of nice.

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Now I want to mention currencies and I'm not going to ever delve too far into them.

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But when you have currencies trading, and this is important for much bigger subjects

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and more important to our class, interest rates in an economy are the price or the rental

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rate as it were of the currency of that economy.

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So relatively to other countries.

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So interest rates in the United States are higher than interest rates, let's say, in

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Europe.

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That will mean that the US dollar will be stronger against the euro.

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The US dollar will appreciate against the euro or any other country.

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If our interest rates are lower or going down relative to interest rates in another country,

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the US dollar will depreciate.

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It's cheaper, it's worth less because the rental rate, our interest rates are lower.

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So if the Fed does act with lower interest rates, that could be a sign that the dollar

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is going to depreciate against the euro.

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Well, spank me Jesus, look at that.

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Little bit of international market expectation.

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You see, Europe and Great Britain got on the anti-inflation bandwagon later than we did.

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To the Federal Reserve credit, and I don't always give them credit for much, they attacked

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the inflation rapidly, jacked up the interest rates in the United States to throttle off

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the inflation and the expectation of inflation.

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So now we're on the downside of the slope.

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We can ease off our interest rates, whereas the Europeans, the British, and other countries

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must still keep theirs up there for a while longer to throttle off their inflations in

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their countries.

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So, hence, you might see a depreciation of the dollar against the other currencies just

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because of that.

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Now I will caution you that the yen is quoted backwards simply because the yen is such a

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small value compared to the dollar.

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We actually have to quote the exchange rate in reverse so we don't have to use scientific

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notation for it.

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But anyway, that aside, let me go back over here.

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Let's have a look at our bonds.

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Bond yields, look at that.

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Do you see how they've dropped?

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They've fallen.

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Now they've done a little recovery since the opening bell, but that 10-year benchmark is

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well down.

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The yield is down.

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Now remember that this isn't a price.

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This is a yield.

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So the price would be going up.

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So there's buying of the bonds, which causes the price to appreciate, which causes the

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yield to fall.

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This is something that in 240, this is harder to do than it is with you folks.

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You're more key to finance and economic concept.

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But even for you, it takes a while for this to soak in these kinds of chains of logic.

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And this is all just science.

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It's the mathematics of prices and yields and the economics behind supply and demand

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dynamics and all of that kind of stuff.

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So we see the 10-year bond has fallen, the yield has, reflecting some expectation that

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the Fed might back off interest rates soon enough.

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And so everything is about what is expected to happen.

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History, as you see again, doesn't mean anything to us.

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It's what we think is about to happen next.

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Because if we're not there to grab it before it happens, then the son of a bitch next to

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us is going to be there to grab it when it happens, before it happens.

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That's how we work.

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It's just a gamesmanship.

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We've got to move before something happens, because if we move when it happens or after

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it happens, well then it's too late.

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Sort of like in the service.

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Imagine you were my battle buddy and you wait until the bullet hits you to react to it.

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Oh, I better get out of the way.

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God damn, that hurts.

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You see, you're going to try to move before it gets to you.

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You're going to say, because by the time, well, two days ago I got shot.

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Look at that.

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Son of a biscuit eater, I'm bleeding.

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You got to do things before they happen.

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That's what we are all about in finance.

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History and those charts and all of that.

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That's not where the markets look.

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They look out there.

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What's the best understandings?

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I've mentioned this before, but it's so rough now that we already knew that there was one

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brokerage house that could see prices in the future with a high probability, about 70%.

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Now my information is pretty old here.

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A couple of years ago, they could see about more than 100 milliseconds into the future

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what a price would be with an accuracy of about 70%.

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Where we are now, it's getting better a little bit farther out.

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With these idiotic AI nutcase computers that can fast process data that's incomprehensible,

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it's going to get more that they can see what's going to happen there and make it happen here.

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Now you can get into some really, really twisted physics doing that if they go too far, but

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that's your problem.

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Not mine.

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Okay, now, Tokyo last night.

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Tokyo had a surge day.

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You notice that there was some good news and it was just more than just one piece of good

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news.

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There was kind of a flow of optimism in the market.

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You see that it just kept rolling up.

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It wasn't anything spectacular, but there was just more bull action than bear action.

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That allowed the markets, the Nikkei 225 in Tokyo to push upward through the day.

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You notice that there by the little after their lunchtime, it began to sag back off

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again because the good news had passed and then there was a little more realism about

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what was going on and the euphoria kind of passed, but none of it was really dramatic.

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It was just mostly very mild positive sentiment, bullish sentiment, and then later a little

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bit of bearish sentiment, possibly some profit taking off the high.

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As I said, oftentimes you'll see a rise and then there will be a pull off from it as some

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of the investors say, well, I've done good for the day.

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I'm going to sell out and go have my dinner with my profit kind of thing.

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So that's nothing surprising.

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You notice that London, as you've seen before, see that volatility there?

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There's more uncertainty.

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The bulls and the bears were just battling back and forth.

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Like I said though, as with the Nikkei, it all amounted to 0.03% up day, which is basically

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saying the day was flat.

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From the start to the finish, it was a flat day.

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When you got 0.03%, that's not even worth worrying about.

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Generally speaking, and I think I've mentioned this before, anything less than about a quarter

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of a percent, 0.25% is pretty much, it's a flat day, nothing to read from it.

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If however, all of the markets are up by 0.20%, well, that's a little bit more to say.

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Well, they were not terribly bullish, but it was across the board that they had this

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mild bullish sentiment.

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Now, going through a few, we have companies that are going to be pulling earnings out

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and I'm thinking Advanced Micro Devices, I think is on tap for earnings this week.

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And let me see, when the earnings call is.

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Usually I can see this down here.

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Yeah, today.

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Earnings are today.

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And they may have already been released pre-market and it's a little bit of a smackdown, 1.3%

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down and it's still pulling downward.

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Really nasty.

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You, we're going off a cliff here.

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Look at that.

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So there you go.

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Now, your turn.

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See if you can remember what I've told you here.

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You may see it already, but let's try this.

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First of all, madam, is this a low risk or a high risk stock?

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Or a market risk type of stock?

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What does it say?

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It's okay if you don't do it.

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Yeah, we're going to do this every day.

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That's fine.

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What do you say?

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High risk.

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This falls into the technical category high risk AF.

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Okay.

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You might want to remember that in your notes.

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1.70 is really risky.

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One is, yeah.

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Above what number would you say?

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One.

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One is market risk.

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Anything below one is less volatile in a well diversified portfolio than the market.

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Above one.

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Now, when you get to 1.25, that's when you start feeling your hind leg itch.

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When you get up to about 1.5, well, then you're in the territory where your back leg is starting

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to go up and down.

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This is, this one's hardcore.

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It has a history of that beta.

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A beta above one, well above one.

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Far above one.

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Now, usually you'll see 1.25, 1.2, 1.

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If you get up far enough, it gets to the point where in a case like this, we're in a business

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where one of our terms we always keep in our minds is appropriateness of investment.

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Appropriateness of investment.

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You have to keep remembering that term because that doesn't apply if you're, well, if you're

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in a corporation and you're in charge, you're a corporate, but you're in charge of putting

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money and their earnings, their positive free cash flow into investments.

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What is appropriate versus what is not?

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Here's a hint.

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AMD would not be appropriate in almost any corporation.

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They don't want you taking risk with those retained earnings.

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So yeah, okay.

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Now, but then, okay, you're on the level of advising, being a financial advisor.

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You've got a couple in their mid-60s and they want to put their money into investments for

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their, to earn money for their retirement.

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Get a check every month or every three months or whatever.

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This is not in any way, shape or form appropriate for them.

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You don't want them having to eat cat food because they had this, their investment go

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into the toilet.

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The same would be true even for you.

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Very few, well, okay, if you're young, you can recover from a hard hit and at 1.70, you'll

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be up one day and then the next day you'll be on the street with a hat looking for change

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for passersby.

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This might not be appropriate for you, but at a young age, at least if you did take this

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risk and it didn't work out, you'd have time to recover much wiser than you were before.

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But investments like this are more for high risk takers, the high rollers who that's their

237
00:18:09,720 --> 00:18:11,920
thing is to do this.

238
00:18:11,920 --> 00:18:18,720
So that appropriateness of investment, I can't emphasize that enough in our business is you

239
00:18:18,720 --> 00:18:21,880
ask yourself, okay, this looks like fun.

240
00:18:21,880 --> 00:18:25,720
Well, fun is a relative term.

241
00:18:25,720 --> 00:18:33,020
You've, anyway, now the P-E ratio, I'm laughing because I didn't know I was about to walk

242
00:18:33,020 --> 00:18:34,020
into this.

243
00:18:34,020 --> 00:18:40,680
P-E ratio, do you remember the number that I said was like the fulcrum for P-E ratio?

244
00:18:40,680 --> 00:18:41,680
30.

245
00:18:41,680 --> 00:18:49,080
A price to earnings below 30 means that the stock is undervalued relative to intrinsic.

246
00:18:49,080 --> 00:18:53,240
The price is lower than the earnings can support.

247
00:18:53,240 --> 00:18:59,840
And so it has some, some, we have some reason to believe that the price will go up so that

248
00:18:59,840 --> 00:19:05,160
the P-E ratio, that price divided by earnings will get closer to 30.

249
00:19:05,160 --> 00:19:11,840
If the stock is much above 30, and again, 30 is mine, some say 25, some say 40, but

250
00:19:11,840 --> 00:19:21,480
if it's much above your intrinsic value P-E, then you say to yourself, this stock is overvalued

251
00:19:21,480 --> 00:19:27,960
and it has a good chance of coming back down over time.

252
00:19:27,960 --> 00:19:38,160
Now we have here a stock which has a P-E ratio that is in the technical range of stupid.

253
00:19:38,160 --> 00:19:53,240
This is 1,591, which means that an investor is willing to pay $1,591 for every dollar

254
00:19:53,240 --> 00:19:57,160
the company has earned for the shareholders.

255
00:19:57,160 --> 00:19:58,160
That's insane.

256
00:19:58,160 --> 00:20:04,280
They think that AMD is going to turn a dollar that the company has made at the net income

257
00:20:04,280 --> 00:20:05,280
line.

258
00:20:05,280 --> 00:20:15,120
The company is going to turn that into each one of those dollars into $1,591.

259
00:20:15,120 --> 00:20:16,120
You should short it.

260
00:20:16,120 --> 00:20:19,320
Oh, I would say this is, I mean, you should short this one.

261
00:20:19,320 --> 00:20:22,440
I mean, I don't even care what Wall Street Bet says.

262
00:20:22,440 --> 00:20:24,240
This is a short asking for trouble.

263
00:20:24,240 --> 00:20:29,000
I'm going to teach you about shorts and the trading strategies with shorts a little later

264
00:20:29,000 --> 00:20:30,000
in the course.

265
00:20:30,000 --> 00:20:36,040
When I get to the part where I teach you the terminology of buying and selling, what the

266
00:20:36,040 --> 00:20:43,280
wording we use is, what the strategies are and what the kind of simple tricks are so

267
00:20:43,280 --> 00:20:48,320
that you don't get yourself burned when you put in orders or when you make sell orders

268
00:20:48,320 --> 00:20:49,320
and all that.

269
00:20:49,320 --> 00:20:52,940
But yeah, this one is absolutely stupid.

270
00:20:52,940 --> 00:20:57,600
Notice that this company doesn't pay a dividend.

271
00:20:57,600 --> 00:21:02,360
See that forward dividend and yield, no dividend.

272
00:21:02,360 --> 00:21:08,600
And this stock, actually the company is barely profitable.

273
00:21:08,600 --> 00:21:10,960
It's made 11 cents a share.

274
00:21:10,960 --> 00:21:17,160
So yeah, whoop de doo, 11 cents and we made 11 cents a share.

275
00:21:17,160 --> 00:21:21,800
So we're going to pay almost $1,600 for every dollar of earnings.

276
00:21:21,800 --> 00:21:23,600
Yeah, what about that?

277
00:21:23,600 --> 00:21:31,160
Okay, now just to remind you, the bid on this, whoa, look at the volume on that.

278
00:21:31,160 --> 00:21:33,320
Now you see the volume, now look at the bid ask spread.

279
00:21:33,320 --> 00:21:36,280
You see how tight the bid ask spread is?

280
00:21:36,280 --> 00:21:43,200
It's a one penny, 175.10 if you want to sell it, 175.11 if you want to buy it.

281
00:21:43,200 --> 00:21:46,280
That's a very tight bid ask spread.

282
00:21:46,280 --> 00:21:49,240
And that's because of look at that volume.

283
00:21:49,240 --> 00:21:52,760
We're not even halfway through the day.

284
00:21:52,760 --> 00:21:55,320
We're not even close to halfway through the day.

285
00:21:55,320 --> 00:21:59,760
And we've already topped half of the volume of a typical day.

286
00:21:59,760 --> 00:22:02,100
So there's a lot of activity on this.

287
00:22:02,100 --> 00:22:07,320
And that lot of activity is mostly because apparently, and I didn't get a chance to look

288
00:22:07,320 --> 00:22:12,520
at it, they came out with rather grim earnings for the day compared to what they had said

289
00:22:12,520 --> 00:22:13,580
they would.

290
00:22:13,580 --> 00:22:20,640
So the markets are simply giving them a potty trading session for this one.

291
00:22:20,640 --> 00:22:28,720
Let me look at another one that's coming up, Merck, Merck, MRK.

292
00:22:28,720 --> 00:22:31,760
I think they're giving earnings out too.

293
00:22:31,760 --> 00:22:36,040
Tame, oh, this one's an interesting one.

294
00:22:36,040 --> 00:22:38,040
Look at this.

295
00:22:38,040 --> 00:22:40,800
Okay, notice the bid ask spread.

296
00:22:40,800 --> 00:22:43,960
You see, if you want to buy the stock, you're going to pay 120.94.

297
00:22:43,960 --> 00:22:48,920
If you want to sell it, you'll get it, get 120.91.

298
00:22:48,920 --> 00:22:55,520
It's still a pretty tight bid ask spread, three cents on $120.

299
00:22:55,520 --> 00:22:58,600
And notice a couple of other things real quick here.

300
00:22:58,600 --> 00:23:00,720
The volume is very normal.

301
00:23:00,720 --> 00:23:02,040
It's tame.

302
00:23:02,040 --> 00:23:03,040
I can see.

303
00:23:03,040 --> 00:23:06,560
I can, well, let me come up here.

304
00:23:06,560 --> 00:23:13,240
I can see this stock is actually near its 52-week high.

305
00:23:13,240 --> 00:23:15,160
Do you see that?

306
00:23:15,160 --> 00:23:17,680
Look at the 52-week range right here.

307
00:23:17,680 --> 00:23:20,080
Do you see that?

308
00:23:20,080 --> 00:23:23,440
Now the price right now is up near the top.

309
00:23:23,440 --> 00:23:33,880
So for this last 52 weeks, this thing is actually sitting near its high for that period.

310
00:23:33,880 --> 00:23:37,360
Okay, now real quick over here.

311
00:23:37,360 --> 00:23:41,160
First of all, okay, your turn, madam.

312
00:23:41,160 --> 00:23:44,480
Is this a risky or a safe stock?

313
00:23:44,480 --> 00:23:45,480
Very safe.

314
00:23:45,480 --> 00:23:51,800
I mean, you would expect that with a company, a big, long-standing pharmaceutical company.

315
00:23:51,800 --> 00:23:56,560
They're going to make money because people think that if they take their Merck meds,

316
00:23:56,560 --> 00:23:57,560
they won't die.

317
00:23:57,560 --> 00:24:01,380
And that's always good for a sale.

318
00:24:01,380 --> 00:24:03,480
You can buy our stuff or you can die.

319
00:24:03,480 --> 00:24:04,480
Sucker.

320
00:24:04,480 --> 00:24:05,480
And all that kind of stuff.

321
00:24:05,480 --> 00:24:06,480
Good news.

322
00:24:06,480 --> 00:24:12,240
And then of the P-E ratio though, now this is more what you would normally see.

323
00:24:12,240 --> 00:24:13,520
It's overvalued.

324
00:24:13,520 --> 00:24:20,240
I see that the price is up there high enough that the price divided by earnings is well

325
00:24:20,240 --> 00:24:21,320
above 30.

326
00:24:21,320 --> 00:24:23,480
So I would say it's overvalued.

327
00:24:23,480 --> 00:24:31,760
So I would anticipate some downside momentum on the price of the stock.

328
00:24:31,760 --> 00:24:32,800
Just because of that.

329
00:24:32,800 --> 00:24:36,800
Now notice that it's a profitable company, $1.80 a share.

330
00:24:36,800 --> 00:24:41,120
So if you multiply that by the number of shares outstanding, you'd get your net income or

331
00:24:41,120 --> 00:24:42,520
something like that.

332
00:24:42,520 --> 00:24:46,340
And notice that this one actually pays a little dividend, a decent dividend.

333
00:24:46,340 --> 00:24:50,560
So even if the stock price goes through the toilet, you're going to get a dividend check

334
00:24:50,560 --> 00:24:51,640
in the mail.

335
00:24:51,640 --> 00:24:58,800
So that also makes a company have a lower beta in general because there's that underneath

336
00:24:58,800 --> 00:25:02,660
that you won't, you're going to get something out of it.

337
00:25:02,660 --> 00:25:08,240
So when you see the yield, which it matters to us, when you see that yield, that's telling

338
00:25:08,240 --> 00:25:17,040
you that you're going to get a check for $3.08 for an investment of $120.79.

339
00:25:17,040 --> 00:25:26,600
So in other words, you know that if that dividend stays at $3.08, you got a 2.55% return on

340
00:25:26,600 --> 00:25:29,760
your investment right there, annual.

341
00:25:29,760 --> 00:25:36,080
So that's why that yield, it matters to us because it's going to be there and a company

342
00:25:36,080 --> 00:25:41,720
that doesn't pay one, well, all you can do is make, the only way you make money is off

343
00:25:41,720 --> 00:25:43,200
the stock price going up.

344
00:25:43,200 --> 00:25:47,080
And if it doesn't, you don't have that happy little dividend.

345
00:25:47,080 --> 00:25:54,120
Now I'm going to go over here and have one last, one more look at Tesla.

346
00:25:54,120 --> 00:26:00,120
Okay, here we go.

347
00:26:00,120 --> 00:26:05,760
One more time just to make sure you understand why I say this is ridiculous.

348
00:26:05,760 --> 00:26:13,880
Okay, sir, say for risky stock, risky AF, this one is even worse than AMV.

349
00:26:13,880 --> 00:26:19,920
This is not an appropriate investment for any, okay, the type of investment you would

350
00:26:19,920 --> 00:26:25,240
build for a stock like that is what we technically call a crazy mofo.

351
00:26:25,240 --> 00:26:29,560
You are asking for a but that on that one.

352
00:26:29,560 --> 00:26:34,480
Notice PE ratio, is it overvalued or undervalued or appropriately valued?

353
00:26:34,480 --> 00:26:35,480
What would you say?

354
00:26:35,480 --> 00:26:38,480
I would say it's overvalued.

355
00:26:38,480 --> 00:26:39,480
Yes.

356
00:26:39,480 --> 00:26:48,480
The scary thing is it might be two times overvalued because the price to create 60 in order to

357
00:26:48,480 --> 00:26:53,320
bring it to 30, that price would have to be half of what it is now.

358
00:26:53,320 --> 00:26:58,760
And that's why I was talking to some two market makers just last night who work in a market

359
00:26:58,760 --> 00:27:04,160
making environment and they're saying 80, 80 to 90.

360
00:27:04,160 --> 00:27:09,280
And they're probably looking at one of their metrics for their forecast.

361
00:27:09,280 --> 00:27:13,680
They're looking for PE ratio, 80 to 90 on it.

362
00:27:13,680 --> 00:27:19,040
And you'll hear a whole lot of sobbing and crying on Wall Street because they've put

363
00:27:19,040 --> 00:27:24,440
so much into it and they can't, don't dare get out too fast.

364
00:27:24,440 --> 00:27:27,040
Okay, so, and one more.

365
00:27:27,040 --> 00:27:29,960
Anyone want to see something?

366
00:27:29,960 --> 00:27:30,960
What?

367
00:27:30,960 --> 00:27:31,960
Yeah?

368
00:27:31,960 --> 00:27:35,840
Don't a lot of companies have major plays in Tesla?

369
00:27:35,840 --> 00:27:38,160
So like if you went down to...

370
00:27:38,160 --> 00:27:39,240
Oh God, yes.

371
00:27:39,240 --> 00:27:40,960
But that was one of the things.

372
00:27:40,960 --> 00:27:44,160
We're going to get into this a little bit.

373
00:27:44,160 --> 00:27:53,440
The I.B.'s are in it, obviously, and funds, heavy duty funds.

374
00:27:53,440 --> 00:27:59,440
Most corporations, companies, just plain companies, that would be against their policy to be buying

375
00:27:59,440 --> 00:28:00,960
stock in Tesla.

376
00:28:00,960 --> 00:28:07,400
They might, but it would be surprising if there weren't heads rolling because of that.

377
00:28:07,400 --> 00:28:12,560
Because normally, as I said a few minutes ago, companies that have excess cash to make

378
00:28:12,560 --> 00:28:19,640
investments tend to not want to put those new investments at much risk.

379
00:28:19,640 --> 00:28:26,840
And any financial analyst worth his salt that wasn't being paid by Tesla or one of its

380
00:28:26,840 --> 00:28:31,920
toties on Wall Street knew two years ago this was going to happen.

381
00:28:31,920 --> 00:28:33,480
We knew it was going to happen.

382
00:28:33,480 --> 00:28:40,080
So any analyst in a company that was looking at reputable resources would have said no.

383
00:28:40,080 --> 00:28:46,160
However, banks went into it, certain types of specialized banks went into it.

384
00:28:46,160 --> 00:28:52,280
The investment bankers on Wall Street and in other countries went into it because they

385
00:28:52,280 --> 00:28:56,560
don't have those stocks on what they invest in.

386
00:28:56,560 --> 00:29:02,840
And so yeah, they're sitting on the line for an awful, awful lot of money right now, counted

387
00:29:02,840 --> 00:29:07,000
in the tens of billions, if not the hundreds of billions.

388
00:29:07,000 --> 00:29:10,880
And that's a problem.

389
00:29:10,880 --> 00:29:12,440
I don't know.

390
00:29:12,440 --> 00:29:13,440
I can't get into it.

391
00:29:13,440 --> 00:29:16,320
I'd have to look at more of the disclosures.

392
00:29:16,320 --> 00:29:22,400
But from what I've heard, certain countries are heavily invested or the powerhouses in

393
00:29:22,400 --> 00:29:23,400
like Saudi Arabia.

394
00:29:23,400 --> 00:29:24,400
Go ahead.

395
00:29:24,400 --> 00:29:29,400
I remember like two years ago the Price of One Stock Festival was like a thousand bucks.

396
00:29:29,400 --> 00:29:35,040
Yeah, they kept splitting the stock and then it would go up and then it would tank, split

397
00:29:35,040 --> 00:29:38,040
it again, go up, tank.

398
00:29:38,040 --> 00:29:42,240
Yeah, it's been a very grim road for the stock.

399
00:29:42,240 --> 00:29:43,240
We knew this would happen.

400
00:29:43,240 --> 00:29:50,400
But the problem is that you get hustlers who have an interest in stirring up the pot.

401
00:29:50,400 --> 00:29:52,960
This is true in the financial news networks.

402
00:29:52,960 --> 00:29:55,280
It's true in the entertainment industry.

403
00:29:55,280 --> 00:29:57,720
It's true in the blogs.

404
00:29:57,720 --> 00:30:01,560
You don't get followers.

405
00:30:01,560 --> 00:30:09,680
You don't get ad revenue by being the asshole, the bitch, the naysayer.

406
00:30:09,680 --> 00:30:10,720
You just don't get it.

407
00:30:10,720 --> 00:30:11,720
You have to hype.

408
00:30:11,720 --> 00:30:12,720
You have to pump.

409
00:30:12,720 --> 00:30:17,680
And that way you get money from the people behind the curtain and you also get money

410
00:30:17,680 --> 00:30:23,920
from ad revenue on impressions on your, if it's an internet site.

411
00:30:23,920 --> 00:30:28,520
So you've got to think for yourself and that's what I do is I get you to start thinking for

412
00:30:28,520 --> 00:30:30,720
yourselves that way.

413
00:30:30,720 --> 00:30:36,320
And you're not going to make as much money doing it the way I, as if you're a hype merchant,

414
00:30:36,320 --> 00:30:37,320
go for it.

415
00:30:37,320 --> 00:30:41,120
Know, know that you are, you don't believe this for you.

416
00:30:41,120 --> 00:30:43,840
You don't really believe it, but you got to hype it.

417
00:30:43,840 --> 00:30:50,520
Anyone got another sock before I get to the main lecture?

418
00:30:50,520 --> 00:30:52,520
Nothing that's interesting to you.

419
00:30:52,520 --> 00:30:54,520
Say AT&T.

420
00:30:54,520 --> 00:30:55,520
AT&T.

421
00:30:55,520 --> 00:31:08,760
The market is just a little bitchy today.

422
00:31:08,760 --> 00:31:09,760
Okay.

423
00:31:09,760 --> 00:31:11,560
Now this one's an interesting one.

424
00:31:11,560 --> 00:31:12,560
Glad you brought it up.

425
00:31:12,560 --> 00:31:15,160
Can I just show you something else?

426
00:31:15,160 --> 00:31:16,160
Well okay.

427
00:31:16,160 --> 00:31:18,040
The bid and ask are the same there.

428
00:31:18,040 --> 00:31:19,760
I don't buy that.

429
00:31:19,760 --> 00:31:23,840
Yes delay, yeah, yee-haw delaying quotes.

430
00:31:23,840 --> 00:31:29,160
But notice that it, for the last 52 weeks, I'm showing you some of the numbers that we

431
00:31:29,160 --> 00:31:30,160
do look at.

432
00:31:30,160 --> 00:31:36,120
We just have a look at these as part of your pattern of analysis.

433
00:31:36,120 --> 00:31:42,280
And I see that it's sitting right about in the middle of its 52 week.

434
00:31:42,280 --> 00:31:43,320
You see that?

435
00:31:43,320 --> 00:31:46,880
It swung from about 13 and a half to 20 and a half.

436
00:31:46,880 --> 00:31:53,200
And right now it's sitting at 17 and some change.

437
00:31:53,200 --> 00:31:55,000
So it's right in the middle.

438
00:31:55,000 --> 00:31:58,360
The vol is pretty much normal.

439
00:31:58,360 --> 00:32:02,680
The bears are kind of beating it up today.

440
00:32:02,680 --> 00:32:05,040
But you see the beta is below one.

441
00:32:05,040 --> 00:32:06,040
Relatively safe investment.

442
00:32:06,040 --> 00:32:08,040
It's a giant company.

443
00:32:08,040 --> 00:32:15,480
And it's one of the powerhouses in mobile networks as well as a lot of other things.

444
00:32:15,480 --> 00:32:19,440
And PE ratio is telling us this is undervalued.

445
00:32:19,440 --> 00:32:25,200
So this has some room to come up.

446
00:32:25,200 --> 00:32:28,800
And so as far as more of a when do you buy in?

447
00:32:28,800 --> 00:32:31,280
Now that doesn't mean you buy in and then sell.

448
00:32:31,280 --> 00:32:33,120
But when do you buy in?

449
00:32:33,120 --> 00:32:37,240
It's when the PE ratio on a stock is low.

450
00:32:37,240 --> 00:32:41,800
That's at least some assurance that you're not going to take a butt bath on it.

451
00:32:41,800 --> 00:32:46,360
I know that it's got some room on the upside because of that PE ratio.

452
00:32:46,360 --> 00:32:52,840
So let me just grab some of it now and put it into my more or less my long term portfolio.

453
00:32:52,840 --> 00:32:56,440
Or if I have some, add to it.

454
00:32:56,440 --> 00:32:57,440
Kind of thing.

455
00:32:57,440 --> 00:33:00,000
Okay and you see that this is a very profitable company.

456
00:33:00,000 --> 00:33:04,240
At nearly $2 per share of earnings.

457
00:33:04,240 --> 00:33:06,280
And it pays, oh that's a fat ass dividend.

458
00:33:06,280 --> 00:33:08,000
Do you see that thing?

459
00:33:08,000 --> 00:33:13,800
See that yield on that 6.42% dividend yield.

460
00:33:13,800 --> 00:33:18,880
So in other words, even if the stock tanks, you got a darn nice dividend.

461
00:33:18,880 --> 00:33:21,320
You paid $17.13.

462
00:33:21,320 --> 00:33:27,120
That's like getting a checking account or a bank account where money you put in pays

463
00:33:27,120 --> 00:33:29,040
6.42%.

464
00:33:29,040 --> 00:33:36,480
You can't beat that in a stock with a beta that's three quarters of the market under

465
00:33:36,480 --> 00:33:38,520
valuation on the PE ratio.

466
00:33:38,520 --> 00:33:45,600
Well that's a pretty decent, that tells you there are a lot of signals in this one that

467
00:33:45,600 --> 00:33:50,360
this would be something that you would put into a responsible portfolio.

468
00:33:50,360 --> 00:33:51,360
Now would be the time.

469
00:33:51,360 --> 00:33:54,360
Well the PE ratio is low.

470
00:33:54,360 --> 00:33:59,240
And also simply you've got a really darn nice dividend yield on it.

471
00:33:59,240 --> 00:34:03,720
So this is more of the kind that you would think to yourself, hmm yeah I think that this

472
00:34:03,720 --> 00:34:07,120
is one that I would probably go for.

473
00:34:07,120 --> 00:34:11,960
And I'll show you more about calculating your projected holding period, annual holding period

474
00:34:11,960 --> 00:34:16,800
returns over the next few lectures as we go forward in time.

475
00:34:16,800 --> 00:34:18,640
But there you go.

476
00:34:18,640 --> 00:34:24,160
This is, and you've seen actually kind of a nice garden variety from the sublime with

477
00:34:24,160 --> 00:34:30,120
AT&T to the ridiculous like AMD and Tesla today.

478
00:34:30,120 --> 00:34:36,800
And it's your call but the one thing I will be darned if I leave you at the end of the

479
00:34:36,800 --> 00:34:37,800
semester.

480
00:34:37,800 --> 00:34:43,960
But I will make sure that you know how to think for yourselves, how to look at the numbers

481
00:34:43,960 --> 00:34:50,640
and stop listening to others including me.

482
00:34:50,640 --> 00:34:55,880
The great commander is the one who doesn't need to be one after he has properly trained

483
00:34:55,880 --> 00:34:56,880
his soldiers.

484
00:34:56,880 --> 00:34:59,120
That's the whole idea.

485
00:34:59,120 --> 00:35:02,040
Now let me get into some financial stuff here.

486
00:35:02,040 --> 00:35:04,440
And I mentioned this first one before.

487
00:35:04,440 --> 00:35:12,400
Let me kill this so that I can get lights back up.

488
00:35:12,400 --> 00:35:20,400
Okay first things first, big term for us is financial intermediation.

489
00:35:20,400 --> 00:35:23,080
I think I've mentioned it.

490
00:35:23,080 --> 00:35:29,280
Financial intermediation is the matching of surplus and deficit economic units.

491
00:35:29,280 --> 00:35:35,520
Financial intermediation is the matching of surplus and deficit economic units.

492
00:35:35,520 --> 00:35:52,280
Here's a surplus unit and here is a deficit economic unit.

493
00:35:52,280 --> 00:35:56,400
Matching those is financial intermediation.

494
00:35:56,400 --> 00:36:02,680
Now don't think that that necessarily means a bank or something like that.

495
00:36:02,680 --> 00:36:04,840
We'll talk about that in a minute.

496
00:36:04,840 --> 00:36:09,600
Financial intermediation can be informal.

497
00:36:09,600 --> 00:36:16,440
Financial intermediation is now happening in cyberspace with smart contracts.

498
00:36:16,440 --> 00:36:22,280
There is no bank in the middle of a smart contract.

499
00:36:22,280 --> 00:36:24,560
So the world is changing.

500
00:36:24,560 --> 00:36:31,360
Ten years, oh twenty years ago, well this is done by a certain type of bank, my lolly.

501
00:36:31,360 --> 00:36:33,920
Well now it's not anything.

502
00:36:33,920 --> 00:36:39,920
Or a matter of fact, you might need twenty dollars and you might have some money.

503
00:36:39,920 --> 00:36:47,080
I know both of you, you tell me about your meeting and you tell me about your bounty

504
00:36:47,080 --> 00:36:50,560
and so I, oh, you guys get together.

505
00:36:50,560 --> 00:36:52,880
Over coffee, I'll pay for it.

506
00:36:52,880 --> 00:36:53,880
Work it out.

507
00:36:53,880 --> 00:36:56,280
That would be a financial intermediation, matching.

508
00:36:56,280 --> 00:36:57,280
I'm matching.

509
00:36:57,280 --> 00:37:08,680
However, it is not as easy as that because this can't work unless three things work or

510
00:37:08,680 --> 00:37:10,040
match.

511
00:37:10,040 --> 00:37:12,800
The first is the level.

512
00:37:12,800 --> 00:37:15,880
That's a fancy word for the amount.

513
00:37:15,880 --> 00:37:16,880
Level.

514
00:37:16,880 --> 00:37:28,520
In other words, you have to have, the surplus unit has to have what the deficit unit wants.

515
00:37:28,520 --> 00:37:34,520
You sir, might be a very wealthy man, but you're not going to lend anyone more than

516
00:37:34,520 --> 00:37:35,520
a hundred dollars.

517
00:37:35,520 --> 00:37:37,520
You need a thousand dollars, no match.

518
00:37:37,520 --> 00:37:38,520
That's it.

519
00:37:38,520 --> 00:37:39,520
Game over.

520
00:37:39,520 --> 00:37:48,520
The next one is timing.

521
00:37:48,520 --> 00:37:56,680
Okay, you've got a hundred dollars, you need a hundred dollars.

522
00:37:56,680 --> 00:37:59,520
Criterion one is done.

523
00:37:59,520 --> 00:38:01,400
Level is the same.

524
00:38:01,400 --> 00:38:03,880
But you want to lend out a hundred dollars.

525
00:38:03,880 --> 00:38:08,000
You don't want it back for another six months.

526
00:38:08,000 --> 00:38:13,200
But you want to hold it off, you want to pay it back in five years.

527
00:38:13,200 --> 00:38:17,200
No match because the timings are off.

528
00:38:17,200 --> 00:38:20,440
So the timing has to be there.

529
00:38:20,440 --> 00:38:30,920
And then finally, risk.

530
00:38:30,920 --> 00:38:35,280
You madam, I need a thousand dollars.

531
00:38:35,280 --> 00:38:37,680
You have a thousand dollars.

532
00:38:37,680 --> 00:38:41,800
I want to pay it back in six months and you would like to have your money back in six

533
00:38:41,800 --> 00:38:42,800
months.

534
00:38:42,800 --> 00:38:44,800
So both the first ones.

535
00:38:44,800 --> 00:38:48,600
But then you look at me and you say, you are risky.

536
00:38:48,600 --> 00:38:51,720
No, you're a yenny, you're an animal.

537
00:38:51,720 --> 00:38:59,960
You're probably going to be dead by then you're old.

538
00:38:59,960 --> 00:39:03,800
So there's too much risk.

539
00:39:03,800 --> 00:39:06,800
You would prefer not to have that risk.

540
00:39:06,800 --> 00:39:09,800
Give you an example, interestingly enough.

541
00:39:09,800 --> 00:39:13,280
In the world of insurance, I'll get into this a little later.

542
00:39:13,280 --> 00:39:18,240
There are a lot of surplus economic units.

543
00:39:18,240 --> 00:39:25,280
Interestingly, one entity could be both at the same time.

544
00:39:25,280 --> 00:39:29,280
At some point, you are building up a 401k.

545
00:39:29,280 --> 00:39:35,360
You're doing good, you're 30 years old and you decide that you, you know, you make investments

546
00:39:35,360 --> 00:39:40,720
and through your 401k, but you want to buy a house.

547
00:39:40,720 --> 00:39:41,720
You can't buy a house.

548
00:39:41,720 --> 00:39:45,840
You've got to go to a bank to get that house.

549
00:39:45,840 --> 00:39:51,200
So with respect to investments in a long term environment managed by someone else, you're

550
00:39:51,200 --> 00:39:53,040
a surplus unit.

551
00:39:53,040 --> 00:39:56,800
But with respect to buying a house, well, you're not.

552
00:39:56,800 --> 00:39:57,800
You're a deficit economic unit.

553
00:39:57,800 --> 00:40:00,800
So you could be both at the same time.

554
00:40:00,800 --> 00:40:10,280
Now, I'll give you some examples here.

555
00:40:10,280 --> 00:40:16,600
There are, banks are not permitted, or kind of not permitted, at least not to any great

556
00:40:16,600 --> 00:40:26,160
extent to put, make investments, make loans in speculative markets because they decide

557
00:40:26,160 --> 00:40:30,480
to stabilize the bank's long term prospects and all that.

558
00:40:30,480 --> 00:40:34,400
So you would have a bank that could have a lot of money, but it wouldn't be willing to

559
00:40:34,400 --> 00:40:40,960
do a real estate, a speculative real estate project in Chicago or somewhere, although

560
00:40:40,960 --> 00:40:44,320
God knows some of them try to and then the auditors catch them.

561
00:40:44,320 --> 00:40:46,320
All that kind of stuff.

562
00:40:46,320 --> 00:40:50,480
But take one like, for example, a life insurance company.

563
00:40:50,480 --> 00:40:55,960
Life insurance companies are major, major surplus economic units.

564
00:40:55,960 --> 00:41:02,320
I mean vast amounts of money because they get those premiums from all those people coming

565
00:41:02,320 --> 00:41:09,760
in and it builds up these large piles of capital, of funds.

566
00:41:09,760 --> 00:41:12,760
Now here's the thing though.

567
00:41:12,760 --> 00:41:15,760
Here's the thing though.

568
00:41:15,760 --> 00:41:19,680
You know you're going to die today, right?

569
00:41:19,680 --> 00:41:25,880
But it's probably not going to be for a long, long time.

570
00:41:25,880 --> 00:41:28,880
It's going to be even 100 years.

571
00:41:28,880 --> 00:41:31,880
Well in your case maybe 20 years.

572
00:41:31,880 --> 00:41:32,880
100 years.

573
00:41:32,880 --> 00:41:33,880
You're going to be out there.

574
00:41:33,880 --> 00:41:34,880
Or 80 years.

575
00:41:34,880 --> 00:41:35,880
Or something like that.

576
00:41:35,880 --> 00:41:41,520
So you see, a life insurance company would not want an investment that would bring its

577
00:41:41,520 --> 00:41:43,720
returns back immediately.

578
00:41:43,720 --> 00:41:46,720
Or even for 20, 30, 50 years.

579
00:41:46,720 --> 00:41:47,720
40 years.

580
00:41:47,720 --> 00:41:55,720
See that would be, that they would be one of those where the timing is long, long haul.

581
00:41:55,720 --> 00:42:00,640
I gave you the example of commercial paper last Wednesday where you've got companies

582
00:42:00,640 --> 00:42:05,960
that have some extra cash for a few weeks or a few months.

583
00:42:05,960 --> 00:42:09,360
And then, so they would like to do something with it.

584
00:42:09,360 --> 00:42:13,400
But they sure want that money back when they have to pay their bills.

585
00:42:13,400 --> 00:42:15,680
Tell you a funny story about this.

586
00:42:15,680 --> 00:42:19,720
And you're going to hear stories from me all through this semester so get used to it.

587
00:42:19,720 --> 00:42:23,200
There was a company not far from here.

588
00:42:23,200 --> 00:42:29,520
It had gotten a payment in of a large amount of money.

589
00:42:29,520 --> 00:42:35,880
And so this was where Treasury was going to put it into some short term investment.

590
00:42:35,880 --> 00:42:41,360
Commercial paper and money market instruments, short term CDs, stuff like that.

591
00:42:41,360 --> 00:42:48,180
And they went to check on the amount of money and suddenly there was hardly any in the account.

592
00:42:48,180 --> 00:42:50,000
They were just going crazy.

593
00:42:50,000 --> 00:42:52,000
What the hell happened?

594
00:42:52,000 --> 00:42:57,920
Well it turned out someone in their accounts payable saw all that money and paid off all

595
00:42:57,920 --> 00:42:59,920
these bills.

596
00:42:59,920 --> 00:43:07,200
Now these were bills that had terms like doing 30 days, doing 45 days.

597
00:43:07,200 --> 00:43:11,320
But well I got the money so I better pay it right now.

598
00:43:11,320 --> 00:43:15,800
And oh my god, that poor young puppy who did that.

599
00:43:15,800 --> 00:43:25,760
He was like watching the Treasury official, a risk manager, lawyer, she a cruel vicious

600
00:43:25,760 --> 00:43:26,760
woman.

601
00:43:26,760 --> 00:43:35,240
It was like seeing an orca finding a baby seal and tossing it around in the ocean before

602
00:43:35,240 --> 00:43:41,600
eating parts of him just to have fun.

603
00:43:41,600 --> 00:43:45,200
Yeah you see timing is going to be crucial.

604
00:43:45,200 --> 00:43:48,640
It's all kinds of financial intermediation.

605
00:43:48,640 --> 00:43:51,960
Risk is obviously a big issue too.

606
00:43:51,960 --> 00:44:02,360
And the amount, capital is flowing so efficiently now that it's just ridiculous anymore.

607
00:44:02,360 --> 00:44:08,860
So anyway there you go that's the idea of financial intermediation.

608
00:44:08,860 --> 00:44:11,520
So who are the financial intermediaries?

609
00:44:11,520 --> 00:44:19,440
Well they don't come in any particular order but there are definitely specializations within

610
00:44:19,440 --> 00:44:22,440
the industry.

611
00:44:22,440 --> 00:44:26,160
Example would be the IB, the investment banker.

612
00:44:26,160 --> 00:44:31,160
Some of you may get jobs or internships as an IB, with an IB.

613
00:44:31,160 --> 00:44:39,160
Those are the very large houses that when a company wants to sell stock or wants to

614
00:44:39,160 --> 00:44:46,640
sell bonds, wants to sell stock to raise equity capital or wants to sell bonds to raise debt

615
00:44:46,640 --> 00:44:54,200
capital, the IB, the investment bankers, if it's any kind of a big offering at all, they

616
00:44:54,200 --> 00:44:55,600
will underwrite it.

617
00:44:55,600 --> 00:44:59,160
They will buy the offering.

618
00:44:59,160 --> 00:45:03,040
That's a primary market transaction from last week.

619
00:45:03,040 --> 00:45:05,240
They buy the issue.

620
00:45:05,240 --> 00:45:10,960
I'm using terminology here and I'm using over and over and you'll get into it.

621
00:45:10,960 --> 00:45:11,960
They'll buy the issue.

622
00:45:11,960 --> 00:45:16,200
They bought the issue in the IPO of Facebook.

623
00:45:16,200 --> 00:45:19,520
They bought the issue in the IPO of Rivne.

624
00:45:19,520 --> 00:45:25,560
And we call it syndicates because there will be a lead underwriter, you'll be the heavy,

625
00:45:25,560 --> 00:45:31,400
but then, well gee this is like $500 million, let me get some other IBs involved in this

626
00:45:31,400 --> 00:45:32,400
too.

627
00:45:32,400 --> 00:45:33,400
You form a syndicate.

628
00:45:33,400 --> 00:45:39,720
They'll say well I'll handle $50 million of it, I'll handle $75 million, they'll handle

629
00:45:39,720 --> 00:45:42,160
$2,250 million of it.

630
00:45:42,160 --> 00:45:48,160
So the syndicate, it's called a syndicate, that will underwrite the offer with a lead

631
00:45:48,160 --> 00:45:49,160
underwriter being you.

632
00:45:49,160 --> 00:45:53,120
You're sort of the one who brings it in.

633
00:45:53,120 --> 00:45:57,960
Your syndicate negotiates, let's say that I'm Mark Zuckerberg.

634
00:45:57,960 --> 00:46:01,200
Yeah I'm much better looking, but anyway.

635
00:46:01,200 --> 00:46:02,800
I'm Mark.

636
00:46:02,800 --> 00:46:10,680
You and I will negotiate the price of it, what the fees will be that will charge you

637
00:46:10,680 --> 00:46:14,480
to do this, and all of that kind of stuff.

638
00:46:14,480 --> 00:46:17,200
It's an enormous process.

639
00:46:17,200 --> 00:46:24,560
You as the IB have to keep an eye on the markets, on your clients, to do what's best for them.

640
00:46:24,560 --> 00:46:28,720
Me as Mark Zuckerberg, I want the highest price per share that I can get so I can get

641
00:46:28,720 --> 00:46:31,720
a lot of money out of this offering and all that.

642
00:46:31,720 --> 00:46:37,440
That's how IB, very simplified version of how IBs work, it doesn't matter.

643
00:46:37,440 --> 00:46:46,640
And like I said, that's hot, hot stuff and some of you, maybe two, three in a class of

644
00:46:46,640 --> 00:46:50,640
size might end up in some kind of an IB.

645
00:46:50,640 --> 00:46:57,080
Now there are the giant houses that are global IBs and then there are regionals that are

646
00:46:57,080 --> 00:47:05,400
still just huge, but they don't do anything anywhere in the world.

647
00:47:05,400 --> 00:47:08,720
And then there are the small houses, boutique.

648
00:47:08,720 --> 00:47:12,120
You'll hear me use that term boutique for a lot of different things, but the boutique

649
00:47:12,120 --> 00:47:21,680
houses that might do some very small but highly prospective startups and things like that.

650
00:47:21,680 --> 00:47:29,040
I mean they're of all kinds of sizes and you do make awfully good money.

651
00:47:29,040 --> 00:47:34,280
If you go into one of those, you've got the right character, you know what the rules are,

652
00:47:34,280 --> 00:47:39,840
you know how to present yourself, you think very well, you've got coding skills behind

653
00:47:39,840 --> 00:47:45,280
you, you can do your Excel, you can do your economic analysis, you've got good skills

654
00:47:45,280 --> 00:47:50,560
with interpersonal skills and all that kind of stuff.

655
00:47:50,560 --> 00:47:58,680
I took my finance students maybe six, seven years ago up to a regional IB that had its

656
00:47:58,680 --> 00:48:04,920
main office, I think that was its main office in Chicago in the financial district.

657
00:48:04,920 --> 00:48:06,680
And it was quite a thing.

658
00:48:06,680 --> 00:48:12,720
They did a good show, they offered some internships, they had some internships available and I

659
00:48:12,720 --> 00:48:19,200
don't know if anyone ever got a permanent job out of that one or not, but it's a really

660
00:48:19,200 --> 00:48:22,840
one of the core things in finance, the IBs.

661
00:48:22,840 --> 00:48:29,280
Now another type of bank is your typical commercial bank.

662
00:48:29,280 --> 00:48:37,040
It is nothing but a bank that does things like makes loans to individuals, loans to

663
00:48:37,040 --> 00:48:45,080
businesses, it has checking accounts, draft, in other words demand deposit accounts and

664
00:48:45,080 --> 00:48:47,560
all of that kind of good stuff.

665
00:48:47,560 --> 00:48:52,960
Now distinguish a bank, a commercial bank from a credit union.

666
00:48:52,960 --> 00:49:00,840
They can do a lot of the same things but credit unions do not offer demand deposit accounts.

667
00:49:00,840 --> 00:49:03,920
In other words, they don't offer checking accounts.

668
00:49:03,920 --> 00:49:08,960
You're saying, now wait a minute fat boy, I've got a checking account at a credit union,

669
00:49:08,960 --> 00:49:10,520
no you don't.

670
00:49:10,520 --> 00:49:16,480
It looks like one, it smells like one, it farts like one, except that it is a negotiable

671
00:49:16,480 --> 00:49:18,680
order of withdrawal account.

672
00:49:18,680 --> 00:49:23,280
Now on any given day you walk in, I've got a check that was written to me from a credit

673
00:49:23,280 --> 00:49:28,840
union, I go in, they'll honor it, $100, $1000.

674
00:49:28,840 --> 00:49:34,480
They don't have to, they almost always will, but a negotiable order of withdrawal account

675
00:49:34,480 --> 00:49:39,520
does not have the instant liquidity of a demand deposit account.

676
00:49:39,520 --> 00:49:46,600
For most and all intensive purposes, they look the same but they are not quite the same.

677
00:49:46,600 --> 00:49:49,080
They even have their own regulatory body.

678
00:49:49,080 --> 00:49:51,400
So keep that in mind.

679
00:49:51,400 --> 00:49:59,480
Now another thing, just as a side quick note here, when you go to a bank, okay let's try

680
00:49:59,480 --> 00:50:04,840
this, let me do that.

681
00:50:04,840 --> 00:50:12,320
You sir, you want to live the dream, you want to buy a home, you've got your eye on this

682
00:50:12,320 --> 00:50:16,320
double-wide house trailer on the outskirts of Decatur.

683
00:50:16,320 --> 00:50:25,320
There's enough room for you and your woman and her eight kids from a previous marriage.

684
00:50:25,320 --> 00:50:31,000
On the weekends you do Elvis impersonation for a children's party, she works as a part-time

685
00:50:31,000 --> 00:50:37,200
assistant manager in a biggie loop near Springfield, living the dream.

686
00:50:37,200 --> 00:50:43,800
You come to me, I said like to borrow a mortgage, I said no you don't.

687
00:50:43,800 --> 00:50:49,200
Yes I do, I said no you don't, you're going to borrow on a loan, you will have a mortgage

688
00:50:49,200 --> 00:50:50,600
attached to it.

689
00:50:50,600 --> 00:50:55,320
That is collateral, the mortgage agreement is not the loan itself, the mortgage agreement

690
00:50:55,320 --> 00:51:01,360
is the attachment to make something I can take when you go to half city and you will,

691
00:51:01,360 --> 00:51:06,280
mainly because you decide to start that strange business in that outbuilding where you come

692
00:51:06,280 --> 00:51:09,280
out with a gas mask on.

693
00:51:09,280 --> 00:51:15,560
As soon as I get that loan, I've made it into a loan.

694
00:51:15,560 --> 00:51:16,560
You know what I'm going to do?

695
00:51:16,560 --> 00:51:17,560
I'm going to sell it.

696
00:51:17,560 --> 00:51:24,400
I am not in the business of a bank holding those kinds of assets.

697
00:51:24,400 --> 00:51:27,240
I'm going to sell it to what's called a secondary mortgage market.

698
00:51:27,240 --> 00:51:30,960
I'm going to flip that loan, I'm going to package all the loans for the day and I'm

699
00:51:30,960 --> 00:51:36,360
going to turn them into one thing and I will sell it to you, a representative for Jenny

700
00:51:36,360 --> 00:51:42,720
May, Fannie May, Freddie Mac, one of those, those trillion dollar international funds.

701
00:51:42,720 --> 00:51:47,640
They buy the loans, they squish them together into this massive ball and they cut them into

702
00:51:47,640 --> 00:51:54,280
different parts depending upon what parts of the cash flow certain investors want.

703
00:51:54,280 --> 00:51:55,280
I'll get rid of it.

704
00:51:55,280 --> 00:51:57,280
But I'm still making my payments to the bank.

705
00:51:57,280 --> 00:52:00,120
Yes, they will get a fee for servicing the loan.

706
00:52:00,120 --> 00:52:02,160
They'll take care of that.

707
00:52:02,160 --> 00:52:04,160
But they don't want your loan.

708
00:52:04,160 --> 00:52:05,920
That's not their thing.

709
00:52:05,920 --> 00:52:08,920
They are merely a pass through agent.

710
00:52:08,920 --> 00:52:12,000
Okay, that's commercial banks, credit unions.

711
00:52:12,000 --> 00:52:14,120
There are other animals too out there.

712
00:52:14,120 --> 00:52:15,880
One mutual funds.

713
00:52:15,880 --> 00:52:18,280
Mutual funds are kind of cool.

714
00:52:18,280 --> 00:52:26,120
And essentially you join a mutual fund and then that mutual fund takes your money that

715
00:52:26,120 --> 00:52:32,320
you deposit and it puts it into stocks and bonds.

716
00:52:32,320 --> 00:52:39,400
And then you make money.

717
00:52:39,400 --> 00:52:45,520
You can get the money out but often times you can just, you can watch your shares, your

718
00:52:45,520 --> 00:52:50,680
ownership of that mutual fund go up as a fund you make money in the fund.

719
00:52:50,680 --> 00:52:56,880
You get more, more shares in the fund.

720
00:52:56,880 --> 00:53:00,280
Now a couple of different kinds of mutual funds.

721
00:53:00,280 --> 00:53:03,040
No-load, low-load and high-load.

722
00:53:03,040 --> 00:53:07,000
That means how much money you have to pay as a fee to join.

723
00:53:07,000 --> 00:53:12,480
If you ever pay a fee to a mutual fund, you're stupid.

724
00:53:12,480 --> 00:53:16,240
There are so many no-loads out there that do great.

725
00:53:16,240 --> 00:53:21,600
Now another cool thing about mutual funds is you can actually, there are just tens of

726
00:53:21,600 --> 00:53:29,120
thousands, families of funds offered by Fidelity, PIMCO, Invesco, whatever.

727
00:53:29,120 --> 00:53:30,880
You can target, tailor.

728
00:53:30,880 --> 00:53:33,880
Well I like a fund that would be kind of international.

729
00:53:33,880 --> 00:53:34,880
Okay.

730
00:53:34,880 --> 00:53:38,480
Or I'd like a fund that was mainly in healthcare.

731
00:53:38,480 --> 00:53:39,480
Okay.

732
00:53:39,480 --> 00:53:42,880
Or I'd like a fund that has high dividends.

733
00:53:42,880 --> 00:53:43,880
Okay.

734
00:53:43,880 --> 00:53:48,000
There are just tons of them out there.

735
00:53:48,000 --> 00:53:56,200
And it's a wonderful way, in fact a lot of retirement plans allow you to manage your

736
00:53:56,200 --> 00:54:02,760
own money and they offer you, well we've worked with this mutual fund family so choose something

737
00:54:02,760 --> 00:54:06,040
in there, something you can do.

738
00:54:06,040 --> 00:54:07,040
It's goodness.

739
00:54:07,040 --> 00:54:12,520
It's a way to participate in the market and you've got professionals managing the fund

740
00:54:12,520 --> 00:54:15,960
so they're not doing stupid things and all that.

741
00:54:15,960 --> 00:54:21,200
And some of them are good and some of them aren't so great.

742
00:54:21,200 --> 00:54:27,760
Now if you are managing a mutual fund, getting into a little bit into the investment side,

743
00:54:27,760 --> 00:54:35,200
normally you, okay I want to have my money in three mutual funds.

744
00:54:35,200 --> 00:54:43,440
So what you do is you have a list of ten or more than that that you always keep an eye

745
00:54:43,440 --> 00:54:44,440
on.

746
00:54:44,440 --> 00:54:50,680
And every year in those mutual funds you look at your lowest performers and you kick them

747
00:54:50,680 --> 00:54:55,040
out and put in the best of the ones that you're looking at.

748
00:54:55,040 --> 00:54:58,520
You're skimming the cream off your mutual fund.

749
00:54:58,520 --> 00:54:59,520
Maybe every year.

750
00:54:59,520 --> 00:55:02,920
Now remember you can't just willy-nilly buy and sell mutual funds.

751
00:55:02,920 --> 00:55:04,400
You'll have windows when you can do it.

752
00:55:04,400 --> 00:55:08,040
But during a window or you can look at the economy.

753
00:55:08,040 --> 00:55:12,880
I see the economy is doing really great so I'm going to balance more towards mutual funds

754
00:55:12,880 --> 00:55:15,440
that are stock oriented.

755
00:55:15,440 --> 00:55:20,920
And or the economy looks like it's kind of beginning to turn on us so maybe I'd rebalance

756
00:55:20,920 --> 00:55:24,040
to go more towards mutual funds that have bonds in them.

757
00:55:24,040 --> 00:55:29,360
These are simple rules and I will tell you right now that the simpler the rule the more

758
00:55:29,360 --> 00:55:32,520
likely you are to be a long run winner.

759
00:55:32,520 --> 00:55:38,160
Just keep an eye on a little group of them that you're always keeping your eye on and

760
00:55:38,160 --> 00:55:45,520
then make a rule every six months every year when I can I just move out the lowest performer

761
00:55:45,520 --> 00:55:52,320
and put in the highest or maybe a couple the lowest two and put in the two from my from

762
00:55:52,320 --> 00:55:53,320
my back list.

763
00:55:53,320 --> 00:55:54,320
Okay those are mutual funds.

764
00:55:54,320 --> 00:56:01,280
Now there are other things I mentioned life insurance companies as financial intermediaries

765
00:56:01,280 --> 00:56:05,560
and also as sources of capital.

766
00:56:05,560 --> 00:56:09,440
Remember money is short term capital is long term.

767
00:56:09,440 --> 00:56:14,360
Many sources like that and then there are of course all the dark places where there

768
00:56:14,360 --> 00:56:18,920
is stuff there is a playground.

769
00:56:18,920 --> 00:56:26,480
Another one which is in the evil darkest of the dark would be a place like what we call

770
00:56:26,480 --> 00:56:30,440
private equity funds.

771
00:56:30,440 --> 00:56:35,840
They essentially a private equity fund.

772
00:56:35,840 --> 00:56:39,480
You're a corporation that's in trouble.

773
00:56:39,480 --> 00:56:43,800
My private equity fund will come in and we'll say we're going to help you out here.

774
00:56:43,800 --> 00:56:47,160
We're going to get you out of your problems.

775
00:56:47,160 --> 00:56:52,800
First things we're going to rearrange your supply chain gets things made in China instead

776
00:56:52,800 --> 00:57:00,080
of with these expensive Americans and we're going to also lend you a large amount of money

777
00:57:00,080 --> 00:57:04,680
and we're also going to take some stock in your corporation.

778
00:57:04,680 --> 00:57:06,960
And the fun begins.

779
00:57:06,960 --> 00:57:13,160
We get things realigned you a lot of layoffs in the United States another factory in China

780
00:57:13,160 --> 00:57:24,360
says oh this is good and then we pipe it pump your stock up and we dump the stock and then

781
00:57:24,360 --> 00:57:28,080
of course we didn't change your management.

782
00:57:28,080 --> 00:57:29,640
You're still crap.

783
00:57:29,640 --> 00:57:35,880
You eventually collapse and then as the bondholders we take over your company.

784
00:57:35,880 --> 00:57:41,520
See because the bondholders will shut you down if you can't pay the bills.

785
00:57:41,520 --> 00:57:44,240
You can't pay us our interest payment.

786
00:57:44,240 --> 00:57:51,160
I guess we're just going to have to take you over and cut you up turn you into juices and

787
00:57:51,160 --> 00:57:54,480
sell that to our friends.

788
00:57:54,480 --> 00:57:55,960
That's how private equity funds work.

789
00:57:55,960 --> 00:57:59,760
You're going to say well I wouldn't do that if I know that's going to happen.

790
00:57:59,760 --> 00:58:00,760
Yes you will.

791
00:58:00,760 --> 00:58:02,160
You're so desperate.

792
00:58:02,160 --> 00:58:08,000
You will take the first common comes to you with a good suit on and a lot of money he

793
00:58:08,000 --> 00:58:10,360
can write out of a checkbook.

794
00:58:10,360 --> 00:58:11,760
Sure you will.

795
00:58:11,760 --> 00:58:18,400
And right now I mean the examples is I could throw you one example after another Sears Staples

796
00:58:18,400 --> 00:58:21,640
the big one now that we're talking about is Panera.

797
00:58:21,640 --> 00:58:29,240
Panera fell into the trap in 2017 and we're predicting it's got a year to live before

798
00:58:29,240 --> 00:58:35,720
it dies and the fund the private equity fund takes it.

799
00:58:35,720 --> 00:58:37,600
Okay follow that.

800
00:58:37,600 --> 00:58:45,080
Now understand that this one and the next one I give you are both almost completely

801
00:58:45,080 --> 00:58:48,780
unregulated and there are two reasons for this.

802
00:58:48,780 --> 00:58:58,600
They are unregulated because one the investors the big dogs who do them and are wealthy enough

803
00:58:58,600 --> 00:59:05,360
that's the SEC thin route they say they know enough we don't need to we don't need to

804
00:59:05,360 --> 00:59:07,560
be their nanny.

805
00:59:07,560 --> 00:59:12,880
The other reason the darker reason is because these funds have so much money they can buy

806
00:59:12,880 --> 00:59:15,780
any politician they want.

807
00:59:15,780 --> 00:59:21,240
So every year when there's screams of regulate these damn sons of bitches well they just

808
00:59:21,240 --> 00:59:28,600
go in and make some campaign contributions money goes into super PACs and all that self

809
00:59:28,600 --> 00:59:31,560
righteousness just kind of fizzles away.

810
00:59:31,560 --> 00:59:32,880
That's how it works.

811
00:59:32,880 --> 00:59:39,720
So now mutual funds they're not quite as evil mutual funds I'm sorry hedge funds hedge funds

812
00:59:39,720 --> 00:59:50,800
that hedge funds they started out mainly just as what's the name implies hedge funds.

813
00:59:50,800 --> 00:59:56,840
They would help companies hedge away risks that the companies didn't want to bear was

814
00:59:56,840 --> 00:59:58,200
part of their core business.

815
00:59:58,200 --> 01:00:04,880
I told you the stories about hedge funds how they if you are a farmer you want to grow

816
01:00:04,880 --> 01:00:09,560
corn you don't want to speculate on corn prices you want to grow corn.

817
01:00:09,560 --> 01:00:16,920
I mean that's what you do and so you could a whole huge group of co-ops could get together

818
01:00:16,920 --> 01:00:22,880
and come to a hedge fund say well can you make it so that if corn prices go down we'll

819
01:00:22,880 --> 01:00:28,640
lose on the corn prices but we'll make money on something or if corn prices go up we'll

820
01:00:28,640 --> 01:00:34,080
make money on that something even though we're losing we'll make money on the corn but we'll

821
01:00:34,080 --> 01:00:35,560
lose on the other something.

822
01:00:35,560 --> 01:00:42,900
So in other words the risk is gone or at least highly muted so that you have a stable income

823
01:00:42,900 --> 01:00:45,680
as a farmer from year to year.

824
01:00:45,680 --> 01:00:51,040
When corn prices are low you lose on the corn but you win on the futures contracts.

825
01:00:51,040 --> 01:00:56,960
When corn prices are high you win on the corn but you lose on the futures contract but you

826
01:00:56,960 --> 01:01:03,240
get a stable income you are no longer in the business of corn price volatility.

827
01:01:03,240 --> 01:01:07,920
That's what hedging is all about on the bright side.

828
01:01:07,920 --> 01:01:14,000
There's a dark side to hedging too the speculators who take the opposite side but that taking

829
01:01:14,000 --> 01:01:20,080
that aside you follow what I'm doing here is that was what hedge funds do but they've

830
01:01:20,080 --> 01:01:26,760
gotten into a lot of other things now but generally speaking they have a higher reputation

831
01:01:26,760 --> 01:01:29,320
than private equity funds.

832
01:01:29,320 --> 01:01:33,120
They're not out to destroy anything.

833
01:01:33,120 --> 01:01:38,360
Private equity I mean I've been working to create a private equity fund in another country

834
01:01:38,360 --> 01:01:45,680
just because I mean it's worship Satan it's okay at least until you go to hell but then

835
01:01:45,680 --> 01:01:53,280
again I'm here in Illinois so there's that but anyway you understand that this is what

836
01:01:53,280 --> 01:01:54,280
those are.

837
01:01:54,280 --> 01:01:59,600
Now there's one more that I want to mention here ETFs electronically traded funds.

838
01:01:59,600 --> 01:02:08,600
ETFs are let me show you an ETF.

839
01:02:08,600 --> 01:02:19,000
ETFs when you look at an ETF you look at a stock but that stock represents a portfolio

840
01:02:19,000 --> 01:02:22,880
of stocks managed by professionals.

841
01:02:22,880 --> 01:02:39,880
There's one I've got one but I sure am not going to tell you because then you go in and

842
01:02:39,880 --> 01:02:42,720
take my win away from me.

843
01:02:42,720 --> 01:02:45,160
This is Spider.

844
01:02:45,160 --> 01:02:48,360
Spider is the standard porous 500.

845
01:02:48,360 --> 01:03:00,040
You buy a share of SPY you own a massively well-balanced diversified portfolio of 500

846
01:03:00,040 --> 01:03:03,040
companies for $487.86.

847
01:03:03,040 --> 01:03:09,200
Imagine it this way.

848
01:03:09,200 --> 01:03:14,080
You sir you are at the finance single floor.

849
01:03:14,080 --> 01:03:27,960
You're going there and some very attractive person comes up to you and says so what do

850
01:03:27,960 --> 01:03:28,960
you do?

851
01:03:28,960 --> 01:03:29,960
Why I'm an investor.

852
01:03:29,960 --> 01:03:30,960
Well what kind of portfolio do you have?

853
01:03:30,960 --> 01:03:31,960
Well I hold the standard porous 500.

854
01:03:31,960 --> 01:03:32,960
Well wow you do but that's going to SPY you own the whole 500.

855
01:03:32,960 --> 01:03:47,960
That's if that other person hears that you will not go home alone.

856
01:03:47,960 --> 01:03:48,960
Okay?

857
01:03:48,960 --> 01:03:53,960
Has that worked for you before?

858
01:03:53,960 --> 01:03:56,960
Hell no.

859
01:03:56,960 --> 01:04:06,480
Take a look at my face but you're a yeti.

860
01:04:06,480 --> 01:04:12,320
But understand what I'm saying here is that you can diversify professionally managed.

861
01:04:12,320 --> 01:04:14,280
Let me show you something real quick here.

862
01:04:14,280 --> 01:04:19,840
Look at the beta.

863
01:04:19,840 --> 01:04:22,680
It's got the beta of the market world portfolio.

864
01:04:22,680 --> 01:04:28,040
Well not surprisingly because you don't 70% of the world portfolio.

865
01:04:28,040 --> 01:04:30,760
It's a mark it's basically the market.

866
01:04:30,760 --> 01:04:36,920
So the market and you will go the way the same way.

867
01:04:36,920 --> 01:04:37,920
It's not high risk.

868
01:04:37,920 --> 01:04:38,920
It's not low risk.

869
01:04:38,920 --> 01:04:41,600
It is the world market risk.

870
01:04:41,600 --> 01:04:51,400
In other words that 1.00 says it has 100% of the volatility of the market of the world

871
01:04:51,400 --> 01:04:53,520
market itself.

872
01:04:53,520 --> 01:04:56,120
Now notice the expense ratio.

873
01:04:56,120 --> 01:04:57,120
Keep an eye on that.

874
01:04:57,120 --> 01:04:59,680
This is only 0.09.

875
01:04:59,680 --> 01:05:03,920
I'm a little bit skittish at anything above 0.3.

876
01:05:03,920 --> 01:05:06,320
That's for myself.

877
01:05:06,320 --> 01:05:10,920
It's just I they're charging you a fee.

878
01:05:10,920 --> 01:05:11,920
Of course they are.

879
01:05:11,920 --> 01:05:12,920
They're the professionals.

880
01:05:12,920 --> 01:05:18,920
They're every day balancing this portfolio making sure that it has the portfolio control

881
01:05:18,920 --> 01:05:20,200
theory becomes practice.

882
01:05:20,200 --> 01:05:24,120
And we'll learn a little about portfolio control theory in this class.

883
01:05:24,120 --> 01:05:28,260
But that's their job is to take care of that portfolio.

884
01:05:28,260 --> 01:05:31,240
And so you don't have to.

885
01:05:31,240 --> 01:05:38,400
You've got the S&P 500 and each stock in there is in the correct amount to maintain the balance

886
01:05:38,400 --> 01:05:42,320
of the portfolio as prices change from day to day.

887
01:05:42,320 --> 01:05:44,160
They do it for you.

888
01:05:44,160 --> 01:05:46,200
Now there are other ones that are.

889
01:05:46,200 --> 01:05:49,120
Let me show you.

890
01:05:49,120 --> 01:06:04,440
I think I'll avoid that.

891
01:06:04,440 --> 01:06:13,720
There are some that I'm trying to think.

892
01:06:13,720 --> 01:06:14,720
Here's one.

893
01:06:14,720 --> 01:06:19,080
I ran this a while back and it's just so tempting.

894
01:06:19,080 --> 01:06:21,040
This is an ETF.

895
01:06:21,040 --> 01:06:22,040
P.S.I.L.

896
01:06:22,040 --> 01:06:29,760
It is the stocks of a group of companies that are under license from the federal government

897
01:06:29,760 --> 01:06:36,520
studying psychedelic mushrooms, magic mushrooms, to see if they can be used for therapeutic

898
01:06:36,520 --> 01:06:40,040
purposes on psychotic patients.

899
01:06:40,040 --> 01:06:41,040
Someone back there.

900
01:06:41,040 --> 01:06:42,040
Yeah, yeah.

901
01:06:42,040 --> 01:06:44,880
No, it's an ETF.

902
01:06:44,880 --> 01:06:49,560
So if you want to get into the good stuff, this is it right here.

903
01:06:49,560 --> 01:06:52,120
ETFs, you could do anything.

904
01:06:52,120 --> 01:06:56,120
You could do the Russell ETF, the NASDAQ.

905
01:06:56,120 --> 01:06:57,120
There's a couple of them.

906
01:06:57,120 --> 01:07:02,040
Honestly, I don't know the difference between the different NASDAQ ETFs.

907
01:07:02,040 --> 01:07:03,040
How many stocks?

908
01:07:03,040 --> 01:07:05,040
The NASDAQ is like a zillion stock.

909
01:07:05,040 --> 01:07:07,300
Do they buy them all or what?

910
01:07:07,300 --> 01:07:09,120
But they're in every industry.

911
01:07:09,120 --> 01:07:16,960
You can go into ETFs that are oriented toward healthcare or toward international or toward

912
01:07:16,960 --> 01:07:22,240
industrial processes or consumer goods or based upon certain characteristics.

913
01:07:22,240 --> 01:07:28,440
There are ETFs that hold stocks that have high dividend deals.

914
01:07:28,440 --> 01:07:30,040
There are some that hold bonds.

915
01:07:30,040 --> 01:07:32,560
Here's one I want to show you.

916
01:07:32,560 --> 01:07:35,000
This is a benchmark.

917
01:07:35,000 --> 01:07:36,320
AGG.

918
01:07:36,320 --> 01:07:47,520
And when I say that, others' bonds are measured against AGG, which is a pure bond fund.

919
01:07:47,520 --> 01:07:48,520
It is an ETF.

920
01:07:48,520 --> 01:07:51,520
I hope that's an ETF.

921
01:07:51,520 --> 01:07:52,520
Yeah, ETF.

922
01:07:52,520 --> 01:07:55,720
And it is, look at this.

923
01:07:55,720 --> 01:07:59,720
Beta 1.00.

924
01:07:59,720 --> 01:08:03,680
Expense ratio, I'm lousy, 0.03%.

925
01:08:03,680 --> 01:08:10,720
So one thing that you could think about is, okay, I am an investor who wants to maintain

926
01:08:10,720 --> 01:08:18,280
over longer periods of time about a good portfolio structure based upon the economy.

927
01:08:18,280 --> 01:08:24,520
So at good times, I might go 80% SPY, 20% AGG.

928
01:08:24,520 --> 01:08:28,400
And then as the economy begins to turn a little sour, and remember, these are stocks.

929
01:08:28,400 --> 01:08:30,520
You can buy them day and night.

930
01:08:30,520 --> 01:08:31,640
They're stocks.

931
01:08:31,640 --> 01:08:35,080
It's not like mutual funds where you have to wade away.

932
01:08:35,080 --> 01:08:37,240
No, they're just, you trade these.

933
01:08:37,240 --> 01:08:41,160
You buy them and sell them just like anything else.

934
01:08:41,160 --> 01:08:42,660
Any other stock.

935
01:08:42,660 --> 01:08:50,400
But behind them is an 800 pound gorilla, whatever is the portfolio that you're buying into.

936
01:08:50,400 --> 01:08:51,720
You follow that one?

937
01:08:51,720 --> 01:08:54,040
It's cool stuff.

938
01:08:54,040 --> 01:09:04,280
So ETFs are, okay, we all have our fun little slush portfolio, but your responsible big

939
01:09:04,280 --> 01:09:07,880
adult person portfolio should be well balanced.

940
01:09:07,880 --> 01:09:13,800
And we're going to learn about balance, about portfolio control, about all of that kind

941
01:09:13,800 --> 01:09:16,160
of stuff in this course.

942
01:09:16,160 --> 01:09:20,720
But you'll have, I'll buy this stock, or I'll buy that stock.

943
01:09:20,720 --> 01:09:26,520
And usually, sometimes you hear people talking about, well, I made a lot of money doing that.

944
01:09:26,520 --> 01:09:30,320
Well, yeah, but don't get biased by that.

945
01:09:30,320 --> 01:09:33,240
Let me try something with you.

946
01:09:33,240 --> 01:09:42,640
When you see lottery commercials, do you ever see lottery ticket buyers who lose money all

947
01:09:42,640 --> 01:09:43,640
the time?

948
01:09:43,640 --> 01:09:45,640
You don't see those people in the ads.

949
01:09:45,640 --> 01:09:49,680
You see the people, I just made a million dollars.

950
01:09:49,680 --> 01:09:52,560
The same is true in stock markets too.

951
01:09:52,560 --> 01:09:58,040
You'll have some idiot, I've got a system for winning in the stock market and you can

952
01:09:58,040 --> 01:10:03,040
have that system too for 1995 and if you order it before midnight, I will also sell you a

953
01:10:03,040 --> 01:10:04,040
war on co-legion.

954
01:10:04,040 --> 01:10:07,040
It's like this guy's going to make a few of the ads.

955
01:10:07,040 --> 01:10:08,040
Isn't that amazing?

956
01:10:08,040 --> 01:10:11,640
I want you to buy my system because I made a lot of money.

957
01:10:11,640 --> 01:10:15,760
Question one, why are you talking this if you've already made your money?

958
01:10:15,760 --> 01:10:20,440
Question two, one, have you ever seen an ad on one of the stock market channels?

959
01:10:20,440 --> 01:10:24,240
Ha, I bought a lot of stock and I've lost my shirt.

960
01:10:24,240 --> 01:10:27,240
I am so poor I can't even afford to go to war.

961
01:10:27,240 --> 01:10:28,240
I'm P.O.

962
01:10:28,240 --> 01:10:33,240
Poe because I'm stupid and I want you to know my system and I'll sell you my system.

963
01:10:33,240 --> 01:10:36,640
No, you never see those kinds of people driving down the highway.

964
01:10:36,640 --> 01:10:39,640
You sir, you drive like a blind trout.

965
01:10:39,640 --> 01:10:40,640
You drive like a maniac.

966
01:10:40,640 --> 01:10:41,640
I'm driving along at the speed limit, single factor.

967
01:10:41,640 --> 01:10:51,960
And you go boom, you go boom, everybody's going faster than I am.

968
01:10:51,960 --> 01:10:52,960
Not everybody.

969
01:10:52,960 --> 01:10:58,240
You're not going to see the people who are going to speed in your war.

970
01:10:58,240 --> 01:11:05,280
You will have a bias and that's one of the problems we have in stock markets, in financial

971
01:11:05,280 --> 01:11:09,120
markets is the bias that comes about.

972
01:11:09,120 --> 01:11:17,760
Last thing for today, this comes from the world of behavioral finance.

973
01:11:17,760 --> 01:11:22,760
You're going to go into a casino and you know you're going to lose every penny.

974
01:11:22,760 --> 01:11:25,520
Some kind of a nut, you're going to be wiped out.

975
01:11:25,520 --> 01:11:30,680
But you also know that the first table, you have a good chance of winning.

976
01:11:30,680 --> 01:11:35,280
So are you going to play that table or are you going to walk out of the casino?

977
01:11:35,280 --> 01:11:37,120
Play the table.

978
01:11:37,120 --> 01:11:41,040
You play that table and you see the next table and you think I've got a good chance of winning

979
01:11:41,040 --> 01:11:42,040
at that table.

980
01:11:42,040 --> 01:11:45,040
And you play that table.

981
01:11:45,040 --> 01:11:49,560
Now you know that you're going to lose with your strategy.

982
01:11:49,560 --> 01:11:53,920
But every next move seems to be one that works.

983
01:11:53,920 --> 01:11:56,960
That's called behavioral finance.

984
01:11:56,960 --> 01:12:03,920
It's a new twist where economics would say rational agent, you say FTS, you walk out

985
01:12:03,920 --> 01:12:04,920
right away.

986
01:12:04,920 --> 01:12:05,920
You don't play.

987
01:12:05,920 --> 01:12:10,080
But behavioral finance tells us no you won't.

988
01:12:10,080 --> 01:12:12,560
You'll keep gaining until you lose.

989
01:12:12,560 --> 01:12:21,320
That's why the responsible people, us in finance, try to educate or help people not make that

990
01:12:21,320 --> 01:12:22,320
mistake.

991
01:12:22,320 --> 01:12:36,680
That's all I have for you today I think.