Stock Market for Beginners - The right fundamentals to get started | Candi Carrera | Skillshare

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Stock Market for Beginners - The right fundamentals to get started

teacher avatar Candi Carrera, Value investor & board director

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Taught by industry leaders & working professionals
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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

16 Lessons (3h 40m)
    • 1. Introduction

    • 2. Purpose of the stock market

    • 3. Market history

    • 4. Main market indices

    • 5. Market overview

    • 6. Buyers & sellers

    • 7. Intermediates

    • 8. Information providers

    • 9. Oversight & regulatory authorities

    • 10. Cash instruments

    • 11. Fixed income & debt instruments

    • 12. Equities

    • 13. Derivatives

    • 14. Information sources

    • 15. My first order

    • 16. Conclusion

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About This Class

Investing in the stock market can be confusing experience for beginners due to the amount of news, buzzwords and complex vocabulary. While Warren Buffett said that you do not need a PhD to be a successful investor, investing in the stock master requires a minimum of understanding of the fundamental principles. This is exactly the purpose of this training.

In this course you will learn all about:

  • Understand how the stock market works and its main purpose
  • Understand the purpose of the main market indices like DowJones30, S&P500
  • Be able to differentiate between equities, bonds, commodities, derivatives and other types of instruments
  • Have an overview of the various actors in the stock market between buyers, sellers, rating agencies, brokers & oversight authorities
  • Differentiate between the primary and secondary market
  • Understand the difference between the primary and secondary market
  • Understand the relationship between a financial instrument and its risk & potential return/reward expectations
  • Have an overview of the tools to use as investor
  • Be able to place a first order

Investing in stock markets can be a very positive but also very negative experience if you do not really understand what you are doing.

Learn from my 20 years experience as an investor running my own investment fund and rapidly move ahead faster with the knowledge I will share with you.


Many thanks and I appreciate your interest in my course!

-Candi Carrera

Meet Your Teacher

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Candi Carrera

Value investor & board director


Hello. My name is Candi Carrera and I am a value investor for more than 20 years with 90% of my personal savings invested in stocks. My main attitude as value investor is to buy shares as if I would be buying the whole company, acting as a business owner and understanding the business I am investing into.

I keep the remaining 10% as a cash reserve to buy more stocks as market corrections and bear markets happen regularly. During bear markets, investors are depressed and become pessismistic. I take the opportunity during those depressed periods of buying great companies at low prices. As famous investor John Templeton said : "If you want to have a better performance than the crowd, you must do things differently from the crowd".

Through these courses, my personal goal is to... See full profile

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1. Introduction: Hello investors, Welcome to my training on stock market for beginners. So this is a training that's where I want you to explain the fundamentals of the stock market. And because actually a lot of people have been asking me or kick anybody, it seems like a very fluid in very investing, dividend investing, but we may be missing the baseline, the foundation. So that would be great if you could create a training specifically for beginners on the stock market. So this is why I've created this and I hope it will be useful for you if you are just starting on the stock market or willing to start on the stock market. As in all of my trainings or like to walk you through the table of contents so that your understanding of it, what you can expect from the training. And the first thing obviously is understanding what is a stock market quotes purpose of the stock market was the history of it. Can we predict the stock market or not? Then obviously very important, you need to understand what are the main participants in the market, not just from a buyer, seller perspective, or there's going to be intermediates. There's going to be also oversight authorities or regulator as inflammation provide us thing. It's good in a fundamental training that you are able to differentiate who is doing what in the market because you're going to see is, I will not say complex, but there are many participants. And it's good that you have at least 360 degree view on that. And chapter number three, we're going to discuss financial instruments going from cash to fix income, debt, securities to equity, so shares and also derivatives. For those of you who looked at my profile, I'm a value investor so I only buy equities. I didn't buy anything else, have 99% of my savings that are invested into real companies. And the rest 1% is in fact invested into cash bank savings account. Because I always keep some cash available if the market is going down to buy more of those companies at cheap prices. And we're gonna end the training with the tools. So I'm going to share with you very transparently what are the tools that I'm using? And also I want to do a, something like a first order with you. So in case you want to go and buy something on the stock, that you have a decent overview. What I think that you need to be aware of the terminology around a first-order. So that will be part of the closing chapter. With that, again, thanks for joining this training. I hope you're going to enjoy it and let's get started with the chapter number one about the stock market. Thank you. 2. Purpose of the stock market: Welcome back investors. So studying the train now with chapter number one and discussing what is in fact the stock markets, the purpose of it cannot be predicted or not. And the main indexes or indices around the market, because you're gonna hear that very often in the press. So let's start with the purpose of the stock market. Vm. You need to get it from two angles. The first angle is looking at from companies, and the second angle is looking at it from an investor's, which is in fact us, you and me here. But let's first start with companies. What happens very often in, let's say in the real life, is that you have people who have money, that's the investors. And you have people who have ideas. That's very often either entrepreneurs or companies. And what happens between the two is that the people who have ideas don't have money, and the people who have money don't have ideas. This is what the stock market's comes together and gives the opportunity to those companies to raise money, fresh money, to transform those ideas into business growth, into new customers, into revenues, into profits as well. And at the same time, for the investors that are giving that money because they don't have an idea what to do with their money and they're giving it to some companies. The expectation from those investors that they get a return. And this is a first fundamental thing to understand in the stock market. There is a flow of money going from the investors to the companies. But at the same time, there is a flow back that we're extensively discussing in the value investing and dividend investing course. Return to investors. I mean, investors will not give in 99.9% of the cases, they will not give the money to accompany for free. It's not a free lunch, as we would say. So there has to be a return. There has to be something that the investor gets back from giving his or her money to accompany. And this is where we are speaking about a return on capital, is that investors are giving their cash in their capital to Company in the hope that they will get a return on that money so that money grows and that he become more and more rich on one more wealthy. And the purpose of the stock market is to facilitate the exchange between the investors and have money but no ideas. And the companies that have ideas, but they don't have the money. That's a purpose to make it very simple of a stock market. And moving to the next slide, what the dilemma of an investor is is that investor has he or she has multiple investment opportunities. And just look around you. I mean, you can spend your money on a new car, a new house, that would be the real estate example. You can put your money into the bank savings accounts because you think that we're probably in six months time I'm going to buy I want to keep that money for I don't know. Buying spots are parellel maybe buying some nice holidays in Mexico. And other people say, yeah, I go, I will take that money and I'm going to invest it into stocks, into the stock exchange, to the stock market. So we're going to discuss a risk versus return balanced when we're going to discuss about the instruments, the financial instruments, because there is a relationship between the instrument and the risk, and also the return that is related to the instrument that you potentially want to invest into. I don't wanna go into too much detail, but just let me take the example of a bank savings account, which is one of the most easiest example to understand when you're new on the stock market and actually when you are new as an investor. You have money, you have earned your money through the monthly salary you are working and you have saved some money. And a lot of people put their money into the bank savings account. Why? Because they feel it's secure because probably the bank will not go bankrupt. And a lot of people accept that the return on the money they put on the bank savings accounts, in fact, during the last years is super low. It's largely below 0, that 5%. If I look at my bank savings account, I'm getting what, 0 to 3% on it. So that's really not a lot. And again, we are not discussing this here, but just keep in mind as a simple rule. If the return that you're getting is below the inflation, so the increase in cost of living, you are destroying value. So let's assume that in the bank savings account you would get 0, that 5% of yearly return on the money that you're putting on the bank savings accounts. If the inflation is that among that 5% or 2%, you just have destroyed value and you have destroyed your wealth. If you do this year over year, you're gonna lose purchasing power. That's why other people say, or I prefer to invest into real estate. If a look, for example, let's take the Luxembourg is realistic market. It's growing by six to 7%. If it is new or old. Second-hand real estate, it's growing six or 7% every year, is a risk high. No, its not. Do I invest into it now because I don't like it. It's an if look at the decision equation. It's not part of my competence to buy and to be able to estimate real estate. And I consider also that real estate is not very liquid. So I am introducing a term which is called liquidity. I cannot go out if I just amine, I'm living in my house. I've bought this house with my wife and with my two kids and a cat. But that house, if I would like to sell it, it would take me at least six months to sell it. So the longer the period, the more illiquid asset is, a bank savings account is super liquid. The money goes in. They after the minute after the money goes out. With stocks, stocks are considered much more liquid, for example, then real estate, we're going to discuss a risk versus return later on in chapter number three, when you are going to discuss financial instruments, just keep in mind for the time being as an introduction, that as an investor, if you have money, you not only have the opportunity of the possibility to give that money for a specific expected return to companies. But you have other investment vehicles like real estate, bank savings account or corporate bonds, US Treasury note, those kind of things. But we're going to discuss that later on. But doesn't understand that everybody has to pick and you have people who are specialized in bones, Other people are specialized in investing into real estate. I consider myself being a minimum knowledgeable on investing into companies that need to stocks, but that's my choice. And if we categorize the return versus the risk here over a historical periods. You see that a bank savings account, what we call a cash financial instrument, the average return over the last 5060 years was below 1%. Again, if the worldwide inflation or inflation, the counter that you're leaving has been add one dot 5% consistently since 1972. And you have only put your money into cash savings account, a bank savings account, you have destroyed wealth, you have destroyed purchasing power. If you look at bonds, so those obligations again, we're going to discuss it in financial instrument. The risk is higher. So the more we go to the right, the higher the risk, but at the same time the rewards is higher as well because the more risk you take, the expectations of getting higher returns are better. And on bonds, they are risks that government would go bankrupt. Just look at what happened to Greece a couple of years ago now and don't wanna discuss a political attributes of what happened at that time. But the government, in order to raise new money, had to raise bonds. And those bonds have a much higher return because the risk was higher, because there was a default risk of Greece and they would go bankrupt, for example, without being, let's say, supported by the European Central Bank, which, which the European Central Bank did nonetheless at the very end. And you see that the return is indeed here at 545% in average on that class of asset. If you go to US stocks and you take the biggest US companies, you see that the average return over the last 60 years, it's a little bit above 7% per year. And again, if you go into my value investing cause they're gonna give you the, the, the tangible elements. Why a six to 7% of a very long period of time is a very good performance. And this is what I'm looking into is I'm trying to invest into companies. Why get between six to 7% return every year? And I'm doing this now for more than 20 years and I continue on, I will continue to grow this as long as can obviously in my health is supporting me in doing that. And then you have more risky vehicles like us, what we call us micro, micro cap stock, that it's micro capitalization, small US companies, but are nonetheless listed on the stock market. And they're obviously because risk is high on the written can also be higher. But at the same time, the risk of default, the risk of having one of those companies go bankrupt is also higher because those companies are financially less stable than, for example, a big American cooperation. So this is already where you see where we start to go into. Depending on the class of assets, the class of instruments, cash bones, US stocks, micro cap stocks. So smaller companies, you see that the returns vary but the risk as well. But I said we will come back to it later on. So with that, we're wrapping up lecture number one in this chapter number one about the purpose of the stock markets. And remember that the statement is the ad that people that have money but don't have ideas flow, that money flows to companies or entrepreneurs that have ideas but don't have the money. But the expectation from the investors together written on that and this is what we're going to discuss later on with that. Thank you for having come in and talk to you in the next lecture. Thank you. 3. Market history: Welcome back investors, lecture number two. After having introduced what's the purpose of the stock markets, we're going to discuss in this lecture, the history and the main events around the stock market. So I'm using here already a first term, I'm going to define that later on, which is the S&P 500 price to earnings ratio. But it's just an indicator of how an average the market has been evolving over the last you see here until the end of the 19th century. And so you see that first learning here and we're going to discuss and define what is a bull market, the bear market, those are the kind of term that you're gonna see appearing in the press or when you're listening to radio or TV broadcasts as well, is you see that over the last more than 100 years, the market has been going up and down. So the market has been super excited at certain periods of time and a certain periods of time, the market was super depressed. And I mean, you can take the 192829 Great Depression. You had the Great Recession with the financial crisis, the subprime crisis in the US from 20082010, bubble, the Internet bubble in 2 thousand, that burst. You had oil press shows. I think it was 1973. I was just one year old Cuban missile, missile crisis, World War two. So there have been things happening on the markets since ever. The first set of terms I want to introduce you here as you see the market going up and down, you go now, often here, if you are starting on the stock market, the terms bull market, bam market, market, correction, market rally. In fact, they're very easy and we always pick but the BLM, the bare, the bool is when the market is super excited and has been growing for a longer period of time by more than 20%, we call that or even years. We call that a bull market or a bear market is the other way around. So the market has been super depressed for a longer period of time and has lost more than 20% of its initial value. In-between the two. If I look now at the bull market, we're going to have, investors are going to use a term market rally. So this is when prices on the market in average have increased between so more than 10%. So between 10, 20%. And the market correction is when prices have declined by more than 10%, but we are not still in a bear market. That would be a decline in the price by more than 20%. So pretty easy. Keep in mind bull market, bear market, market rally market correction. The, when you look at the stock market and the history as well. And there is a lot of academic work around that. A lot of people, there's a lot of information, entertainment as I call it, where people try to predict the market so that they can do earnings out of it and do profits out of it. So the two key questions that isn't in, as an investor, I really speak to you as an investor, not as a speculator. Is our markets predictable? And can we, as investors, time? When things, when a bull markets will appear or a bear market will appear, when a market rarely will happen or when a market correction would happen. And I tried to give you answers on that. The first thing is, I want you to listen in here to a Peter Lynch. It was a super successful investor that in 1984 was at in economical circle in New York. He was speaking about the predictability of the non predictability of markets. So I will pause here the video, and I would like you to listen in and take those to three minutes to listening to what Peter Lynch is saying. And I'll come back after the video. First of all, they try to predict the stock market. There's a total waste of time known to predict this document. They try to predict the interest rates. And this is, if anybody predict interest rates right, three times in a row, there'd be a billionaire ensuring there's not that many billionaires on the planet. It's very, you don't like to logic. So I had a syllogism in the study of these one has a Boston College. They can't be that many people who can forget this rights because there'd be lots of billionaires and no one can predict the army. I had a lot of people is room were around in 198182. And we get a 20% prime rate with double-digit inflation, double-digit unemployment. I don't remember anybody telling me in 1981 about it. Read eyesight all sub I remember every time we go to the worst recession since the depression. So what I'm trying to tell you, it would be very useful to know what the sarcomere is gonna do. It'd be terrific to know that the Dow Jones average a year from now will be x. That we're gonna have a full-scale recession or interest rate's going to be 12%. That's useful stuff giving you ever know what though, you just don't get to learn it. So I've always said if you spent 14 minutes a year and economics, you've wasted 12 minutes. And I really believe that now I have to be IP fair. I'm talking of an Economics and the broad-scale predicting the downturn for next year or the upturn are m1 and m2, 3B and all these, all these M's at the I'm talking about economics to me is when you talk about scrap prices. When I own a lot of stocks, I want to know what's happening, used car prices and used car prices going up. It's a very good indicator. When I want hotel stocks, I'm gonna hotel OK, Missy's Oh, I don't count will stop someone know it's half the price of ethylene. These are facts. Balloon inventories go down five straight months. That's relevant. I can view with that Home Affordability. I want to know about my own Fannie Mae, right? Oh, no housing stock. These are facts. You get their economic facts and this economic predictions, and economic predictions are a total waste and interest rates. Alan Greenspan's very honest guy. He would tell you that he can't put interest rates. He could take what short rates are going to do the next six months. Try and stick them on what the long-term rate will be three years from now. They'll say, I don't have any idea. So how are you the investor? Specific interest rates if they had a Federal Reserve can't do it. So I think that's what you should study. History. And history is the important thing you learn from. What you learn in history as the market goes down. It goes down a lot. The math is simple, has been 93 years and centuries. This is easy to do. The market said 50 declines of 10% or more. So 50 declines in 93 years. About once every two years the market falls 10%. We call that a correction. That means that's a euphemism for losing a lot of money rapidly, but we call it a correction. So 50 declines in 93 years, about once every two years the market falls 10%. Of those 50 declines, 15, I've been 25% or more. That's known as a bear market. We've had 15 declines in 93 years. So every six years the markets can have a twenty-five percent decline. That's all you need to know. You need another markets can go down sometimes. If you're not ready for that, you shouldn't own stocks. And it's good when happens. If you like a socket 14, it goes to six. That's great. You understand a company, you look at the balance sheet and I'm doing fine. And you're hoping to get to 22 with it. 14 to 22 is terrific. 622 is exceptional. So you take advantage of these declines going to happen. No one knows when they're going to happen. You'll be fair. People tell you about it after the fact that they predicted it, but they predicted it 53 times. And so you can take advantage of the ball to the market if you understand what you all think, that's the key element, another key element. So going back after the video, I hope that you understood from Peter Lynch where he was stating is that even the Federal Reserve that has super mathematicians unlimited calculation power, they cannot predict the market more than three to six months in advance. So there is lot of uncertainty there. And tried to give you a couple of elements to try to answer those two, those two questions, if the market is predictable and if we can time it. The first one is on predictability is you will have, and over the last ten to 20 years with Internet, with YouTube, you have a lot of people who are trying up pretends that can predict the market. Warren Buffett's cause it to priesthood. The priests of Wall Street's the experts that are on TV, on Bloomberg TV. And they say, yeah, I know the market will move like this or the market will go down by this much in the next weeks. And for this reason we believe this will happen. In fact, a lot of experts have absolutely no clue if the market will go up or down. And here I am giving you an example of 11, let's say experts that said there's gonna be market crashes happening at the very end, the experts were wrong. So what can this tell us? And if you lose listening to Peter Lynch, if you listen, if you look at those kind of statistics where on the 11 examples where people were predicting crashes, the crashes didn't happen. The market was continuing on a bool, right or so it was a bull market. And it was continued, continued to grow. So markets are predictable in the sense that the only thing that is predicted, as we know, there's gonna be fluctuations. And this is what Peter Lynch was Singh and I'm gonna give you also this in the with future Elements. So we know that at a certain moment in time, things will turn and will go bats. And we know that a suddenly time things will go goods. And even in the Courbet 19, crazy, we are now October 2020. And this happened and I'm going to show this to you in a thing in three slides are going to show what happened in 2020. And it's not different of what Peter Lynch was saying in 1994. So we know that fluctuations are going to happen. But the second question that is important, can we predict when it is happening? The answer is no. And this is where I, and that's why I'm considering myself as an investor and not as a speculator. I don't try to speculate when the market is going up or going down. I just know that it will happen at a certain money in some and I'm going to try to take that as an opportunity to make money and potentially by fantastic companies as very cheap prices. What is interesting in these slides is that as, so answering a question, is the market predictable? Yes, in the census fluctuations will happen bear bull markets have been happening over the last one hundred and forty, one hundred and fifty years. Do we know when? No, we don't know. But what is history telling us? So history is telling us that the average duration of a bear market is little bit more than a year. So statistical formula 52 days and that the bear markets will create the market correction of 38%. What is interesting is that when the band markets comes back to break even to the initial position before the bear markets is then we go into bull market territory. And the average duration of a bull market is six to seven years in average over history. Again, those averages. And what is interesting is that bull markets, they provide an average return of 202%. And this is what I'm showing you here with this statistic. Just look at history. This is exactly what Peter Lynch is saying and Peter NGO speaking in 1994. And I am just showing you here after 1994, you have is with bubble. You have this with the financial crisis, two thousand and two thousand and ten. The markets came back until 2020. And there was, I think it was a ten year Bull Run that we had. And just look what happened in 2020. Were people able to predict the qubit 19? No, of course not. What happened to the market? Of course, it busted and it went into bear territory. So I think the correction was this time 3435%. What do I do as an investor if I have done my homework analyzing the companies and this is where if you want, go into my value investing course. If I'm pretty sure that the companies that have invested into our sound financially sound. I'm not speculating and just going to sit there probably if I have cash available during a bear market, I gotta buy more because the market is so depressed. People, everybody is selling. Well actually I'm buying because the market is giving me those fantastic companies that's super cheap prices. Again, if you want to know more about that, please go into the value investing cause because I'm really discussing this extensively, isn't nearly eight hours training just specifically on that went to buy and how to buy fantastic companies and determining what is a fantastic company and how to buy at a cheap price. And in 2020, just look here at the market averages. We are going to discuss about indexes later on, but just look what happened in the US. The markets went when bus for more than 30% down and they came back after a couple of months. Now what is happening? Today we are end of October yesterday there was a huge market correction or nearly market correction of within the last two to three days because people get nervous about the US election that is happening next week. So people are emotionally on the market and those are great opportunities to buy fantastic companies at cheap prices. So again, what is important is market. As we wrap up lecture number two, the market is predictable only in the sense that fluctuations will happen. But you will not be Evan and I am not able, nobody's able to say exactly when it will go up and when it will go down. That's for me, speculation. That's not investing with that. Wrapping up lecture number two and in the next one we're going to introduce the concepts of market indexes because they're a lot of people who speak, but the Dow Jones and nasdaq BSE P5 founded what's all around those, those terms. So stay with me and talked you into the next lecture. Thank you. 4. Main market indices: Alright, investors will comeback Lecture Number Three, sitting chapter number one, which is about the introduction of the stock market. And after having discussed the purpose of the stock market. So the flow of money with expectation of return, the history of many events with the two core questions as an investor, are markets predictable and can we time that they are predictable that because practitioners will happen when nobody knows that. So now what I want to introduce is also some kind of terminology, vocabulary as when you listen to the financial press, even on national TV, you're gonna hear terms like the Dow Jones went up by 3% or the nasdaq went down by 7%. What those terms in fact mean. I think that's a beginner in the stock market is important that you have small clue about what those indexes mean. So the first of all, what's the purpose of an index and index, the purpose is really to provide a quick measure because as humans we tried to simplify things. And an index is with one's single figure. You can get a sense if the market is going up or down. And that's the purpose of those stock market indexes or indices, is that they provide a very quick measure to the broader public about the state of the market and those indexes, and I am going to discuss in the upcoming slides, they in fact represents a portfolio, a set of companies that either, let's say that they are averaged into that index. And the figure shows if the market is going up, so if market is positive of the market is going down. If the market is depressed, you have different kinds of indexes. You have global ones, regional ones, national ones, but also industry specific ones. So you can have an index that tracks all the pharma companies or all of the oil and gas companies, of the tech companies. Because some people are interested only into investing into that specific area. The three most popular ones that you're going to hear in international press, in international markets and international, Even on national TV are the three that I'm showing you here. The first one is the Dow Jones, which has been created more than a century ago by Charles Dow and has been first calculates it in 1896. And what is it? It's a baskets, a portfolio of the 30 largest, most important companies in the US economy. And so those are names that everybody in the world knows. Like apple, for example, is part of the Dow Jones or they're going to go deeper into the Dow Jones. Give a concrete example how the Dow Jones is set up. And so the Dow Jones called the Dow Jones Industrial Average 30 index. So that's an average that you're gonna hear nearly every day in every press rated financial conversation on national TV. Then you have the Standard and Poor 500 because some people say Yeah, but what we don't like by the Dow Jones, it's price weighted, it's not waited on market capitalization. So the real weight of the company. And 30 is like too small compared to the size of the economy. So we prefer to look at the Azi P5 founder because there we have the top 500 US companies that are part of that index. But the very end of the day, it's the same principle. It's a basket. It's a portfolio of 500 companies. And we're speaking about the S&P 500. And that gives a figure and that figure, the figure goes up, it goes down. It shows that in average those 500 companies, their prices have been going up or the price had been going down. Then you have the nasdaq Composite Index, the NCI, that's a more recent one, a younger index, as the technology has been strengthening and growing a lot in the US, specifically, the nasdaq tries to track nearly exclusively all the technology companies and they are a little bit more than 2 thousand companies. I'm not mistaken that are part of the nasdaq Composite Index, but those are not the only index and those are the most utilized in international finance, but you have other ones. Other regional indices like for example, the food See that's the London Stock Exchange, the DAX, Duck, Dodgers, Axin index, which is a German one. I think there are 30 companies, I'm not mistaken in the DAX, the 30 largest German companies, France has the cock accounts. Those are the 40 largest French companies Asia have specific event here very often the Nikkei, which is a Japanese one, the Hang Seng in Hong Kong. And then you have a specific industry illnesses, as I was talking earlier, that you may have indices. We track only oil and gas companies, tech companies, financial companies, because people are only interested in that specific area. And the Dow Jones and the ICP are too broad. And this is what I'm trying to show you here. If you are specialized in financials that you like to invest into banks, insurance companies, the Dow Jones is not giving you the right indication of the health of that sector. Why? Because the Dow Jones is a mix of 30 companies, but those three companies are in various sectors, in various industries in this what I'm showing you here, you have today, by end of July 2020, you have 27% of the Dow Jones 30 that is on technology. Or you're going to have companies like Microsoft if I'm not mistaken app or that are part of it. But then you have 15% which are health care, 13% financial, 3% energy, one-percent materials. So you see it's a pretty diversified bag of companies. But at the same time, some people contribute the Dow Jones is, it's an okay average, but it's not good enough. And they prefer to look at the S&P 500 for example. And then again, those are just US companies, those are not European company. So this is why you have multiple indexes to reflect specifically what you are looking into. What is interesting also here in the conversation about the Dow Jones is that the Dow Jones has not been stable. So the list of those 30 companies has not been stable over the last century. And this is what I'm showing you here with this very nice graph from visual that you see that there had been changes all the time. I mean, a company like Apple wasn't an existing 70 years ago. And so you see here in the red frames, they have been during the summer, three changes in the Dow Jones sues, for example, Exxon-Mobil bile, which is a very well known oil and gas company. A very big one, has been replaced by Salesforce, which is a tech company you had Amgen with. I think it's a farmer or medical or have catalytic Company has been replacing Pfizer for example. And honeywell has been replacing Raytheon as well. So there are movements happening. Why? Because companies, they, sometimes they go bankrupt, they are quiet by other companies. So there are movements in the life of companies as well. And this, you can see through this wealth also happens in an index like the Dow Jones, which exists since more than a century, so since 1896. So with that, sorry, wrapping up chapter number one where we're discussing what is a stock markets, the history and the main events if this predictable or not. And that also already giving you some terminology as beginners in the stock market about the men indexes, what do they represent? So thanks for listening in, for tuning in and talk to you in the chapter number two, we're going to discuss about the market participants. Thank you. 5. Market overview: Welcome back investors. So starting chapter number two, as part of having the right fundamentals to invest into the stock market, you need to understand the various market participants. And let me start this chapter and this lecture in fact with an overview of the market. So when we look at an overview from the market, there are, first of all, to things that in fact not a lot of people understand, which is the difference between what we call the primary market and secondary market. And we are, I am active on the secondary markets, mostly not in the primary market. And this is the first thing I want you to understand. And you're going to see afterwards we're going to focus on in the secondary market. But I want you to have this fundamental understanding. What are the primary market is? The primary market is a market where in fact securities, even company shares are created. This here we are typically in the area of venture capital, private equity investment banks that when, for example, a company, let's take the example of Facebook. That's the first time they go to the stock exchange when in fact the, the investment banks, for example, or what we call institutional investors. We're going to discuss this in the next chapter, which is part of the buyers. They have already bought all the companies of Facebook and all, sorry, all the shares of Facebook. Those shares before you and me are able to buy them on the secondary market, they have already been bought by institutional investors. That can be investment banks, there can be other no, large, large corporations and we don't have access to that primary market. So when I was speaking that Facebook going the first time on the stock market is what we call an IPO, an initial public offering. Those are examples of primary market activities. And the primary market is in fact the source and the only Soros. I'm leaving the dept instruments aside. But from an equity perspective, it's the source of fresh capital for the company that is issuing stocks or issuing shares, company shares. That's really done on the primary market if Facebook goes onto the stock market because they need cash. Remember when we discussed in lecture number one is the, what's the purpose of the stock market? Investors who have money don't have ideas. Companies who have ideas or they have an economic mode differentiator, but they don't have the money. This is where the two worlds come together and this is where the stock market comes together. And you see here in the example, the Primary Market normally have the issuing company. You have one or many, what we call underwriters. And then you have a group of investment banks. They take care of selling those shares to a group of institutional buyers or equal also primary bias. We are not accessing that market while we are accessing is the secondary market. So in fact, when you buy a share of a company on the New York Stock Exchange, on the Frankfurt Stock Exchange, you are buying a second hands share. That share Hazard had been owned by other investors before. How is this happening? Same idea. You have sellers which are not the companies here, but those are in fact people who only those shares and are willing to trade that shares for your money. So, uh, you on the buyer's side or vice versa, you on the seller side, and you want to find somebody who's willing to buy. The share that you're owning because maybe you need to, you want to buy a new car and you are selling off part of your shares that you have o and for couple of years an in-between the two. So this is called the secondary market. So typically, stock markets like the New York Stock Exchange, the London Stock Exchange or Frankfurt Stock Exchange, Paris, the Tokyo Stock Exchange. Those are secondary market. Those are not primary market. And we're going to really focus on that one. It, why? Because it's where we're going to be in fact, acting as investors. We will not be acting on the primary market for 99.9% of the cases. So when we look and obviously we're going to go into the details of the secondary market. I'll try to build this up because this graph obviously feel super complex with a lot of actors. And I'll try really to build this other journalists then how we go from the seller to the buyer, to the stock market, to the brokers of information provider, to the regulators, to the rating agencies, to the analysts, security depositories, share registrars, those kind of things we're going to discuss and are going to really build this up. We're going to speak about the market participants. So stay with me on that. Because that's really the purpose of this chapter that you get clarity on who is doing what and that you are not overwhelmed by the complexity of those terms. Before we move on and we're going to the bios versus the sellers is I just want to give you a sense of, and we're going to discuss later on, are going to discuss derivatives and financial instruments. The sense of the weight of the New York Stock Exchange, for example, versus the global economy, the New York Stock egg. So the global market capitalization of all stock markets, we're speaking about secondary markets here is 89 trillions of US dollars. And then you see that in the New York Stock Exchange and nasdaq, if you add those two together, they nearly ONE half of the world market capitalization. So it means that half of the companies that are quoted on stock exchanges, they are either coated on the New York Stock Exchange or the nasdaq. Then you see that Japan, Shanghai, Hong Kong, Euronext, which is a European one. So you see that this is becoming slimmer and slimmer. So you see that? Why? When I was mentioning the main stock market indices like the Dow Jones or the S&P 500 or the nasdaq Composite Index. Why are people looking at the US economy? Because it's a heavyweight. And if you look at from an GDP or gross domestic product perspective, you see that the US is still worldwide leader in the amount, let's say, of economic activity that they generate. And obviously this reflects on the share descends on the market share that the New York Stock Exchange has versus other stock exchanges. I mean, the US off for the time being, I don't know how it will be with China. China is growing very fast and India as well. But the US are, are the economic engine of the world for the ten beam with China. And this is why the New York Stock Exchange or the nasdaq. They are heavyweights compared to, for example, European Stock Exchanges. And we'll wrap up the first lecture in chapter number two. So giving you a first overview. And again, we're going to build the secondary market thing. We're going to build this up because I want you to understand who is doing what in the stock market. Because at the very end of the day, and this is the conclusion of this training is I want you to be able to do orders on the stock exchange, but I haven't understanding what you are doing and having an understanding of the terminology and the basic, the fundamentals around the stock market. So with that, thank you for attention and talk to you in the next lecture when we're going to go deeper into the buyers and sellers. Thank you. 6. Buyers & sellers: Welcome back, investors. Still in chapter number two, talking about the market participants. And we're going to go into the understanding who are the buyers, respectively the sellers on the stock market. And remember, we're speaking here about the secondary stock market, not the primary market. And as I told you when I was showing you the overall picture with the brokers, the regulators, rating agencies, et cetera. And I will build this up step-by-step that you have a good understanding. First of all, if I come back to, in fact, introduction that we have to remember we're speaking secondary market here will no longer speak about the flow from the company to shareholder on the primary market, but you are buying a second hand share. Can be, Facebook can be, I have no clue. Boolean whomever. Remember that the purpose of the stock markets in, now in descend in the secondary market is that the person who is willing to sell securities and instruments of financial assets has to find a buyer. The purpose of the stock market is indeed to find those buyers or the other way around. If you other bio and I am the buyer amounted to by Boeing for example. I, it's for me too difficult to try to find individual sellers. What I will do is the advantage of the stock exchange is that the sellers are gathering as well on the stock exchange, on the stock market and the buyers as well. So hopefully and probably are going to find somebody who's willing to sell me booing share if that's the shell I want to buy. So the first thing that we're going to introduce in terms of buyers and sellers, are what we call individual retail investors. So those are non-professional market participants, typically small amounts compared to larger institutional investors. And I mean, I have friends that I have been teaching value investing over the last couple of years. And they started with a couple of thousands of euros as their first purchase, maybe with 10152050 shares of a single company. And that's okay. I mean, I started like this 20 years ago. And this is the kind of thing that you need to do as well is that you start getting confidence. And again, I'm not speaking about this here, but not just investing to virtual portfolios while putting your real money into real financial instruments like a companies, for example, into company shares. Per default. They're considered less knowledgeable. And they do not have access to some instruments because as they are not considered professional, the regulators, and we're going to discuss by regulating regulators later on and the oversight authorities, they say, well, for some complex instruments, we don't want a retail individual, nonprofessional investors to be able to access those influence because they are unable to understand it. There was an instruments are too complex for them. And what happens very often is that those written investors who represents around 10% of the market activity. Those are the ones who have a tendency to become super emotional up and down. And they have, they have a big impact on the markets nonetheless, because they, those are the ones that sometimes a trigger off a bear or bull markets because they get to promotional when there is a crisis and they start to sell off. And then the second wave of individual investors come and say, yeah, but I also want to get out and I'm going to sell and the press are going down and down and down. And the other effect also, we had that effect. The other way around is when you have, for example, companies joining the markets, the stock goes up, goes up because everybody wants to be on the party and a certain time. Well, you know what happens, it goes down asset money time. So I'm just showing you here also statistic not just showing you that the fact that we have 10% of the participants and the market that are individually retail investors. But also if you look at the US, for example, have put you the link to the Federal Reserve report. You see that nearly one out of five, sorry, one out of two families in the US, they hold stocks. So the US, for example, they don't, they are not like say big bank saving account friends. They tend to invest, to invest their money into stock holdings. And even 15%, more or less of the US families directly own stocks. So not just investing into, let say, broader portfolios, but really they decide which companies they willing to own. And so if we leave 1 second individual written investors ascites, we, I mean the big part of the market is driven by what we call institutional investors. Those are the big fishes on Wall Street, the big fissures on the market. And they buy and sell and manage complex financial instruments, but also simply won't like stocks, bonds, those kind of things. And indeed, obviously you can imagine and you know, that I mean, if you have listened into or look into my profile, I like to invest like Benjamin Graham, Warren Buffet, Charlie Munger. Mean when, when Buffet decides with Mongo to sell, to sell all the airlines, that was something that he did during the 19 crisis. Obviously a superintendent creates a huge imbalance on the market. So obviously those institutional investors, I mean, they also under scrutiny, they are more regulated than if it would be just you and me here. And you have different categories, in fact, of institution investors. And I'm going to walk you through those. If you're starting with commercial banks up to pension funds. So let me walk you through those different categories. And again, the purpose is not that you become an expert on that, but just that you get a general knowledge about difference between an individual written investor versus institution invests and that you understand when you read the press or you read a book. When you see the term institution investor pop-up, what it means, this is the purpose of this training that you become fluent in the stock market terminology as well. Commercial banks. Commercial banks are banks where you would put your money in. You do wire transfers. They give you loans for your house, for your car. And so there are different from investment banks, so they are normally not allowed. So there is a separation, regulated separation between investment banks and commercial banks. And so those banks and all involved in merger and acquisition transactions in issuing new securities. And so this is really the separation that is happening. And if I take an example of Bank of America, which in fact has also commercial operations, you can see in on their balance sheets that indeed they do own a lot of what its called trading account assets. So those are positions in other companies. So they bind on the less equity because as they get a lot of money from the bank savings account, what is also called the deposits, where they need to earn and to do something with that money. So they're going to have ratios that can decide how much to invest into equities in low-risk assets, financial instruments versus high-risk once. So this regret, but just keep in mind that commercial banks are allowed to buy shares of other companies and to, to generate returns as well. And remember that commercial banks also then regulate it. Because there is a separation between commercial banks and banks that do MNA, summertime acquisition transactions or issuing new securities. And commercial banks are very big institutional investors. Then you have another example which is endowment funds. And I've taken the example of the Howard University. In fact, an endowment fund is money that is provided by donators. And very often it's sort of Endowment Fund is owned by a foundation. And they have clear investments, governance, how to use the money, how to withdraw the money, policies, and very often the endowment, endowment funds. They are there to support the research, public service, scholarships, those kind of things. And let's take the example of the Howard University. Howard has the largest endowment fund in the US. It's a 41, approximately 41 billion. By end of June 20th, 19 Endowment Fund, which is, I mean, that's a lot of money, 14.9 billion US dollars. And they have been generating written in average of 6.5%, which is with that money and that growth. That can then decide to allocate that money to the researchers of the Howard University, give that money to for scholarships. Maybe purchase a new hardware for research hardware for the university. So this is how they make the money work that they get from donators. Something that has currently of the last years very often mentioned or what we call ETFs exchange traded funds. They also often called trackers. And those are. At the same time that institutional investors, but at the same time, you can buy those ETF sweets at the same time, financial instruments. So what is the purpose of an ETF is that they select a portfolio, a basket of securities. And securities is not just companies. Shares can be other financial instruments and they sell that selection. So they sell it that competence like a stock. So you can buy an ETF. You have ETFs, for example, that track the SAP phi funded. That's the example that I'm giving you here. You have the SPDR, S&P 500 and tracker or ETF, which in fact tracks nearly exactly it mirrors exactly the composition of the S&P 500 index. You have other examples. You have invest core that has a triple Q tracker for the Nasdaq 100's. You have iShares, Russell 2 thousand, which tracks the Russell 2 thousand small cap index, which is another index that is also used in the US. It goes beyond the SAP phi foundry because of 500 is limited to the 500 largest US companies. So you have those possibilities and the ETFs are also very big institutional investors on the market. And the difference between the ETF and honestly thrown as microphones is that the ETF share prices, they frack fluctuate all day because they are bought and sold all the time. While a mutual fund is only traded once per day because at the very end of the day do the calculation of the selection of the portfolio, and then they publish what is the net worth of the net asset value of the mutual fund. There is a small difference between ETFs and mutual funds. And also ETFs tend to be more cost-effective and also more liquid because they are sold all the time during the same day, which is less the case for mutual funds. Hedge funds and hedge funds are allowed in fact to invest into anything. And this can include things that are not what we call exchange traded, like real estate and land, private equity. So they face less regulation that for example, in mutual funds, because mutual funds indeed, they are stricter. And so they can potential only invest into things, into assets that are exchanged, traditions that are visible and available on a stock markets, which is less the case for hedge funds. And very often also what those hedge funds do, they leverage, they borrow money. I'm not discussing it here. But in the very investing cause, it's one of the main principles. I never borrow money to invest into the stock exchange. I don't want to be leveraged. It's just my principle. You decide after it's how you do, how you deal with that. But for me, it's too high-risk towards me and towards my family of starting tomorrow money and to try to increase my returns and playing with money that I do not own the stock market. So very often hedge funds, they have a two-tier fee structure. You have. The first, which is really on a management fee, on the asset itself and then on the profits they do, they shave off a big part of the profits can sometimes be 20%, 30 percent. They cut that off and they keep that for themselves in order to pay their people, but also to grow their wealth. One of the most known hedge funds, it's Bridgewater Associates. And radio, is a very well-known American investor. And I mean, I have, if you look behind me here in my library, I have his book around big debt crisis, which is from a macro perspective, is an interesting book to read. And Bridgewater switches, in fact as a very big fish and they have in serving institutional clients like pension funds, endowments, government central banks. And what is interesting is that ray Dalia specifically has and we're gonna discuss investment styles literature on, but he is what we call a macro investor. So he's a guy who looks at as a currency fluctuations, economically fluctuation in interest rates. And he looks at those attributes to try to make money out of his investments and investments of Bridgewater Associates. Then you have insurance companies, I mean insurance companies and that's something when you speak and you see that I've put Warren Buffett and Charlie Munger into the category of insurance companies. Because what a lot of people do not understand or do not know, do not realize when they look at Warren Buffett, Charlene manga is that they are an insurance company and they're going to bring in the term of float. What is the float for an insurance? It's in fact, people pay the insurance company premium, risk premium for an potential event that will happen in the future. And so they're giving money to the insurance company to say, well, I'm paying every quarter this amount of money to protect my house if there's a fire in my house, storm whatsoever. But it means that what the insurance company hopes is that there will never be a fire in your house? In my house. So what do they do with that money when they invest that money and then generate returns? And Warren Buffett and Charlie Munger have been, have become super-rich because of this flow. I mean, if you know the gecko, which is the largest, second largest car insurance company in the US. I mean, imagine millions of people paying their risk premiums in terms of car insurance to Geico and Warren Buffett having that cash available. And what is he what is he willingly that cash when he can invest it into companies and grow? Obviously, the Day is an accident is happening. They need ability to cover the insurer. But this is the fundamental aspect around float is at Berkshire Hathaway. So the company that Buffett and Munger run has been growing strongly because of that flood, of that Cass, that cash, sorry, that is being invested by the managers. Obviously, they have much more whole links. You can read it up by yourself. They're very well-known. I mean, they had, they have very big chunks of shared ownership in Coca-Cola, in Apple, in cruft tines. And even in some occasions they have fully bite out companies. So they own 100% of the company. Like if I take the railway company began as f, which is a. Remember what the B stands for, but it's be national Santa Fe, something like that. So they own those brands at 100% so that those companies are no longer traded on the stock exchange. It's a mix between full ownership and being a material shareholder. Then you have mutual funds. We were discussing the Israeli between ETFs and mutual funds. So an a giving the example of Black Rock. So mutual funds, they invested in a variety of classes that includes, and we're going to discuss in the financial instruments, stocks and bonds. And you have, I mean, they, they do a mix, they propose a mix depending on their willingness to take risks by the investors into fixed income. Lower risk, but also lower return than maybe higher return, but higher risks though, you're going to see hundreds of mutual funds throughout the world where they tried to, let's say, incentivize their investors with low fees, but then really specific performance level or risk level that they take. So I was giving the example of Black Rock. Blackrock is indeed the world's largest asset manager with close to 8 trillion of assets under management by end of the fourth quarter, 1019. And, and the important thing that you should also know as an investor is that mutual funds, you have firms that are actively managed by real fund managers and investment managers. And you have ones that are passively managed where actually algorithms and computers are deciding how the portfolio of that mutual fund evolves over time. For example, you have pension funds. That's also something that's a very big institutional investor. Because what we see, and this is related to the worldwide economy, the worldwide, I would say demographics is that we see lower fertility rates. So people and families have less amount of children. And as the life expectancy increases, while the population there is retiring, wants to earn and has to be paid. The pen doesn't have to be paid to those people. And there are millions and millions of people who rely on those pension funds on having a post-retirement income. And without going into the details. But we are seeing indeed that those pension funds are very big fish acting on the stock market. They have some rules. There also are regulated to some extent. But you can look up the source of the OCDE report, why you see how much and what is interesting is the share. Pension funds versus national GDP. And you see some countries where the pension fund, in fact weighs more than 100% of the national GDP. Look at Switzerland, look at Iceland and Australia for example. And you have other counters that are smaller, like I take my country, Luxembourg, which is only 2.9% of the pension funds that are active on the market versus and benchmark towards the national GDP. So that's for the wrapping up the institutional investors versus the individual retail investors. And but speaking about buyers and sellers would not be complete if I would not discuss different investment strategies that those investors, if they're institutional or individual retail ones have. And without going too much into the details because that's not the purpose of the training here. But you can't say that. You have, let's say, four kinds of investment strategies. You have the technical analysis strategy. You have a lot of people who try to predict. I've put you an example on the upper right corner that tried to predict the markets by looking at graphs and doing statistical analysis on it, et cetera. That's not my style of investing. I consider that to be some kind of speculation. But again, you are people that are very successful on it. And I would say that 80% of the market of the people in the retail investors, the individual written investors, they go for technical analysis because they believe they can predict the market. Looking at historical graphs, I believe it's not the case, but again, that's just my style. Fundamental analysis. That's my style is I tried to determine and this what I'm discussing in the value investing cause I'm trying to determine the real value of a company and to see if I compare the real value of the company of one single shell with company, what is the market price? And if the market price is 25 to 30% below what I have calculated as being the real value of the company and getting the company at a cheap price. So that's the purpose of fundamental analysis. And obviously I was already seeing it earlier is like people like Benjamin Graham, Warren Buffet. Those are the guys that I have been inspiring myself from them reading literacy here, the security analysis book, which is a Benjamin Graham book. And i have also some Warren Buffett books up here. But those are really, I mean, that's my style of investing is trying to determine what is the value of the company and if the market is giving me the company at a cheap price or not, then you have global macro investors. So they tend to predict and interpret large-scale events. Remember, we're discussing our radar, Leo from Bridgewater Associates, which is typically a macro investor. And they look at international interest trade, international trade and payments, political changes, governmental policies, those kind of things. So they look more at what we call macro attributes. Where I look at more at micro, I look at really at the company itself. Then you have arbitrage. That's something that is not very well known by, by people specifically when you start on the stock market. So what is arbitrage investment strategy? You have? I mean, if you are a company and your shares are traded in Tokyo, in Frankfurt, and in the US. They are time zones and time difference between the three. When Tokyo is opened, the US and Europe are closed. When Europe opens, the US will only open up in the afternoon. It happens that they are price differences between two or more markets. And arbitrage as an investment strategy is in fact taking advantage of those minor price differences between those markets on the same asset, on the same company, on the same shares, for example, and make a profit out of it. I know that some people are pretty successful with it. It's not my style because they are risk involved with that. And I prefer to be fundamentally investor. But again, that's my style. You need are certainly attempt to decide. Are you a technical analysis investor or your fundamental one, macro one, or an arbitrage one. But at least, you know, those are the kind of big investment strategies that exist for investors. And, and I was already mentioning, when I say trading versus investing, I consider myself to be an investor, not a trader. Tradeoffs. In fact, they, in most cases they look short-term and short-term can be seconds that the buy and sell shares. And I tend to go what we call and this again, this is terminology for you. If you are studying on the, on the stock market, I tend to go long on, on position. So I buy them for many years because I liked the company and the market is giving me the company at a cheap price. And I'm able to calculate how, how cheap it is versus the real value of the company. So the difference is, so we call it short-selling, long selling, so short-selling that speculation. So people borrow shares from somebody else. They sell them to another buyer. And they hope, and they tried to forecast, the price will go down if the price goes down. And they need to then give the share that they have borrowed to that person. The difference between the two will be a prophet in their pockets. That's not my style of investing. I consider this to be speculation. Investing or selling long, and I do have companies that I will never sell the shares of those companies. And again, go into my very investing because if you want to know more, but I tried to buy them cheap, 25-30 percent below the intrinsic value, below their real value. And because there are certain morning time, maybe it would take four years, five years, ten years. The market will go up and the market will reflect the economical reality of that company. And this is where I'm going to be able to make a profit and between selling long in case that is cytosol along, I'd like to have dividends so I have to leave or us to make money which is buying a sorry, buying cheap, yes, you need to buying cheap 25-30 percent below intrinsic value. But during the time I keep the company, my portfolio, I want to get a passive stream of revenues of income. And this is what I'm looking at, dividend yields and dividend-paying companies. And for the time being, I mean, after 20 years running my own more than 1 million Euro funds, I think I'm not too bad at it. And with that, I'm wrapping up the buyers and sellers conversations. Remember we have individual investors. We have institutional investors with different categories. And also remember the investment strategies have between technical, fundamental, macro and arbitrage. So that's the kind of terminology that you need to know. And I'm, I'm sorry, this lesson was pretty low and seeing its 26 minutes. But I think this is one of the most important ones that you understand. What are, what are the different buyers, but also the various buying selling strategies in order to move forward in this trailing and to start understanding and having the right fundamentals for the stock market. With that, thanks for attention and talk to you in the next lecture about the information provided us. Thank you. 7. Intermediates: Welcome back investors. So student chapter number two, speaking about the market participants. So as you know, I'm trying here to build up slowly, but gradually, you have a 360 degree view of who are the main market participants. So in the last lecture, we discussed the buyers and sellers between retail and institutional ones. And in this one we're going to discuss intermediate because you're gonna see, in fact, there are a lot of intermediates and I'm going to throw at you if you allow me a first slide, pretty complete slide on the secondary markets. Where if you look the actors between the seller a, on the left-hand side in the bottom and the Biot B on the right-hand side in the bottom, you see that there are lot of intermediates, broker, Stock Exchange clearinghouses, custodians, central security deposits, registrars, et cetera. And I'm going to build up specifically in this lecture who those intermediate are and what are their roles? So let me start. So remember we are speaking about the secondary market, so we're no longer in the primary market. So you are potentially buying or selling what we call second hands shares. And let's take the example of shares for the time being, just for the sake of illustration, there could be other kinds of assets or financial instruments, but we're just saying here that it's shares of company that's called COAP incorporated. So as we saw earlier, we have potentially a seller, let's call this person a or persona a and a bio, which is personal MB. And so the, the fundamental problem that buyers and sellers have is if you are owning an asset of a company, let's say it's a company share. And you want to sell that share because you want to cash in a profit, or you need to sell it because you want to put that money into something else, buying a car, buying a house. Realistic whatsoever is the purpose of the stock exchange is to be the places where people can meet. So the sellers and the buyers can meet and agree on a sales price or purchasing price. In fact, if you look at history, the first Stock Exchange was founded in 1602. So very beginning of the 17th century in Amsterdam, Netherlands. And it's in fact done for the Dutch East India Company called vw C, which is the oldest. So the Amsterdam Stock Exchange is the oldest operating stock exchange that we still have today in the world. And on the right-hand side you see, for example, the New York stock exchange that operates nearly a third of the worldwide market in terms of financial instruments. So what he called exchange traded instruments. And if you look at the markets, the stock market. So you see from the size perspective that the New York Stock Exchange is the biggest one, closely followed by the nasdaq. You see, for example, on, in green on the left hand side, you see the Toronto, Toronto exchange are not mistaken. So, and you see we have in Europe in the blue part, we have. Euronext Nandan, the Swiss one, Paris, and Frankfurt Stock Exchange, which are big ones. And then in Asia you see that Shang Gei, Shanghai and Japan, Tokyo, Japan, also very big stock exchanges. And you remember without going and get into it, you can go back to chapter number one we were discussing. I think it was the third lecture of Chapter number one. The stock market indices are indexes where we're discussing the Dow Jones extends on the nasdaq Composite Index amongst others. So here and as utterly I'm going to build this gradually up. So we have a first intermediate, which is the stock exchange. And the stock exchange will probably take a fee when a seller is selling his or her share of the company called corp ink to the buyer that is called b by b. So this is the first intermediate to stock exchanges I in fact, intermediates that are there to facilitate the exchange of sellers to buyers and from biomass to sellers. But if you are buying a share, you will not buy directly from the stock exchange because the stock exchange has some mechanisms. And only very big institutional investors can potentially plays direct orders on the stock exchange. What happens in reality is new intermediates coming up between you and the stock market and the exchange market, which is called a broke I in fact, there are two types of Broca's. So the broken, the broker dealer, the broker is a firm that is acting as intermediate between investors and the stock exchange. And without brokers, the stock market would not work today. And then a broker dealer, it's the same as a broken it's a term that you find more in the US, is whether broker is not just playing the role of an intermediate, is what we call an agency trading. So the broker or an agency trader is looking for a buyer if you are the seller or is looking for a seller if you want to buy a certain financial instruments like company shares. But the broker who has the role of agency trader is not himself. Let's see, owning on, on the balance sheet of the brokerage firm, any shares. It's just, let's say a transaction in inflow and outflow of transactions. But their broker dealers, they do what we call Principle trading. So not only do they trade securities on your behalf, but they also buy securities on the secondary market for their own purposes and sometimes it create a stock of shares that they keep in their books, so in a band sheets and with the hope that they will going to sell it at a certain moment in time or they're going to find by us so they can sell them directly the shared through those buyers. So that's what we call a broker dealer. And an example, and I'm trying always to illustrate it as through concrete example is thrown to the minimum Ameritrade, which is one of the largest online brokers. And it was founded as Ameritrade in 71, so it's a year older than me. I was born in 72 and in the meantime, it's called TD Ameritrade because it acquired T10 house, who was the trading puzzled brokerage part of the Toronto Dominion banging 2006. And in fact, in October 2020, so that's this month actually, Charles Schwab cooperation has acquired TD Ameritrade for Dilworth, apparently 22 billion US dollars. So if we again built his up, you see this in the next slide. So you see that broker, brokers are appearing. So the seller will use his or her broker that we will call broker of seller a. And this broker, in fact, will have access directly to the stock exchange. But if you are the buyer, same here, you're gonna have your own broker, that is a broker of the Buyer B. And you already see that we have two intermediate, we have the Stock Exchange was an intermediate between the seller and the buyer. And now we have as well the brokers who are intermediates between the sellers, the buyers, and the stock exchanges as well. And obviously you can imagine they're not doing this for free, so they're going to take a commission and a fee on everything that they do. So what is the problem now here? The problem is that, and let's say the responsibility of the broker is to negotiate the best price for the investor. And, but I mean, there are some, let's say, risks related to that. We need to make sure that because a broker is just transactional intermediate, They will not keep the shares or certificates in their safe. And that requires other competencies, which are not competencies that the broker or broker dealer has. And this is what we call the and this is the role of a custodian. Custodian has the responsibility of what we call providing custody services to investors. So they hold securities on behalf of investors so that the investor does not face the risk of seeing his, his or her, let's say Security's financial instruments being stolen or lost. This is the same like with a bank savings account. Why are you not keeping your money at home? Because if somebody comes into your home and steals the money, the money has gone. That's why you are putting your money to bank savings account. Well, here it's actually the same principle when you have done a transaction through brokers and through stock exchange over, let's say a certain amount of shares of this cooperation that we are discussing here, corporate ink. Well, you're gonna Broca will not give you the shares, but the broker will transfer the shares to your custodian. And an example is Bank of New York Mellon, which is one of the largest global custodians. And this is what we call today. Have you see 38 dot 6 trillion of assets? 38 dot 6 trillion US dollars of assets on a custody or administration. And this was by end of the quarter the third quarter 2020 calendar year. So this is huge, I mean, and you can look into them and I've put you the source of global custody survey. You can see the size of their other ones, of course, like BNP Paribas, etc.. But this is huge amounts. So this is now another intermediate and again building up here. And that's why I use also the icon or the image of a safe. Because when the transaction has happened between the seller and the buyer through their respective broke us, the, a broker and the broker. And then obviously on one single stock exchange, then for example, let's imagine there will be transfer from the custodian, a certificate of ownership of one share of corporate ink to the custodian B. And so the Kristina and b is actually independent party of the broker and of the bio. And they take care and they make sure that you don't lose or you do not get those shares stolen. That's rule of a custodian. Will they take a fee? Yes, of course, it's an intermediate. I mean, this has a cost as well to guarantee the security, the protection of the certificates that you are an owner of a certain amount of shares of this cooperation that we're speaking here on the left-hand side. And then it's still not enough because we still have a couple of problems that we need to solve. And there are two problems where we will add a supplemental intermediates. And the problem is when buying or selling brokers, they need to agree on totally on all the attributes of the traits. If it is the timing, if it is the place, the attributes, the currency, whatever, who's going to be the custodian. And and this has to match perfectly, but there is a risk that what happens if it does not match perfectly? And what if the buyer does not have cash? Because I would have transferred the shares to the buyer. And the buyer is not able to provide cash to me when I'm kind of screwed because I've transferred an asset that is worth something and I get a 0 in terms of return. And so that's not good. And so we're adding supplemental intermediate that is called the clearinghouse. And the process of clearing is the act of agreeing on the attributes, the timing, the place of what we call off the settlements. So it's like a settlement process. And naturally what Clearinghouse is due, and this is very interesting is they split the trade that is happening between seller a and B. They split that trade into two sub-parts. So they take care of, let's say, collecting the shares that the seller wants to sell. And they take care of collecting the cash that the buyer needs to transfer to, let's say, to get the ownership of the shares of the seller. And this is what is happening here. And again, obviously being intermediate there, not doing this for free, for the beauty of my eyes of your eyes, they cannot charge fees for the service, for the settlement service and splitting the single trading to two traits. And obviously here because this is like a trusted third party, more than custodians, more than brokers. Those clearinghouses, they have very strict rules. We're gonna speak about oversight authorities and regulators, but they have very strict rules on how they can become a clearing member. An example, it's one of the largest one is the London clearinghouse called ICH. And they were, I mean, they exist in more than a century and they were the first ones offering, and we're going to discuss what future contracts are futures later on in the financial instruments. But they were the first ones offering future contracts and coffee, sugar, and other kinds of commodities already long, long time ago. So that's one of the most famous clearinghouses that we have in the world, which is the London Clearinghouse. So building up again the scheme here, you see where the Clearinghouse and I put it specifically in the middle. You see where the clearinghouse plays a central role. So they really play the role of third party, trusted third party between the custodians, between the brokers, between the seller and the buyer. And as I told you, the single traits of selling a share of the corporation and transferring that to the buyer. B, will be split into two trades, so they take care of making sure that seller indeed makes a freeze up the share ownership. And they make sure that the IRB is transferring indeed the money. If those two components are, those two sub-parts of the trait are done, then indeed that the trade happens and they have the responsibility for making sure that the two parts come together. But still adding supplemental intermediate, there is still a problem. If the company has shareholders, the company are obliged to keep registrar, registry, a listing of who is owner, who owns the shares of the company and is required. This is mandatory by I think, I mean, I don't know all the corporation or company laws in the world. But in most developed countries like this, that if a company has shares, the company has the responsibility of keeping a listing of who is shareholder and other Ri. This is a huge task. I mean, if you're a small company, you only have ten shares. That's an easy task. But if you look at a very big market capitalization companies like look at Apple, they have hundreds of millions of shares. And those shares are super liquid. There are millions of shares that change hands, change ownership every single day, which is obviously a grade for the clearinghouses, the custodians and the brokers because they, all of them, they earn a fee on. The more transactions they are independent if the price is going up or down, the more transactions there are, they going to earn money on those transactions. And so we are adding here a supplemental intermediate which is called a shift register. And this companies have a responsibility to track and to keep records of who is owning the shares of the company. But if a company has printed also bombs began to discuss electron in financial instruments, also who is credited to the company as well. And this is important because for example, if the coupon has to be paid out, if we speak about corporate obligations, or for example, if dividends have to be paid out or warrants to the share holders or the share owners. Well, this has to happen and this is not something, it's typically something that the company outsources to those shares, registrars. And an example again here to illustrate it is Computer Share, which was founded in 1978. And they are one of the most famous transfer agents and registrars. I mean, this is called a TA and register are in the world related to the specific service of keeping registry, a listing of research, who are the shareholders, the bumped her loss of specific companies. So again, adding here is that it's not the company Corp incorporated, that is taking care of having a registry of the shareholders, but that's something that the registrar is taken care of. Which means that if the share that was owned by seller a is transferred to buy a B, obviously the register needs as well to update the registry of shareholders of Cope, Inc.. And again, this is a supplemental intermediate that plays a role here and probably yes, they're going to charge a fee for that. Absolutely. So again, in intermediate and this has a cost as well. And then we, we are still not finished Who are still going through the intermediate. There is a last part of intermediaries that is popping up, which is the fact that certificates of ownership in the policy were done on paper. And you can look up on Google or Bing and look up for share certificates. And it's very nice, looked like a diploma, and it's very nice. But obviously, as the world goes faster, there is a need to dematerialize, to transform those paper certificates into digital assets, into electronic assets. And this is the responsibility of what we call a Central Securities Depositary or CSD. And I've put on the right-hand side because those are very regulated entities. They are kind of even state owns. And some countries. So they really had the responsibility of the registration and the safe keeping of the securities, as well as the settlement of securities in exchange for cash. And they do this specificly on an electronic basis, on a digital based on dematerialized spaces. And then obviously you have national CSD. She's, so far, let's say other central depositories for a national market. But imagine that you are buying your, like me or Luxembourg or citizen and you're buying a share in New York. You need also to have international Central Security depositories and not just national ones. And there isn't an example. He has the European CSD association that was formed in 1997 in Madrid. And you see that in fact, nearly every country has one single CSD. Looking at Luxembourg, for example, position number 14 in this alphabetical list, there is one which is the Luxembourg ish, luck. Csd, Spain has one which is called Ybor clear. Belgium has one called Eurycleia, Belgium and Europe. I think it's a commercial company. So, but they have very, very, very strict rules to give those guarantees and level of assurance to the market. So again, we are adding here the CSD who keeps track of all the securities that are happening in the nationally or internationally speaking. And this wraps up the ramps up, sorry, the, let's say an overview of who are the intermediates. So the one that is probably most complex to understand is the role of the CSD. But what is important to understand is even though and despite the fact that you're gonna pay fees to those intermediates, the system has been set up in a way that everybody plays a certain role. And that role gives confidence to the host system. And I will not go into the conversation of block chains here because actually the idea of the block chain is to remove all those intermediates and create trust through the community. But that's actually what blockchain is attacking, is this commercial model of having intermediate and every intermediate taking for smaller transaction or smaller value, add it a, a, phi and psi. But nonetheless, this model works today and this is why the markets are trustworthy because you have this intermediate. You have the brokers that take care of negotiating for, for us, for you. If you're a buy or salad and have the custodian so that it's like a bank savings account, but that's where your shares. Then you have the clearinghouses that splits the trade into to make sure that you get the money if you are seller or that you get to share if you are a buyer and then you have the registrar. So I hope that it makes a little bit clearer why those rows play a role in the stock market. So with that wrapping up here and the next one we're going to discuss about the information providers because they also play an important role. And specifically with internet appearance and TV, YouTube, you're gonna see that they have an impact on what they do. So thank you for attention on the lecture around intermediate and talk to you in the next one about information providers. Thank you. 8. Information providers: Welcome back investors, still in chapter number two, after having had a long session of intermediates. This one will be definitely smaller. We're going to speak about information providers and what kind of categories of information providers exist. And they act as market participants on the stock market. So let's, let's, let's go into that. So the first one and they also making lots of money around what they provide is what we call financial data vendors. So they provide market data, they consolidate data, take the annual repose, the quarterly reports of the companies, the news of the companies are publishing that there are sometimes obliged to publish because there is regulation around that. And they're going to, let's say, aggregate this information together in, let's say in feeds, information feeds or specific software terminals. And they also collect data from the stock exchanges, from brokers, et cetera. And I mean you get the idea. I mean, the value they provide for their money is to facilitate the access to the data that you don't have to do the work manually. The most known example of financial data vendors is Bloomberg. So Bloomberg and have put you here to examples of Bloomberg who had this famous Bloomberg terminal. That's the dream of every trade out to have a Bloomberg terminal. And the Bloomberg terminal has a huge cost. I think it's around 25 thousand or 30 thousand US Dollars. And also they have Bloomberg TV. So they have added supplemental products where they can sell advertising like any broadcaster. And Blumer was founded in 1981. And today they are the largest global markets financial data vendor with a third of the, let's say, of the worldwide spending in data, in global market data that runs through Bloomberg. And that is worth 32 billion US dollars. So that's a huge business for Bloomberg. And we're going to discuss priesthood and information entertainment later on. I think it's in this chapter at the very end, if I'm not mistaken. And I'll make a comment about all this hype around having the very latest information and are going to show you in chapter number four the tools with one exception, all the tools that I'm using for free and they give me access to the information that I need. So but an supplemental market participants in now in the category of information providers, they're not intermediates, is indeed or R and D, the financial data provide us. Then a second category which are, for me not exactly the same. Sometimes you have financial data providers who also provide a financial analysis service to their customers. Sometimes not. So that's why I'm differentiating. The data provide us, or data collectors aggregators provide us from the financial analyst. What's the role of financial analysts? Very easy. They look at companies. If you look now from a share ownership perspective, they look at those companies and then they provide recommendations. And I'm showing you the example first of all, of these N0. So the They are certified. So they say, well, we, that we think that it's worth buying the company, keeping the company and your portfolio, or selling the company. So they're providing recommendations. And you can imagine that obviously preventing recommendation may influence the market. What is funny? And you remember when we had the conversation, if we can predict markets and time markets, this is a part of it, can analyse, really predict what is going to happen. The answer for me is No, they cannot. They can guess. They can if therefore, if they're using fundamental analysis or benchmarking corporations in the same industry, they can probably form an opinion about a company. And you see on the Disney example that in fact even see that financial analysts do not agree. So you have enemies at say, yeah, Disney is a by I think it's 11 if I'm not mistaken. And then one is saying, yeah, it's kind of still outperforming so you can still buy it. And then the nine that are holding it. And nobody is telling to sell Disney. And this is a pretty neutral example and I'm not judging here, but I'm just going to give an example of why our count, which was one of the largest financial scandals that happened in the last year. Where in fact, it was a startup that is active in their, let's say in the credit card industry. And they even were listed as part, if you remember the DAX, the DOJ oxen index as one of the largest and most, let's say, predominant companies in Germany even replace commerce bank in that index, in the docs Index. And what happened is, and you can look at the curve that you had analysts that were saying, Yeah, but the share price was at 100, it will grow to 200. When it was a 200, it will grow to 240. You know what happened? There was a scandal cause they cook the books of the company, so they cheated on their financial reporting of the company to some extent from what I could understand and invest in legal investigations going on. And the stock value went close to 0. I think it's today at one dot something. Why was at one hundred and forty? One hundred and fifty is still in 2020. So you see it on the right-hand side of the graph that it was a disaster for the people that were forecasting to see growth in why account. They did not listen to the signals and to the critical press reports that there was potentially or allegedly fraud involved, and they did nothing about it. And at the very end, it turned out that it was indeed fraught. And from what it looks like, and the people have lost 99% of the investment in y are caught because they were betting on a, for me, on a still growing company, a startup company. And those are examples where if a comeback to the conversational and financial analysts, they cannot predict what is going to happen. The can just guess and form an opinion or former recommendation based on what they have in terms of financial data. And then the third one and are going to discuss this in the tools as well. And I am discussing this is a tool that I'm using. Also explain this in the value investing course. When I select companies, I do look at rating agencies. And I don't want to open the conversation here about the role of the rating agencies in the 20082010 financial crisis because they had role there. But here I'm nonetheless, I'm using it because I buy companies and rating agencies, they assess the financial strength. If it is of corporations, of governments, of securities, of financial instruments. The issue that happened during the 20082010 financial crisis is that they had to rate or they were paid to rate financial instruments that was super complex. And so without doing any statement here, it's, it was a complex matter to analyze. So, but I'm using them because assessing the financial strength of the corporation is definitely easier than for example, assessing the strength of the CDO or CDS, for example. And when you look at rating agencies, what they do so they give a score like a quality score on a company or a government, for example, I know that Luxemburg, for example, has a triple a. And you see that they are in fact three big credit rating agencies in the world. I think their share is close to 90%, so it's 89 what I see here in the slide deck in Europe. And so they, they decide, and obviously you can imagine the impact if one of those agencies is downgrading the rating foreign company of government, that has an impact because then the government, if they want to, Let's erase fresh money, they would have to raise the return because it becomes more risky because there has been a downgrade in the rating. And you see here, so we're speaking about as API. So Standard and Poor's Global Ratings, Moody's and Fitch. And later on in the chapter four, I'm going to show you concretely how I'm using this also for companies as part of my set of tools I'm just showing you here, for example, for Nestle on Moody's, You see that Nestle has, is an AAA, was an A1 or A2 rating, if I'm not mistaken, and you see that that's a high-grade. So they consider that Nestle has a high ratio of solvency so that the company is strong from a financial perspective, from a balance sheet perspective, this is actually what the rating agencies are supposed to do and they are information provide us. So sometimes, I mean, the whole conversation on dilemma is who is paying them to define the rating? Because if you are the company and you are paying the rating agency, we're probably the rating agency has an interest in pleasing you and provide a better rating that what the reality of showing, that's the whole conversation around rating agencies. Again, I'm gonna, I will not go into the details of it, but just concerned the rating agencies are considered as information providers like financial data provide us. Like financial analysts. And some last slide that is important to me before we move to the oversight authorities is the whole conversation on the priesthood or the, what I call the infotainment or the information entertainment. And I let you read through. And you know that I have been largely inspired by Benjamin Graham and then after it's Warren Buffett and Charlie Munger on how they invest and buy businesses. And I'm doing this for more than 20 years now. And what they are saying, and there is an interesting interview that's the Charlie Munger on the BBC in 201012. Sorry, why he was saying that. In fact, investing in the stock exchange is easy. Specifically if you invest into companies. And he's saying that Y has value investing not spread faster is because the ideas are too simple. And so the, the professionals, if it is university professors, if it is the financial data provide us. It's not in the interests that it is. That the market and investing should be simple because they earn on the apparent value added that they provide. And obviously, the more complex it is, the more people will turn to those analysts, to those financial data provide us to get a sense if the investment is worth or not. And, and Warren Buffett and Charlie Munger saying, guys, it's not rocket science. What you need is you don't need a PhD degree to be able to be very successful in the stock market. The best ideas are the most simple ones. You need to have a minimum of understanding of financial accounting that you will, you will really need. And, and also an understanding of the business that you're investing into. And again, I will not speak here about it. I'm speaking this extensively in my eight hours training on value investing. But, and this is where they are seeing the cold. The priests of Wall Street because it's in the interests of those priest to, to make investors believe that they have some secrets and that people have to pay for those secrets when in fact, not even buffet, I think it's 19941995 annual shown that meeting. He was saying that in fact all the information he's using is publicly available information is just that people do not do their homework on that information. And doing the homework is not. Having super calculator to do calculations is just common sense. And this is where I'm always saying, and I'm speaking here as a value investor that I'm not a trader. I don't rely on technical data and on technical graphs to buy shares. I'm a fundamental analyst. So I look into the real accounting value of companies and I'm trying to understand that business. If I do not understand the business, I just walk away because it's not my circle of competence. So just be aware that it's in the interest of those information. Provide us to charge you a fee for having access to information that they sell you as it will give you an edge, competitive edge. The other ones who cannot pay the service would not have. And, but again, this is my opinion. I'm not judging the other ones. I'm just showing you my my honest opinion how I see the precedent information, entertainment and I agree on what Charlie Munger, Warren Buffett had been always saying around that. So with that, the wrapping up the information provider lecture. And in the next one, we're going to have an very important one, which are the oversight and regulatory, regulatory authorities that control the markets. This will be also an important one, wrapping up and closing our chapter number two before we move into the financial instruments. So with that, thanks for attention. I hope you are still liking the course and I hope that you are learning also out of it. So talk to you in the next lecture. Thank you. 9. Oversight & regulatory authorities: Welcome back investors. Closing and wrapping up chapter number two with, as I said earlier, the oversight and regulators of markets, because they do play a very important role to create, sustain also the trust and transparency of markets. But let's go into it. So the objectives of the market regulation, of regulators, they're multiple. And the first one is to ensure transparency and avoiding what we call information asymmetry. I'm going to give a concrete example. If you would be the only one in the world knowing that tomorrow Coca-Cola is to acquire Pepsi, for example, you would have an edge that other investors would not have. And with that edge, you could probably buy Pepsi today. And when the news will be out tomorrow to the public. Very probably the share of Pepsi will go up. Normally when one company buys another company, the one that is being bought gets a premium so that shareholders are happy about the purchase price. And this is, I mean, if this would happen, you would be the only one having that information. This would create an information asymmetry. So it's the role of the market regulators to avoid what we call insider trading. To avoid that some people can take benefits because information is not available to the public. So that's something that is not allowed by law and that's something that people need to be careful about because inside of training, I mean, you can end up in jail. If you do insider trading, then obviously reducing and controlling a fraudulent activities. And obviously, I mean, I'm not discussing anti-money laundering, terrorist money flowing into the market, but that's also part of what the regulators have to do is what we call the KYC processes and know your customer processes. But in general, they need to avoid also on the regulatory reporting of companies that people do not respect accounting standards, that people fulfill their reporting obligations. For example, in the US, companies have to report on quarterly basis in a certain delay their financial reports. What is part of their financial reports in terms of level and depth of information, those kind of things. So the idea is that by reducing and controlling further and activities that it will give trust to the investors, that investors can operate with confidence on the financial markets. And then the resilience of the market as well. I mean, you have seen when we discussed about the intermediates, is that and for example, one of those actors goes bankrupt, that there is not a domino effect. So that I mean, everything that is related to systemic risks. And maybe banks that really take crazy risks. That's, that should be the role of the regulators to make sure and to prevent those kind of activities which are not fraudulent activities. But this is related to risk management and resilience of the market. And make sure that by, by those kind of controlling activities that economic stability is guaranteed on the markets. And obviously they have been created as regulators because individuals, you remember the seller and the buyer B. They cannot solve this challenge by their own. Who would they be to have that authority against a custodian, a broke, et cetera. That's just not possible. So that's why governments, they have the responsibility to make the financial markets secure and to monitor what is happening on the financial markets, including cases of fraud, for example. And what is true as well isn't always, as long as people do not hit the wall, they will not learn out of it. So sometimes they need to learn by having financial crisis or a scandal. And very often regulation, let's say, improves or grows after financial crisis or scandals. And if we take, we take concrete a, concrete examples of financial oversight or regulatory authorities. We have, I mean, we're speaking here about stock markets. First of all, we have the, what we call the Securities Commissions. So those are either government departments or government agencies who makes sure that there is a financial regulation in place for the country and also for the security. So the financial instruments that's being exchanged inside that counters. So that's the role of the government to have such an agency that takes care of controlling this. And they obviously define what are the roles and responsibilities. And obviously the rosen responded to by the regulatory authorities themselves. They change from country to country. And examples are going to go a little bit deeper into the Securities and Exchange Commission in the US, which is one of the most famous ones. But we have also very strong ones like the German boffin. That's the Buddha's unstyled finance deans license. So they're auditing and controlling the oversight authority for financial markets in Germany and in France as in Europe, I do know also the EMF, which is authoritative imagery for nausea in France. They really also makes sure that the market is sound, or they tried to make sure as much as possible at the market is. So2 can read more in the Wikipedia article on those financial regulatory, regulatory authorities. So let's go a little bit deeper and now I'm taking you the example you see the building of the US Securities and Exchange Commission. So the role and governmental agency. And so their role. And again, I was telling you that sometimes people need to hit the wall so that they learn out of it. So the SE, SEC was created during the Great Depression in the 19 twenties. And their role and the emission because at that time a lot of people were wiped out. They lost all their savings. Is that the SEC is there to protect investors and making sure that there is fair competition on the market. And also facilitating, let's say, the shift from money to businesses who want to grow the economy. And so, so their role is really to protect the investors and, and what is happening on the markets. That's really the role of the SEC. So they put, they put up a certain set of rules. And if you look at what's at stake here. Is that those, I mean, if you look at the US markets, American households, they have 29 trillion of US dollars worth of equity. So that's more than 50% of the US equity market is owned by Mr. and Mrs. Smith. So everybody has this. And then you have also remember when you were speaking about institution investors, you have Pension Fund to retirement funds, those kind of things. So it's important that the SEC plays this role of police officer, of control, of authority to make sure that everybody is treated in a fair way. And what they do is they set up a set of rules. I was speaking about the requirements for public companies to publish reports, the depth, and the nodes to comment on those repost the frequency of those reports. They also add and discussing this in the value investing cores when they are major, what we call material events, when they are major event in this public companies, there is an obligation of informing the public in a certain delay. So they have laid down those rules that public companies that are coded on the US Stock Exchange needs to follow. And they are very stringent. So those rules are very, very, very strict. And obviously there has the has been fraud or misconduct, those kind of things. The people have been doing wrong. I mean, they will go to jail because they are accountable. And a certain moment in time if they tried to fool the market and the investors. Other examples, and you remember when we had the scheme with all the intermediates, the SEC does not have authority on everything. I mean, first of all, the SEC acts on the US, not in Europe. In Europe we have, for example, the asthma, which takes care of the Authority for, for the European Securities and market. You have central banks, they take more care about, let's say, currency policy, economical stability, having levels of inflation that are reasonable for the people. They take care of that. And again, you have a US Federal Reserve who takes care of that, which is different governmental body then the SEC. And in Europe it's the same, have the European Central Bank, the ECB there is different, has a different role and mission then the asthma for example. For example, you have Broca's, you remember the broker there is intermediate between you as a seller or buyer and the stock exchange. They're not reduced or they're not controlled by the SEC, but they are registered and controlled by the FINRA in the US. If I take the US example, which is the Financial Industry Regulatory Authority and brokers or a register to the FINRA. So again, you see, not only do we have a lot of intermediates on the financial market, but we also have different authorities who take care of certain, let's say that's a regulatory activities and processes depending on whom you are talking to it as a bank, if it is monetary policy, currency policy, inflation, that's another body. And if we are looking at the monetary financial reports, that would be then another body as well. But just think that in every country, and specifically when you speak about stock market and this is where I'm extending on the left-hand side, our scheme is that you gotta have oversight bodies that are controlling and trying to provide trust, safety, resilience, transparency, and fairness to the market. So that's really their role. And obviously this cannot be done by commercial organisations. This has to be done by the governments so that there are no commercial interests here and no conflict of interest. So with that, we are wrapping up chapter number two. But the market participants, remember, we were discussing the various market participants. We started with the buyers and sellers from written investors, institutional investors. Then he went into all those intermediate we were discussing earlier. And again, those intermediate, they take a fee on whatever they do, but that provides resilience to the market. And that provides, that is also providing trust to the market. And specifically when you have international transactions between sellers and buyers, we don't know them themselves personally. And again, that whole system relies on a control authorities, oversight authorities, and that is role of the bodies that we were just discussing in the last lecture. So without wrapping up chapter number two, and in the next chapter we're going to go into financial instruments. Just to be clear, we will not be able to address all the financial instruments because there are tens and tens of financial instruments. But I'll try to cover in this intro course the most important ones going from cash fixed income equities to set the thing they are three derivatives that I'm this or for derivatives that I'm discussing in this training. So talk to you in the next chapter. I thank you for listening in. 10. Cash instruments: Welcome back investors. We are starting chapter number three. And after having discussed the definition of the market, but also the various market participants. And chapter number two, in chapter number three, we'll be discussing the various financial instruments. As I said in the introduction, we will not have the possibility to go through all financial instruments because they are tens and tens of various instruments. But I would, as a beginner training for stock market or on stock markets, I'll try to share with you and to give you a perspective how to categorize the various instruments. And so we'll go from very liquid to live with more complex instruments that potentially you, you will be confronted with when you will become, are already confronted with as an investor. So the, what I like always to discuss when we discuss about financial instruments. And you may remember that I used this slide in the intro chapter, and I'm using this slide as well in my other trainings because I think it's kind of summarizes well what we were discussing, the risk versus return balance or risk versus potential reward balance. And you can see that on this diagram, you have things that are very, that are considered pretty secure, that are, for example, short-term treasury notes from the US government. And we go to long-term treasury notes. Then we have corporate bonds, which are in fact corporate obligations. It's the same mechanism as long-term and short-term treasury notes. It's just that here on the investment grade and below investment-grade corporate bonds, those are obligations that are printed out by companies and not by governments. And then we go into the equity space. So the large cap public stocks, small market capitalization, and then we go in deed into what I call the primary market. So, and this is what I am trying to show here, is that you can kind of take this diagram and cut it up in pieces or in categories. So you would have the highest risk assets, financial instruments that are on, let's say on the high end of this, this equation on digram cheese venture capital with startups, private equity, and then you go into the equity. Remember we're speaking about the secondary market. So these are exchange traded equities. So companies like L'Oreal booing, BMW, and there you can indeed pick between small cap and large cap, small cap or small companies and large cap, Wow, very big brands. And this, for example, typically the investment universe I invest into our large-cap public stocks. And then you have what we call depth of fixed income instruments or assets. And this is where we are going to discuss corporate bonds if they are high graded in the sense that the rating agency has given them a very high ranking score versus maybe call sometimes even junk bonds. Bonds that are, I mean, they do not look very serious, but the risk is high of default of the company or the governor has printed those bonds, but the reward may also obviously be proportionately, are high. Then you have the US treasury notes and bonds. We're going to discuss this in this third lecture of this chapter. And then something that does not appear often in those curves is the cash market. So very liquid assets. And this is what we are going to be discussing in this first lecture. We're going to be discussing cache because there are cash instruments and all of us are using those cash instruments. And they are in fact even more liquids. And in fact even more safe than short-term treasury notes of the US government. But the problem is, is that the rewards are even slimmer or smaller. So, and I'll give you an example of a cash instrument, which is the bank savings account. So it's the basic type of bank account and it allows you to put money on the account and withdraw the funds whenever you, you, you would like to. So it's very liquid. You can go in and get out of it very rapidly without penalties or very slim penalties. And obviously, the return rates and the rewards on a bank savings account is very low. The, the advantage why people are using bank savings accounts and is little bit the similar what we had been discussing shares, they are not stored within the company that owns the shares, but outside. And a custodian, for example, is that the money, if you would keep your money at home, could get stolen or damaged. Specifically, speaking about large sums. So people went into banks because banks were providing the safety needed to avoid your money to being stolen or damaged. And on top of that, very often bank savings accounts, it's the case in Europe, for example. I'm not sure if it's the case in the US, but for example, in Europe, even in Luxembourg, if you have a bank savings account, the government is guaranteeing, is insuring up to I think is 100 thousand Euros, is ensuring that money. So if the bank would go bankrupt, where you put your money into their bank savings accounts, he, that bank goes bankrupt. The government will then cover the 100 thousand Euros in Luxemburg, Greece at 80 thousand, doesn't matter. It's just that you understand. The point is that the risk is even lower of government going, let's say, bankrupt. Because normally, I mean bank savings account, they have a lot of protection. But at the same time, obviously the, the reward or the return that you will get from it is very low. And this is the problem with a bank savings account. That's why I'm always saying, and typically as, as we are today, the inflation. And again, I'm not discussing this in this training specifically, but just keep in mind and you need to trust me on this. If worldwide inflation has an average of 1.552% depends on which country are living in. And your savings account is giving you any financial instrument is giving you a reward that is below the inflation. You're probably destroying your wealth and destroying money by doing that. And that's why not a lot of people use bank savings accounts when, I mean, when they pile up money and they tend to go to the market and buy shares or go into corporate bonds or state owns bonds. Because the reward is in fact very, very small and the earnings that you are getting, I mean, it's the interest rates today on bank savings account is what, 0 dot 0 dot 3% if it's not even negative in some countries. But it is a financial instrument and it's a cash, it's very liquid financial instrument that people can in fact use to put their money in and the money will be indeed protected. But the reward is very small. Well, that's wrapping up already the first lecture on the financial instruments. And in the next one we're going to discuss, we are going to go up the curve that you saw earlier. So we're going to go into depth and fixed income instruments. Thank you. 11. Fixed income & debt instruments: Welcome back investors. So Stephen chapter number three, discussing financial instruments. So in the previous lecture we were discussing cash instrument with the example of the bank savings account. And now we're going to move forward and you see it here in the graph. We're going to go into what we call the depth of fixed income financial instruments. And we're going to be discussing what kinds of instruments exist, at least the most known instruments that, that exists and that can be, may be of interest for you. Before doing that, there is something that we need to separate here. And obviously if you want to have more, more information, you need to go into my other courses when we are discussing debt versus equity. But here as an intro conversation, what you need to understand is that companies have balance sheets. So a balance sheet is the wealth of the stock of wealth that the company has from the day it was created. And that is reflected in the balance sheet is the accumulated cash, all the assets, if it is buildings, cars, supply chains, manufacturing plants, and some intangible assets like intellectual property and those kind of things. And I mean, without going into the detail, because isn't the purpose of the course. And I may potentially also have people who are asking me to write a course on financial statements as well and basic accounting understanding. The assets have always to be balanced out by the liabilities. But there are in fact two kinds of liabilities and you'll understand how i will lie as this or correlate this with a tub of financial instruments that we are discussing. So a, What you need to understand is that on the asset sides, and those are all assets from very liquid like cash to illiquid assets, light intellectual property or goodwill. And then you have on the liability side of the balance sheet and net net, the sum of the assets need to be the same as the sum of the liabilities. That's the principle of the balance sheet. You have two types of liabilities. The first one is the adapt, and then you have the shareholders. So the company has on its balance sheet depth. This is money that has been borrowed from lenders. So they have external creditors which are not own us, which are not shareholders of the company, which are not owners of equity. That the company has to pay back something to pay back the credit that they have taken to that the company has taken from those external third-party creditors. Equity is different equity, those are really the shareholders, the owners of the company. So this is an important differentiation that you need to understand the difference between debt and equity in a balance sheet because the instruments we are going to be discussing now, the depth slash fixed income instruments are different from the equity's one, from the equity ones. And And why do we need to differentiate is because first of all, in case, so imagine a company would decide to liquidate itself. So it takes a decision, I'm going to stop the operation because I'm retiring. There is a sequence. If there is money and if there are still assets, the assets will be sold probably. And then the cache will be taken with the amount of cash that is remaining when all assets have been sold. First of all, the creditors will be paid out before the shareholders. So that's why in the balance sheet on the liability side, the depth is before the equity because there was a sequence, there is an order depth owners, so external lenders, external creditors have priority in case of liquidation, have always priority before the shareholders. And this is y. And this is why in the graph, obligations. So obligations are, let's say certificates that there is adapts between, let's say accompany and lender, creditor. This y, we have the risk that is lower on the obligations and honor the equity. Why? Because in case of liquidation, the creditors will always be paid first. And if there is something left in terms of cash at then only the shareholders will be paid. And some people are asked me, but can you, why should I then invest into company shares? It's because if you and we're going to discuss is now in the corporate obligation or even in the governmental obligation schemes, is that you get a fixed interest, but you will not have the lever of price appreciation. So depth is adapt, that will not be multiplied by two or by three if you're investing into equities and accompany into shares, not only may you get some dividends, which is something like a coupon on a corporate obligation. But you may have the price of the company, the share price there will be maybe multiplied by two by three. This is something you will not happen. This is something that you will not have and this is something that is not happening with corporate obligation of the government obligations. That's why people are willing to take the risk on equity. And this is y on the graph, equity is higher in terms of risk, but also in terms of return because they can meet its share price appreciation mechanism plus dividends on the cooperates, coupon or corporate obligation you will not have that will just get the coupon and the principle at the very end of the period that the obligation was running. And let me show you this. So let's take the example of a government adapts here. So as you have seen in the graph, governmental depth is less risky than company depth or corporate obligations as we call it y, because the risk of a government going bankrupt is in fact lower than the company going bankrupt. Remember, just look at the graph and this is the reason why governmental depth is considered safer then a corporate obligation and corporate obligation is considered safer than equity because of what we did just discussing before. Is that in case of liquidation of the company, the credit is going to be paid first before the shareholders. The shareholders come always after the corporate obligation instrument. And the corporate obligation is more risky than the government obligation normally instrument. I mean, I'm not discussing here with all due respect for emerging markets, but obviously some markets, some governments may, I mean, it can't happen that they go bankrupt then I'm not discussing here municipal or local bones, but you have also local governmental bonds which are probably more risky. And we had cases in the US where you sit is going bankrupt from what I recall, but I'm not a specialist on municipal bonds or local government bonds, but those kind of instruments, instruments, exits as well. Non-governmental adapt. And again, I'm not discussing here the, the, the risk-free rate in detail, but consider that in the worldwide markets, we consider that the US government is the safest government in the world from a financial and economic perspective. The reason for that, the main reason for that is there to, for the first one is that the US government, like European Central Bank, they can print their own money, which is not necessarily the case for other governments that don't have a local money that are sometimes paired with a foreign money. And also, the second argument is that most of the worldwide depth is hold, is held, sorry, in US dollar currency, even though the Chinese currency is growing. But, and this is the reason why most of the investors and me too, we consider that the close to risk free rate is really linked to the US government because government has a possibility to print a lot of money and most of the worldwide depth is hold, is held in USD currents in US dollar, currency and the government. And without going into the, too much of the details, but just be whether in terms of vocabulary, you will probably see various terms that are even sometimes mixed up, which is the treasury bonds, treasury notes, the T-bills, Treasury bills, and the TIP S, which has a specific vehicle for protecting against inflation. So the, the, what people look into enough put you in Acts rag, I think it's of the write-offs, cites a couple of days ago. What is the current yields? Where is a current coupon that people will get if they purchase a three month treasury bill from the US government, a two-year, five-year, ten-year and didn't put the three here, but I think the 30 is at 1.2x, 1-2-3 percent. How do those instruments work? So it goes the following way at a certain point in time, let's say at inception at t time 0, you buy for an amounts. And here I am taking the example of 100 thousand US dollars you are buying for 100 thousand US dollars of governmental, let's say US governmental obligations. Can, I mean the other governance when doing this as well? And the government is guaranteeing you. That's, let's take a simple example. Every year you're going to get a certain percentage on the $100 thousand that you are giving to the government. In this example, I'm showing that every year. And so this is a 10-year. Government bonds. And you have put $100 thousand at t 0 into it, what we call the principle. And every year you are getting 4,500 US dollars for ten year period. The standard government that bonds are not inflation adjusted. And that's why there is legally called T IPS, which can be inflation adjusted. But the typical treasury bonds, even the typical corporate obligation or not inflation adjusted. So obviously, if inflation is growing at 2.5% every year after ten years, Tom, if you compound that 2.5%, the 4,500, there may be worth worse, sorry, worth half of the purchasing power of the 4,500 in year one. But again, the principle is that today the government is guaranteeing your 4,500 US dollars every year for ten years. And the promise that after the ten years they're going to pay you back those 100 thousand US dollars. So it means that you have summed up 45 thousand US dollar. So every year for 1500 multiplied by ten years, that's 45 thousand US dollars on the 100 thousand US dollars that you have given to the government and that the governments are what we call the principle, promises to pay you back at the end of the ten years time. That's the idea. And if you look indeed 45 thousand US dollar after ten years on a 100 thousand investments and with a lower risk, pretty low-risk government like the US will go bankrupt in ten years. That's an, that's a nice return nonetheless, that's not too bad. And this is why you are having people who indeed, when they look at what they can do with the money and instead of leaving it in a bank savings account. And instead of taking maybe higher risks on corporate obligation or even company shares, they, some people invest into those kinds of vehicles. If you'd asked me, am I doing this? The answer is no. I'm not a corporate bonds or government bonds, governmental obligation and need a specialist, no investor because I consider myself to be a businessman and I understand and I think I'm a better businessman because I'm an investor in at the same time, I think I'm a better investor because I'm a businessman. So as I told you, 99% of my savings on the stock exchange on companies where I can have an higher return. And then we have still on this curve. So after you remember, if you look at the graph, we have the cooperates, obligations that are coming after the governmental obligations. But it's the same principle, is just that what is happening is you are giving your money not to government but to a corporation. And obviously depending on the, let's say the solvency of the corporation. And here we are coming back to the rating agencies. When those ratings, when those rating agencies give a triple a to cooperation, why would the corporation give a very high return to raise money? They will not. For example, I'm not sure if I have an example here, but honestly, for example, I think that the latest corporate obligations that they have published, I think they give a written of 1.8em percent, something like that. Look at Ford. Ford had some difficulties during the 19, but back in a very positive way since, since the last quarter. But they had to Prince and tere's fresh money through corporate obligations. And what they did, they gave a retina thing of eight or 8.5% on obligations that have been printed out in 20-20 during the qubit 19 crisis to get fresh cash to cover the operation or running costs. But the principle is the same. You pay in what we call a first amount, the principal of mound and again, in this example, 100 thousand US dollars. And then depending on the return on the duration, you get this percentage every year. But remember, why is there a difference or why our corporate obligations considered more risky than government obligations? Just because the probability of a cooperation to go bankrupt is higher than the one of a government. Hence, people who wants, if they want to give, if the company wants to get money from external creditors, as it is a cooperation and under government they need to raise the interest rate or the coupon the year that they are giving back. And that's really the whole idea about those. And this is where why we call them fixed income instruments. Because every year, except if that company or the government would go bankrupt every year, you know, what will be your fixed income? That's the principle of those. If it is government obligations or bonds, or a corporate obligation or corporate bonds. With that, I think, I hope it is clear. It's not rocket science, it's just understanding the basic principle of it and how, why people would invest into those instruments comparing it to more risky instruments. So these risk versus return balance. And so without wrapping up this lecture and the next one, we're going to discuss equities, which is actually my, my area of predilections. So because I really invest a lot into equities, Thank you for having two didn't talk to in the next lecture. Thank you. 12. Equities: Welcome back investors still in chapter number three, we're discussing the various financial instruments and leaves the biggest categories of financial instruments. And in this lecture we're gonna be discussing equities or stocks, common stocks. And just to come back to the bigger picture, remember we went first into cache, which are very liquid, very safe but very low return instruments we discussed in the previous lecture, fixed income instruments and our discussing equity and specifically equity on the secondary market. But it would be the same for the primary as well. I want to discuss the kind of stocks that we have, but just, just, let's say that for the time being when discussing secondary market equities. And a lot of people ask me, when we discussed fixed income instruments like corporate obligations or government obligations, why the heck are people investing into companies shares? Because it's safer to invest into fixed income statements. And the main reasons, there are two reasons. The first one is that people like to buy companies shares because they hope that when they buy at a price, let's say of 100, that the price will shoot up and go to 50060100000. So that's a huge accelerator that you will not have, for example, with fixed a fixed income instruments. The second one is why your money sits still. And this is similar to coupon in fixed income instruments, some companies, and we're going to discuss categories of companies and stocks later on. But some stocks they pay out it's passive income or what I call a passive stream of revenues, which could be dividends, cannot be share buybacks. And so that's something that also people are interested in that, for example, for me typically this when I'm trying to do is I'd tried to buy companies cheap, having analyzed, haven't calculated what the real value of the companies and being like 25-30 percent below of the estimated real price or intrinsic value of the company and buying 25-30 percent below so that I can have, most probably is certainly telling gonna have his capital gain. But one, my money sit still. I like to have a passive income and this is where I'm looking at indeed, dividends or returned to shareholders also even share buybacks is interesting where you can go into the other trainings, value investment trading, dividend, invest in training to go deeper into that. I was discussing in the previous lecture where, where adapt and corporate obligations were sitting in the balance sheet of the company. Now, I'm showing you here, and if you remember the previous lecture, that equity, so share holders or share owners of the company, they come after the depth owners of the company or the external creditors. And remember I said in case of a liquidation, the depth owners have a higher safety compared to the equity owners because they're going to be paid off before in case of liquidation or bankruptcy before the shareholders. But, and this is why, I mean, as the risk is lower, the reward is lower when you have fixed income securities, because you will only get the coupon on the principal hopefully back at the end of the period at maturity of the fixed income on the corporate obligation and the equity. You have those two, let's say ways of making money that I just discussed in the previous slide. But if you look at, so remember the balance sheet. If you look at the balance sheet, the balance sheet is the stock of wealth or the sum of accumulated wealth that the company has from the date has been created. And when you try to materialize what, what does equity and how does equity transform itself into company's shares? So a share is in fact just a piece of paper. It's an entitlement were under cher says this is the percentage or the amount, the number of shares that you own. Equity and the equity will in, in a lot of cases. And I'm going to show this in the upcoming slides. In number of cases. Actually, you take the equity and you divide by the number of shares of the company. And the number of shares is pure arbitrary. So you could say that if the company has an equity of a million, for example, you could say, I'm dividing this million by ten by 100 by 1000. That's a decision that the shareholders, that the owners of the company very side, the equity to be divided by the number of shares or to decide what is the maximum number of shares that the company has. And here I am taking an example where I do remember what was this company could have been, no, it wasn't Facebook doesn't matter where you see that this company has 850 million of shares. I will not be discussing here the basic versus diluted that would go too far. I'm discussing this in the value investing course. But imagine the 850 million of shares. And you remember when you go back to the intermediate when we were discussing about the registrars with 850 million in average of shares, I mean, how many movements will happen every single day in terms of shareholders of those shares on the market, if that company is traded, is exchange-traded, So a lot. And that's why you see the benefits of having register instead of hanging the company to have to keep the registry by themselves so they're outsourcing this service to a register. So remember the equity is just a piece of paper that guarantees you that you own a piece, a portion of that company. It's clear that if the company has 850 million and you own 100 shares, that's a 0 dot 000 something percent of the overall equity of the company. But for example, if it's a smaller company that has 100 thousand US dollars of equity. And, and the company has decided to divide that equity by Ivan accrue by 100. If you own 20 over those shares were then indeed you are a shareholder of that company. So always remember that also there is this aspect of proportionality between the number of shares that you have versus the total amount of equity or the total amount of shares that represent the equity of the company, which we'll call also the book value. And before we wrap up in this lecture, there are a couple of terminologies and examples I want to share with you when you speak about shares, you're gonna very often hear the terms small caps, even micro cap, small camps, mid camps, large caps, mega caps. And that term in fact means Mega capitalization, large capitalization emit capitalization, small capitalization, and micro capitalization. What is capitalization? It's the value of the company on the stock market. So you take the current market share price and you multiply by the number of outstanding shares. This will give you the market capitalization value. Then, depending in which range, in which window that value sits, if there's, for example, above 200 billion US dollars, that's now the case for the grapheme. So the Google, or let's say Alphabet, Facebook, Amazon, Microsoft, Apple, I think I said. So they indeed, some of them are even $1 trillion market cap company. So this is what we call the mega camps. And obviously you see in the histogram distribution here that you have not a lot of companies and omega camps. Here we are. I mean, I'm not saying that there is a direct correlation, but very often the mega camps, they are in the DOW Jones 30, the large caps are in the as a P5 founder and then mid-cap, small-cap, even micro chemical into the Russell 2 thousand and even beyond that. So this is just the size of the company to make it short. But people don't speak about the size of the company, but they speak about the market capitalization of the company because they multiply the current share price with its number of outstanding shares. And when we speak about categories of stocks. So in the press, on TV, not only you will hear the term mega CAPM, mid-cap, small-cap, micro cap. But you're also gonna see those terms popping up like blue chips. And blue chips are typically the kind of companies that I buy into. Remember that I mean, I am discussing is my value investing cause I like to buy very big brands that pay off dividends while my money sit still. So this is typically blue-chip, so they are considered to be very well-known brands and with high-quality financial fundamentals that also stable and even that they pay dividends out in a stable way, then you have growth stocks or growth stocks are typically and currently in 2020, we still consider growth stocks very often to be either startups or tech companies, or let's say new, new companies in the pharma area. And the typical examples are a Facebook. When Facebook came into the stock market, this was considered typical growth stock and one of the typical attributes of gross doses do not count on them to pay out dividends because they say we are in early stages of our company's cycle. And so we don't want to pay our dividends. We wanna keep that money and reallocate that money to our business that we grow even faster. That's a typical, let's say, idea or attributes of a growth stock. So that's new companies, startups that grows super, super fast and they want to keep their profits to grow the market or to grow their markets and their customer base even. Stronger value stocks. So you should not mix up blue chips and value stocks because you can have in blue chips companies that are value stocks, but you may have also value stocks that are not considered blue chips. You have some micro small cap companies that some investors like to look into. So that's like a low cap on myths cap value stocks. I'm not investing into those companies as a value investor, I prefer to have a value stock which is a blue chip at the same moment in time. But, and again, I'm just giving you examples. And again, I'm extensively discussing these in the value investing caused, but value stocks typically have. So they're considered that the market is giving them at a bargain price, at a very cheap price. And in fact, they should be selling at a higher price. And for whatever reason maybe the company isn't going very well, but the market is depressed about that company. And you're gonna typically here ratios like price to earnings below 15, price-to-book below either three or one, that five, low debt-to-equity ratio as well. So there are some characteristics of value stocks. I'm just seeing here one thing, well actually two things. If you really wanna go into value stocks, go please into my value investing cost because I'm extensively discussing this. And the most important thing, the walk-away here is do not invest into those stocks just looking at one ratio. That's a typical mistake of Beginners. They bind to value stocks because they have heard that the price to earnings is below 15 and that's it. And the investors did not do their homework. So just be aware that one ratio that looks good is not enough to put your money into those stocks. And I said, if you really wanna go deeper, please go into my value investing corresponded extensively discussing this over an eight hour course. Income stocks are considered stocks that pay higher than average dividends over a longer period of time and utility. So electricity and teleco Companies are those typical examples. And for example, in the US AT and T, which is one of the largest telecom operators. A lot of people like to buy 80 and teachers because of the dividend yield, that is, I think seven to 8%. And so that's the only reason why people go and buy AT and T. I'm not judging AT and T here. I mean, I have not analyzed AT and T, but very often those other kind of utilities and Telco companies are the ones that we call income stocks. Then you have penny stocks. I'm I didn't put an example here because I'm reading under specialist on penny stocks. But those are low priced, very, very, very low priced below $1 or so. A couple of sense of, Let's say, value, face value of the stock. And some people are interested in them because it's easy to buy a lot of those stocks. But always remember that the value of the price of a stock does not say anything is just a certainly Tumblr showers have decided to divide the equity by a certain amount of shares. So again, if you have an equity, let's say of 10 thousand US dollars and you're dividing that equity by 10 thousand shares, one share is worth $1, but if those shareholders have taken the equity of 10 thousand, divided it by. 1000 shares, one face value of one share is tenuous dollars. Does it mean if that would be two different companies, that one is cheaper than the other? No, it's just pure arithmetics. It has nothing to do. It does not mean because the price of a share is low, that it is cheaper. This is, I mean, if you shouldn't think like this, right? And so that's also typically mistake of investors when they begin, is that the compare share prices, but that has nothing to do. This are just related to the amount of shares outstanding that are dividing the total amount of equity, that's it. So penny stocks for me is very high speculative, very high risk, very high volatility stocks. And it's really not the kind of thing that even I look into because that's pure speculation and that's not investing defensive stocks. We also, you always or sorry, use often see them also called consumer defensive. Those are the kind of stocks that when people and the markets are depressed, that people tend to buy them respectively the prices of those defensive stocks, they do not move a lot when there are market declined and some people consider defensive stocks also to be blue chips or give it took a couple examples that I have in my portfolio. And again, I'm not soliciting year-to-year to buy those companies. Nestle underneath a, who are so Nestle's the largest food manufacturer in the world. They are considered consumer defensive and on top of that, they pay out dividends and on top of that they increase a dividend every single year. That's the reason why I have bought internationally and the noon when the market was depressed so that I could buy them at a fair price. Cyclical stocks. Those are stocks that go up and down. They follow the economical cycle. Car manufacturers are typically contain a cyclical stocks. They go, they go up and down. I mean, if people earn a lot of money, the level of unemployment is low. People tend to buy cars. If the level of unemployment is high and the economy, the GDP growth is not very good. Then people, they tend to keep their cars longer, so they were not buying new cars. So automotive industry is a typical cyclical stock as an example. And then there is another term that pops up from time to time. And you've seen here that I have put it as non applicable, but the term treasury stocks sometimes comes up. And I am not discussing this here in detail. Sorry for that, because it will take us at least 20 minutes. But a treasury stock is just a way how when companies want to give a return to their shareholders, sometimes for tax reasons, they don't want to pay out dividends. They prefer to take the profit or part of the profit of the company, and the company goes on the secondary market and buys its own shares back, is what we call a share buyback plan. A lot of companies are doing this. Microsoft is doing this as an example. A lot of companies, instead of paying out dividends because dividends carry attacks depending on the country are sitting. And they say, we're going to make our shareholders more happy or happier. Because instead of paying out them a dividend, we are removing the amount of shares on, on the markets and buy that increasing the value of one single share because we're extracting outstanding shares from the market. And this is those stocks will be carried as treasury stocks in the balance sheet, in the equity section of the balance sheet. So treasury stocks has nothing to do with a category of stocks in the sense of the attributes of the stock is just the way how we represent share buybacks in the balance sheet of companies who do share buybacks. So that wrapping up this lecture on equities and again, the purpose and not to go into the details or at least tell you what kind of stocks exist, what is the risk related to the white people who would buy shares of companies compared to fixed income instruments. And as I told you, I mean, if it is even Warren Buffett's Benjamin Graham and with all your respect with old humidity, I'm not considering myself having the size of a Warren Buffett or a Benjamin Graham. But, but 99% of what I do and what I invest into is in equities into blue chips that pay out dividends. That's my style. And typically that's the value investor looks into another guy who buys growth stocks that just didn't IPO's initial public offering on the market, on the secondary market. That's not my kind of style. So that wrapping up this lecture and the next one we're going to discuss one that is a little bit even higher-risk potentially. And some people consider this to be speculative instruments, which and I will show it to you through future contracts, for example, are options, but this is not necessarily the case. So they are instruments that are called derivatives that sometimes makes sense given or what they allow to protect the company from under business from. So talk to you in the next lecture. Thank you very much. 13. Derivatives: Welcome back investors. In this last lecture of Chapter Number three, we're gonna be discussing derivatives after having discussed cash instruments with a bank savings account, corporate and governmental obligations, and also company shares. So derivatives before we give you examples, I think I have four classes of derivatives that I will like to introduce to you is we're going to start first is why are we calling those assets, are those financial instruments, derivatives. So derivatives is in fabric contract that derive, derives its value from an underlying asset but the underlying, so we call that the underlying, the Suzhou saw in French, can also be an index and interest rate can in fact be a lot of things. And the different type of derivatives like swaps, options, future contracts are future as we call them. And also the most of the derivatives are traded of counter. So it call OTC over the counter. So that's off. So they're not exchange traded. So they are traded either on specific exchange markets like the Chicago market in mercantile exchange that's related to the commodities are not mistaken. And what I wanted to share with you as well is that if you look at, I want to show you the size and those that you get a sense of the size of the worldwide derivatives market versus global stock markets. So if you look global stock markets, they are around 90, let's say 100 trillion of US dollar. And you remember the New York Stock Exchange or the nasdaq, nearly ONE half of the global stock market capitalization, global depth of governments, households, and corporations is run double that size of the global stock markets. But just look on the right-hand side. The size of the derivative market. I mean, that's like 678 times the total size of the global stock market. So this is huge and a lot of people are using derivatives. Some people, because it makes sense for them. And I'm going to give examples on that. And other peoples are just speculating on the stock market buying derivative of selling derivatives. And this is what we're going to discuss here. The first time. And most known contracts or derivative contract, is future contract or what we call the future. So it's a type of derivative where two parties, they do agree that somewhere down the road in the future, they're going to transact on an asset's added predetermined price. They're going to determine the price today and they're going to determine when this will happen. And so the agreement is that the buyer agrees to buy that asset at a certain price that is set in the contract. And the seller has to guarantee to the buyer that the seller will sell its assets or its assets at the price that was defined, let's say two years earlier. And they don't care how the price evolves because it's set in stone in that future contract and to default. I'm not considering future contracts to be speculative because they can be used for what we call hedging purposes. So hedging is in fact was buying an insurance in order to minimize the risk. And I'll give you a concrete example. I mean, I've been working as a director of various companies and one of the companies we were buying or providing managed IT services to our customers. And as part of that managed service, we had also datacenters. And those datacenters, they consume a lot of electricity and electricity, the price of electricity fluctuates with the price, with the oil price. And obviously you can imagine that if prices go up or go down a lot, this will have an impact on the profits and on the margins. But as we had pleurisy annual contracts, we need we need to make sure that we had a certainty, not an uncertainty, but a certainty. We knew how much electricity would cost us in, let's say three to four to five years. So how can we protect ourselves as an, as an IT provider against price fluctuations? Let's do a future contract between us as a commercial company and the electricity provider. This is a clear example, and this example just for power, for electricity, but you can do this for oil, for gas, for corn, for wheat, for sugar, for a lot of things. So you can, you can even use it for currency Haji because you don't know how the exchange rates will be between Euro and US dollar. And imagine you are a chocolate manufacturer. You're buying sugar from the US, but you are in Europe. Maybe it makes sense that in order to avoid the fluctuations, because you need to buy sugar in US dollars. And if the price of euro versus, or the exchange repetition Euro and US dollar fluctuates a lot where maybe you, I mean, this can have an impact on the profit. So that's why you would also do currency hedging. So protecting yourselves and how do you hedge? How do you protect yourself? You setup a future contract, as easy as that. So I'm, that's why I'm saying a lot of businesses they hedger because there is a reason for doing that to protect the profits and the margins of the business. But also the future contracts are sometimes used for speculation. And this is where the risk comes because the higher the risk, the higher the rewards potentially, but also the higher the probability that you're going to be wiped out and they're gonna, you're gonna lose your shirt. A second example of derivatives are options to make it simple, options are the same as a future contract with one difference, you're not obliged at the future date to execute the option. And that's something that diff, different changes from the from the future contract. And I'm gonna give you afterwards the example of warrants as well. Then we have swaps. I will not go too much into the details about swaps, but swaps, as a term says it, it's derivative contract. Two parties, the exchange, sometimes cashflows or liabilities. So two different financial instruments between, between each other. And, and sometimes it's done also on currency, on credits, on commodity, on equity. The why I'm mentioning swaps and I'm really not a specialist on Swaps, is that during the financial crisis of 20072010 to the subprime crisis in the US. And after the debt crisis in Europe, specifically what triggered the subprime crisis were those derivatives. Called CDOs, colored collateralized debt obligations, credit default swaps. And they were even like terms with synthetic CDOs, those kind of things where they were salts and rated by the rating agencies as safe instruments because they were like slicing the Risk inside very high with very, with junk assets or creditors. But the very end, it was a house of cards and the whole house went down. And so that's why I'm always saying I'm not the biggest fan of derivatives and have never invested into derivatives. Because it's difficult to understand what is behind the derivative as an investor. But I've been using derivatives. Working in companies where we had to protect our profits and our margins by setting up a, the option contracts or future contracts in my experience was a future contract when we were buying and guaranteeing the purchase price of electricity. So those instruments make sense and they're not per default used for speculation, but a lot of people and amorphous thing when if you're an investor and, or even a trader and you are playing with those things when you're speculating, because there is no real interests for you to buy electricity, to buy gas. Well, you could as well take your money and go to the casino and play roulette or play poker blackjack with your money. But for some people, for some companies, those instruments, those derivative instruments, they do make sense. Let me give you a last example. I think it's the last one and this lecture is around warrants. Warrants are, it's like an option. And it's a derivative instrument that is giving a right, not the obligation to buy or sell a security in the future. And words are often used by companies and they're gonna give a concrete example where warrants, sometimes warrants are used as remuneration scheme for personnel. And in this example, it wasn't an example that I was myself exposed because I'm ashamed of Reshma, which is a Swiss group. And Reshma is one of the largest luxury, let's say, corporations in the world. So they are a competitor to leave. We saw for those who know LVMH and Reshma company financier Irish Moore has jewelry, Van Cleve, and afterwards they also do luxury watches for men and those kind of things. So the issue was the following. So Reshma, and this is a reason why I have bought into Reshma during the qubit 19. Obviously prices with the press because of the covered 19 prices went down and they were in a zone that I could buy with a margin of safety. And on top of that, rich mall has all every year being paying out dividend and increasing even that dividends. But during the period 19, because luxury depends a lot on travel, China is a big market to them as well. Luxury shops in airports as well. And so they, the management said we need to protect our cash because our shops are closed because of the lockdown of 19. What did they propose? They said and I think last year the dividend that we're paying out was to Swiss Francs. So consider it to be two US dollars, doesn't matter now. And so what happens is that. The, they said in order to have cash protection mechanism, we cannot divide, we are going to slash the cash dividend this year and we will only pay out one Swiss Franc of dividends that we keep. The Swiss franc as a protection measure in case we would need to cover the cost of operations because maybe the lockdown will take longer, etcetera. But they sets, we do recognize that you as a shareholder, you, me, maybe kinds angry or frustrated to say the least, that we are slashing the dividend by two. So nonetheless, recognize you as a shareholder and we value the fact that you are shareholder to Reshma. What we're going to set up is a Warren's scheme, which goes the following way and I will not go into the details. You have the sources that you can look this up by yourself. So they have sets. This year, we're going to give you one Swiss Franc of dividends, and we will add to that a warranty. And the warranty will allow you with the amount of shares that you own today by a certain amount of shares based on a calculation formula that you can see if you read it up in 2023. And we guarantee you in 2023 that you can buy those shares that you have the entitlement to. So what we call allotments, you will be able to guarantee whatever the prize will be if the price is 100 Swiss francs a share, we guarantee that you can buy those shares at 60, at 60. And obviously, if you buy them and the stock market is at 90 or a 100, they're giving the example with 90. The difference between the two. When we will take that difference, that's our cost. That's a way of generating our shareholders. And for you it will be a profit. So it could be considered like a supplemental return. But this year, sorry guys, we need to protect our cash will only give one Swiss Franc of dividend or pay just wants his flank of dividends out to our shareholders. But we are giving a warrant scheme. And next to the dividends, the one Swiss Franc Thevenin, which is 50% of the dividends we're paying out last year. And this is an example where indeed this is the derivative, this is a contract. So they have agreed. So I'm Michelle of Reshma, so they're kind of signing a contract with me. It's done digitally, of course electronically. But they guarantee me that candy, you own this amount of shares with this amount of shares, you entitled to this amount of shares in 2023 and to buy them at a price of 60, whatever the price of the market will be at that moment in time. But it's an option, it's not obligation. Why? Because if the price would be below 60, you don't have an interest of purchasing those stocks at 60 because you could buy them cheaper, just going directly on the market. But if the price goes up, which we believe as Reshma, management will happen because we'll probably be out of the qubit 19 situation, then this will be profit for you as shareholder. So this is the principle of whirlwind derivative option scheme. So with that, I will not go further into more instruments. I believe that as investors, as business people, you need to know those instruments. I mean, if you are a specialist in oil and gas, sorry, you need to look in the annual report how the company is hedging the price fluctuation of oil and gas if that is an important cost to the company, look at airlines. Airlines typically use future contracts or option contracts to protect themselves against the fluctuations of kerosene, so oil prices. So there are good reasons why using those derivative contracts for me. And again, you'd assign whatever you do afterwards. But my style of investing is I do not use those instruments outside of my business, meaning as an investor. And after it is up to you to decide if you want to be a trade or if you want to be a speculator, that's your choice. And social bead and probably, and maybe you're going to earn much, much more money than I do. But again, everybody has to pick his or her style of investment and his or her, let's say universe of financial instruments. And but I hope that you understood from this chapter number 31 will wrap up. I'm wrapping up this chapter that you have indeed very liquid instruments like cash with very low rewards. So the higher the return, the higher the risk. This is a principle that you will keep that in mind if there is one walk-away message related to financial instruments, it's this one. It's the higher the risk, the higher the return probability. But nobody is giving you a guarantees on the written probability on the return. And this is why you need to take into account, just look at the graph where you are investing and you feel okay with a risk versus reward I, which was useful. And in the next chapter we are going to shiver transparently the tools that I'm using as an investor and also we're going to practice a little bit. What would your first order on a shared look like? So stay with me on chapter number four and thanks for having tuned in. Thank you. 14. Information sources: Welcome back investors. We are now starting chapter number four, which is actually the last chapter with content before going into the conclusion. And what I thought would be appropriate for you as many beginners for the stock market with all due respect. I mean, I started also some something somewhere 20 years ago and it was also for me, a learning path is that I share with you very transparent to the information tools that I'm using so that you have an idea. What are the tools, what are the re-post that I'm looking at? And also in this chapter, I'll try to walk you through a sample equity order so that you get also familiar and fluent in the terminology that comes with buying shares on the stock market. But let's start with information tools. So, and I'll start with this scheme. I mean, if you remember when I was elaborating and building up all the intermediate and actors in the secondary market, which is where you and me are active, random or we are not active in the primary market. When you are buying shares on the stock exchanges or equal exchanged, exchange traded securities. And I was discussing about the fact that a seller or buyer, they do not buy or sell directly on a stock exchange, but they go through brokers and at the same time they want to buy or to sell shares from companies and they need to build an opinion on that. So this tempo kind of summarizes all the tools that I'm using. And what is important here is, with the exception of, where I pay a premium subscription. I think I pay a normalised 29 US dollars per month. So it's not huge, it's some money, it's like 303, let's say 50 US dollars per year. But that's the only premium subscription that I have. All the rest, all the tools are gonna be sharing here with you for free. And sometimes for free, but you need to register your email address to them. And so I'm going to walk you through, I'm gonna start with a macro indicators. So I was really using this in this course and I'm using these tools in all my other trainings as well. So I'm using the website that gathers some market averages inflation are going to show you. I'm going to walk you through each of those tools. I'm looking at the top brands because that's my investment universe. The investor relations side analyst tools, rating agencies I use a little bit, have a tool that is called trading, which is a great tool for looking at stock market graphs because I nonetheless sometimes want to see where we are in the stock market. Then also look at insider trading because that's a regulatory obligation. When, for example, in the US, when you are more than a 10% owner, share, owner, or shareholder of a publicly listed company. And if you're buying or selling shares, you need to report on that. And it's the same when you are director, you need to there's an obligation to provide transparency to the investors on that and then also glass. But we're going to discuss later on. The first one is the website. And I've been using at least one or two graphs from this side. And they capture it's, with all honesty. Visually speaking, it's not the most beautiful sights, but it's a pretty basic graphics, but you have information that you need. So you have treasury rate as a p 500s statistics you as economic statistics, world economic statistics. So you have what you need and it's interesting if you interested to know what is the current treasury rate? One year, maybe ten years on the US. What is the current price to earnings average for the S&P 500? What is the current dividends yield average on the S&P 500? What is the US GDP? What is you as inflation, world GDP word inflation. You have this kind of stats. I mean, you have a lot of statistical sites like, et cetera. But this one is for free and I'm using it specifically when I look at market averages. And you see it here is the S&P 500 price to earnings dividend yields and the GDP rather than 30-year treasury rate as well. And yeah, and that's actually it. It gives a macro indicators. And for you as a business person, as an investor, it's always good to know that those kinds of websites they exist. I'm using this now for many years at this website as a value investor. And again, that's my style. I'm not telling you that you should do this, but my style is buying shares of companies with the hope that the shares will be cheap when I buy them because the market is depressed and I know that the real value of the share price is 30, maybe sometimes even higher to what I would buy it now. And remember that the second process or lever I use for making money is while, while my money sits still, that I want to earn a revenue. And this is done probably through dividends or share buybacks. Paying off adapt. So I will not go into the details, look into my value investing cause if you enter than this, but what I'm gonna share here with us. So first I was from macro indicators. I do use the and once every year they just published, I think 23 weeks ago I was in the conference call. The published the updated 20-20 list of the largest brands in the world. They're doing those listings as well for China, for Japan, for, for Europe. So and this is my investment universe because IT tends to, not only the Buddha like to have brand that I can buy cheap because the market is the press and that brand pays out dividends. But on top of that, I only exclusively invest into top brands. I currently have, I think eight top brands in my portfolio or nine. I think it's nine. And where do I know who our top brands? I look at and that report is for free. You just need to register your email address to it. And they do a great job in being able to tell you who are the brands that are growing and the ones that are declining. And this is very interesting because I believe that strong brands have a differentiator, that people are going to those brands and willing to pay a premium for that brand. Hence, the profits of those brands will most probably at least be sustainable over time or even maybe grow over time. This is why, why my investment universe is those global brands, you even continental topper brands that I'm looking into. The third one, and that's not a specific site, but I think it's good that I explained to you and I'm explain this much when determine my value investing Corps is that specifically for US companies, they are obliged of publishing and reporting certain set of information, material events or major events. They need to report changes in the board of directors, changes in majority shareholders, but also quarterly reports, what we call the ten K. Ten K. Again, please go to my very investing because I'm discussing this longer in that training. But B5 invest into company. I do read their latest reports and I'm reading the ten K and ten q specifically, where do I find those reports? Where all those companies, they have an investor relations site or it's a subset of their main website. And you see here the example, what is a Johnson and Johnson, You see the example of Johnson and Johnson, The right-hand side, they provide you that information because it's it's public information. You don't need an analyst to read the report, but of course, it's part of your homework to read the report and understand what the guys and the gods of Johnson and Johnson are putting into their quarterly and annual report. And I'm doing this for all the companies. I'm going into the conference calls when they published the results that I get the feeling, what's the feeling of the CEO annual shareholder meetings, but also on reading those reports. And I know it's homework. I cannot do that for 100 companies, but that's why I'm specific into which companies to invest. And I subscribe myself to investor relations site because very often the companies, you can subscribe with your email address and they send you the announcements. They are obliged to inform the shareholders. So it's a good way of getting automatic email into your mailbox to know that they have just published the latest ten K or ten q report as an example of material major events. Then and this is the only one where I'm paying a subscription for 29 US dollars per month. If I'm not mistaken, it's the morning website. It's a great site. They have a lot of KPIs indicators and they put together all the financial. So I don't need to do to look myself, you know, looking at the 2017 fingers of a company have invested into the prepare these figures for you. So you have the financial statements over the last ten years, the income similar over the last ten years, and the cashflow statement over the last ten years. And they provide also some ratios they pre-calculated. And you see that I have a portfolio of companies that are in their way already pull out. I'm first filters to do the pre filtering before I go deeper into companies in my investment universe. So the website is, I must say it's suicidal. I like maybe they would need a small refresh because it doesn't work on the mobile, for example, don't have a mobile app from what I have seen so far. So I'm using the website, but you can extract your portfolio salmon for you, the financial statements you can extra into the, into an Excel file and then you can start doing your own calculations there. And yes, I'm showing you the example of Johnson and Johnson. So you see the section related to the financials of Johnson and Johnson. And then you see that I mean, I made an extract into Excel of the latest, I think oscillators balance sheet of the, of Johnson and Johnson. And you see that I have the last ten years, which gives me, gives me an idea of how the company is moving forward as we speak and comparing it to 234510 years ago. And I'm looking at those access for Excel files or let's say extract of the balance sheet, income statement and cashflow statements for the companies I invest into. So it's interesting to have the possibility to extract this automatically because otherwise you would need to type in all that information in textile. And that's, that's some work that you have to do. Another one which is also a nice one. It's one that I discovered only I think it's 100 years ago, but I really like to use it the fin width sites and I use this Fenway side for two things. The first one, it's a rapid screens. So you see here in yellow that I wanted to look into the mega market caps are the very, very, very big companies that are paying out a dividend for more than 4% in the US and you sell it for the time being, it's only Pfizer and Verizon that are fitting those criteria. If I take the same filter, the same screen and I'm running it for Europe. You see them in Europe, there are many more companies that pay out more than 4% dividend. And this is in the large market capital in the mega cap. So this is a very fast way of looking into which companies fill some attributes. But again, I'm not only buying companies based on screens, on filters, and this is what I'm extensively discussing one value investing course. I run myself a certain amount of tests and also valuation calculations to determine what is the intrinsic value so that it can compare the intrinsic value with the market share, sort of the market price or the share price of the company currently on the market to know if I'm paying a lot or not. Moody's, we were already using it earlier when we were discussing about the market participants and information provider. So rating agencies are information provided as well. Now showing you the example in the previous chapter on Nestle, and here I'm showing you the rating on Moody's for Johnson and Johnson. Again, the side is for free. I've just reducing my email address to it, but it gives you a good sense on companies how Moody's and you can use also the other ones I think as a PI or at least Fitch, they provide also aside when you can look at the solvency rating of the depth rating of companies that you would like potentially to invest into. Do I need with all respect to the Bloomberg terminal 20 the Bloomberg terminal, it costs tens of thousands of US dollars. No, I don't need it's true that I don't have it under one single screen, but I have information that is available. And this is exactly what Warren Buffett is saying. Most of the information he is using, it's publicly available. It's just that people don't do their homework. And looking up that information. What I'm trying to give you here is I'm trying to give you the tools and sharing very transparently. What are the tools that are available to you as investors or maybe future investors? And again, it's not rocket science, it's just common sense, good practice, and you will need to practice and practice and practice. Another sides. And I told you that I'm not a trader, so I don't look at technical graphs, but from time to time, I go into the graph to see what is the momentum of the stock market. To see that, for example, you see in March the curves, they really dropped a lot by more than 30%. Remember that's what we call a bear market. And so trading is really nice, I must say. And I think they provide also brokerage platforms. You can directly do your orders. I'm just using it as information purposes. And as my free subscription allows me, I think to go down until a every hour. So I can only see hourly quotes while if you pay the premium, you get like real-time quotes. But for me as I'm an investment or the trader, I don't care if the price is changing now in 15 minutes. That's not my style of investing. What I care is maybe the daily price, the weekly price, because I know that I will keep that company for a couple of years or maybe even potentially forever. Fin width comes up a second time here is rated to insider trading. So we are not discussing this in detail in this training, but in the US, for example, when you are more than 10% owner of a publicly listed company, if you are buying or selling shares, there has to be, you need to file that to the SEC, the Securities and Exchange Commission. And it's nice because there is a site called fin ways that actually captures when those majority shareholders that own more than 10% when they buy shares or when they sell shares of the companies that they already owning. And this is a screen and this is an example. And it's pretty interesting because sometimes you see that the CEOs are selling stuff or the board of directors and selling stuff. And also the majority shareholders are selling stuff. So I would really recommend you that gives you some kind of, it's not an, In fact, I should not have called this insider trading, but I'm seeing inside it because it's owners of the company. But it's an, it's a public obligation by the SEC to communicate on this. Remember that the SEC is there also to make sure that there is no information, asymmetry and transparency and fairness on the market. And for some shareholders, they need to report when they buy or sell shares, when Warren Buffet sold out or sold off. He's airlines where he was more than 10% owner. This went public. It's publicly available information because it's mandatory by the SEC, but at least you have a side that consolidates this. Then another one, this extensively discussing in my value investing course, because value investors, they look at strong brands that have a modes, that have a castle that is difficult to capture this castle. And that castle is sustainable over time and that people are willing to pay a premium to buy the products and services of those fantastic brands and fantastic companies. And value investors very often look also in having a passive income through dividends, for example. And so one of the things that before investing to accompany, I'd like to know what is the sentiment, what is the feeling of the employees inside the company? Because I'm always saying when you have happy employees, you're going to have happy customers because I can guarantee that your employees will do whatever it takes to make your customers or the customers of the company happy. And there is a site, you literally just that Twitter is for free, that is called Glassdoor. It's kind of a competitor to LinkedIn, where people post jobs, et cetera, people post salary reviews, but people also survey large companies. And again, if you're interested, go to my value investing cause I think it's chapter six or seven what I am discussing the mode, because I believe that there are methods and that's my own research. There are methods to determine the mode of the company. And one of the modes is not only looking at what external customers are saying and discussing these extensive innovate invest in Kosovo called the Net Promoter Score is like, it's like a survey score. And customers are singing they happy with the brand or not. If people are happy with the brand, they're going to continue biofilm the brand. If people are unhappy about the brand, we'll start buying that brand at a certain point in time. This will have an impact on the profitability of the company. So that's the Net Promoter Score part in the mode. But amylose and that's for free. You can just Google the NPS scores of the big brands that I'm using. Glassdoor. So Glassdoor or is this site where people actually survey their own management, the employees through their own management and they say how they feel about the company. And you see here the example, I think it's Amazon and Microsoft y, you see that Amazon has a score of three, dot nine out of five and max of 43. And the approval rate of the CEO. And if people would recommend the company to friends and you sit at Amazon P, only 77% of the people recommend the brand, the company too, I would recommend it to a friend while it's 90% at Microsoft. So that's, this gives an interesting insight into, into the company that you're investing into. Does it costs something? No, it's for Frigyes. This is for free. You just need to register with your email address to it. So wrapping up the information tools, So as I wanted to share with you, those are the tools that I use. It's not more complex than that. I don't have a Bloomberg Terminal because I just feel it's way too expensive for the, the value added that I will get out of it because I'm not a trader, I'm an investor. And yes, it takes me time to read those annual and quarterly report. It takes me time to go into the conf Colt, but those are brand that I like that I follow for many, many, many, many years. So I get a sense of how the company is being managed by the board of directors and the CFO and the CEOs. So and that's good enough for me. And you see that? And again, can only repeat them in Abyei learning this from Warren Buffett listening to his podcast and Charlie Munger browse early reading the books from Benjamin Graham and also from Peter Lynch for example. You don't need three PhDs to be good investor. It's common sense, but you need to do your homework and this, there will be nobody who's gonna do the homework for you to some extent. But you have sides that are already kind of compile some information that is interesting for you as an investor before you decide to buy a company that they can help. And this is actually what I'm also telling my friend is use those sites, look into them, are people saying about the company? What I rating agencies saying about the company? What are the financial ratios about the company, whereas the depth to solvency, debt to equity ratio, what is the return on invested capital? But again, it's not part of the course here. If you really want to become a value investor, I, with all due respect, I'm not saying here you might cause, but that's why I've created this value investing course, which is a longer cause of eight hours. This causes just to give you information so that you understand better how the stock market works. But I'm showing also already here the tools that I'm using to look at the stock market and companies without wrapping up this lecture and the next one, we're going to practice vocabulary and how to place an order for a share of four shares of a real company. So that's talk to you in the next lecture. Thank you. 15. My first order: Right, investors were comeback. Last lecture of Chapter number four before the conclusion, wrapping up this whole training, it's I wanted you to see what a first order looks like. And you know, I have been also teaching value investing to some of my very close friends. And I told them, don't play around with virtual portfolios. Put your Holly earns money into real investments. And I'm not telling you to put 100% of your savings into real investments starts with small amounts. I mean, I have been telling this to my close friends are told them start maybe with 234 thousands and buy some shares of this company. So that what I want you to feel the pressure of pushing on that button to saying I'm going to buy now this company and I don't know what it will be in one to three years, we are going to buy this company because I can tell that it's a different level of pressure. When is your own money and you're buying and you're transferring your savings two into real company and becoming an owner. I mean, you own a part of the equity of the company. So, so here in this last lecture or second lecture of Chapter number four. In fact, I like you to be able to also show you how to place an order, but also sharing with you some I will not say concerns, but things that you need to be careful about because I saw some people came to say, okay, I'd like to buy this company. But when I go into my broke, I have like 25 financial instruments. I don't know which one I should buy. And this is where I try also to facilitate and make you aware how to buy shares of a company and how to spot what is the right instrument that you are buying because that's the one that you would like to buy. But maybe the listing is as big and I'm showing you here very transparently my real experience. So the first-order, The first thing that you need to understand when you buy financial instruments is that security. So financial instruments they have at international level what we call an ice in numbers. It's an international securities identification number, y. Just to avoid that you think that you're buying one specific instrument and actually buying another one. And that's why they are putting an ID behind every security internationally so that you can see and you can make sure that you're buying the right instrument related to the one that you have selected in the US, you also going to see her off the term Q SIP, which is committee on uniform security and identification purposes. So in the US securities very often don't carry an ice cinema, but they're going to carry a QC. That number is like that. And then also I saw that some of my friends, they will I confused when they were because you remember we were discussing when we were discussing the arbitrage invest, investment strategy, which is some companies make or they are listed on three stock markets. So imagine, I don't know, let's say Coca Cola is listed on the New York Stock Exchange, on the Frankfurt, Frankfurt Stock Exchange, and on the Tokyo Stock Exchange. So you're buying, potentially you're buying the same, or eventually a buying the same company, but on different stock exchanges. And what Coca-Cola has only one type of preferred share. What happens sometimes, and I'm seeing this the other way around. International companies that want to be listed on the US stock exchange. And they may, by what we call American Depositary Receipts. So it's in fact it's a security there is negotiate, negotiable and represents the equivalent of an instrument for that specific company. But the company is not a US company. And sometimes you can have the situation I held it for example, for Telefonica, telephony has a Spanish company. They are listed on the Europeans stock exchanges. I think there are in Madrid most, if I'm not mistaken. But I've bought Telefonica in the US and I bought a Telefonica ADR. So an American Depositary Receipts. What did I do that? Because at that time there was between the euro and the US. There were some, let's say, conversation on the currency and I decided that I wanted, and I prefer it because also the texts exposure is less in the US than in Europe. And I said I just gonna by Telefonica in us and I will get my dividends in US dollars. It was just a decision that I took. So the concrete example we're gonna do here is for BMW. Bmw. When you look on their, on their site, on the investor relations site, you can see, and I've put the screenshots. That's in facts. Bmw, they are three shares that you can buy from BMW. You know this car brands. And you have the ordinary shares, and the ordinary shares have a certain price and you see that they have a specific IC number. That's the D0 for Deutsch and as for Germany, and that finishes with triple 03, but they have also the preferred to remember preferred chest don't, very often don't have them carry voting rights, but the people who own prefer just get a premium in terms of dividends and the ordinary shares. It's the other way around, is they carry voting rights, but then probably the dividend yield is lower. So the difference between the ordinary Shen, the preferred here you can see through their, through their respective IC numbers. So the ordinary share stops with triple 03 and the preferred jazz stops with double 037. So you can see that if you would buy, if you would like to buy preferred Chen is what we're gonna do, you need to make sure that you are picking the one where the number, the ice and number ends with 0-0, 37. And on the investor side of BMW, they also say that, well guys, if you are US citizens, US companies, you can also buy directly on the US market's an ADR Shen American Depositary Receipts. And remember, who's the, who's the bank? Who is? I think it's the Bank of New York, if I'm not mistaken. Yeah, it's the Bank of New York. And you see that the ADR shadows not carrying IC number but a QCIF number. And here now you need to be careful in the sense that because if you just look at the price, you're going to say yeah, but hold on. The BMW share is with 48. And here the idea is worth like I don't know what it was, let's say 18. How are we speaking about the same company? And if you don't read your, you are not, you're not doing your homework. In fact, the ADR Xia Bank of New York said that one ordinary share, and this is, so they are selling. The idea is just an ordinary shy. You cannot buy preferred shares in the US directly because there is no ADR preferred shares. It's just an idea, ordinary share that. One ordinary shared BMW is three ADRs. So obviously, the price of an ADR is a third of an ordinary share if you do the conversion year versus US dollars. So obviously you need to spot when you decide, for example, to buy BMW. What can we, what do I want to buy here? Do I want to buy an ordinary share in Europe, preferred in Europe? Or if I'm a US citizen or maybe unlike to buy BMW in the US or but it's just the ordinary share. It's not a preferred child I'm buying here, so we need to be careful about that. It may feel like a detail, but you may end up in getting some rights. Are not getting some rights because you're just, just both wrong instrument, the wrong security. So just be careful and be aware of that. That's why I'm doing this for you guys. And on the BMW, We are still in step one, which is targeting the right instrument and targeting the right market. As BMW is a cooperates, it's a corporation. They also, like many big corporations, they also raise money through dept, so through corporate bonds, through corporate obligations, agronomics was one of the instruments called a fixed income instrument that we were discussing. And you can see on the investor relations site to heavy huge amounts of bonds in Euros, but also in other currencies. So again, when you are buying BMW, you need to know and to determine what am I buying, am I buying the right thing or I just messed it up and I thought I was buying a share and I bought a bond. You need to be careful with that. So here what we will do, and those are screenshots, real screenshots from my broker. And with the exercise I'm working you you hear through. Now we're on step number two. So the intention that we have is we would like to buy preferred shares of BMW. It's an arbitration. Doesn't matter why the reason for this. Just take this as an, as, as given example. And we want to buy those preferred shares. So the preferred shares have the IST number, the e 00051 nineties there were 37. Do not mix it up with the ordinary share or with an ADR share or with bonds. And, and you can see that when I select BMW on my broker, that indeed I have the BMW preferred share that appears. And you can see that in the red frame and the bottom one, I do see those 0037. I see number. So I know that if I select that one, that's the preferred Chad one, then what I do, so I click, this is an example of one broker. I click on it and then it says, so I can again reconfirm, I can see that I'm buying a share that is exchange traded on exceed SRA, which is in Frankfurt. And again, I have again the confirmation of the ISO number. And I see that the latest share price is 4878 Euros. And so that's when I've clicked on the preferred share. I again gets a little bit more information on latest price and the i sin. And again, I need to just double-check. Yucky, that's the one I want to buy. Oh no, sorry, I just clicked on the wrong one, so be careful about that. And then I mean, on my broker, I need to select my portfolio accounts and the account that will be debited so that the broker will remove the money from. And you see that I have portfolios called 36 square capital portfolio where I keep all my my companies. And then I have my one of my accounts. I think this one was the German was the US dollar Euro accounts because I have two accounts, one in US, $1.1 in euros. So that's the one where the money will be removed. Then something there isn't potent of his unit to determine how many shares you want to buy. So here in this operation, I bought 100 shares of BMW in this example. That's pretty easy, pretty straightforward. Just be aware of how many shares you are buying. And then this one is important. When in the, I mean, even as a beginner on the stock market when you're going to purchase your first Assets. And here we are speaking about shares, preferred shares of BMW. There is a terminology that you need to understand them extensively discussing these now in this next slide is the types of orders that you can put on your to your broker as a buyer. So we have, I mean, very often what I do is I put autos to the markets. This is the third type of order is the most easy one, is just, I know what the price is during the day and you remember I didn't care about minute fluctuations. I don't care about 15-minute fluctuations. If the market is stable, I, it's, I mean, I will have a margin of safety of a couple of percent, but very often I place market orders where I say, well, the price is so low, so cheap that it's just, just by me, this amount of shares. So it's a market order is an order that you are tanning. You're broke up to buy or sell immediately independent of the price, there is no guarantee on the execution price of the purchase or the sale of the security that you are buying. Anomaly market, although we'll typically execute very close to the current bit that you saw in the previous screen was at 44.78. And, but remember that it's not because the last traded price is appearing at 4478, that maybe the price will not go up. They will take my broker, maybe, I don't know an hour to execute that price. So I must say with my broker, I can't afford to do that because very often it takes less than five minutes to have the order executed. So I know that the fluctuations in five minutes are really small and I can live with that other people. And I'm also using the limit orders. So the limit order is an order to buy or to sell a security at a specific price. When I'm buying and I'm doing a buy limit order. It's very simple. I am just telling my Broca listen. The share of BMW as yet, 4478. I'm not allowing you to buy if the price goes above 45, for example. So you can buy whatever you want, but the price has to be below 45. It's kind of a protection mechanism in case something would happen and the price would shoot up, that's you don't pay them too much. And you can do the same when you're selling a salad limit order. If you are owning shares of that, you have bought a BMW and for whatever reason you decide to sell those shares, you can say to your broker, Listen, I have those shares. I don't want you to sell those shares to a buyer below, let's say 44 dot €5. So you can process counted the shepherds at 44.78, but you can't go down until 44, 0.5c. I'm giving you some flexibility in terms of negotiation, but not below 44 No.5 and 40 folate five is a value that I picked as a seller of my shares. And those are the ones that I use. Most people who do stop orders, and typically those are used for stop loss orders. Is that when a price has been reached, for example, when you own some, some shares, for example, let's say that you have bought a BMW at 60 and you see that the price is going down, going down, going down and you say, OK, if the price crosses 55, sell everything. This is typically something that some traders do. I'm not doing this as an investor. Why? Because I calculate my intrinsic value and if I decide to buy BMW at 45, it's because probably the intrinsic value of BMW is at 60. So I don't care if the market goes down and the market gets depressed, as long as the fundamentals of BMW have not changed, I will not sell that company because I, I count on the fact that I've bought cheap because market was super depressed and emotional. And I'm going to buy surrender ceremony time. Maybe it would take 2345 years. The market will reflect the financial fundamentals of the company. And the markets will, at a certain time give me 6065, maybe 70 on BMW. This is just assumptions. I have a friend houseboat, BMW. I don't own BMW and my portfolio, but a friend has bought BMW. And I think he he bought a BMW at 37 and the price went up to 60. The ordinary share here was picking out the preferred share, but the ordinary share was bought at 37 and the price was 65. Because he did his homework, he look into what is the intrinsic value of the company, but just be aware before you place an order, what are the consequences of selecting a limit order, stock market order? And please reread this. And again, I need to practice this for me today when I decide to buy something. In most cases I do a buy limit or the market order. This is really too that I'm using. And when I'm selling, I mostly use a market order for selling. Or I use a sell limit order if I really put like the minimum price that I want the my shares to be sold in kinda decides to sell, which doesn't happen very often to be honest and sum. So here I mean India example. As I told you, you would have, if you are an investor, you would probably either put a market order if the prize is sufficiently low, below the intrinsic value or you will put a limit order to save the price here the prize was at 44 dot in this graph. And you would put a limit order by limit order to say, you can go up Broca until 40-45, but above 44, 0.5c, you don't buy, please. So I'm giving you some flexibility as customer, as buyer to you being my Broca, but you will not I will not allow you to buy above 44 0.5c for whatever reason that's an arbitration, a choice that you just did. Traders and speculators, they will probably do a buy stop at 48. Because then in this sense, as the specific speculators, they look at technical graphs. So they see if this is the trends of the graph going up. They're going to say if this and they're looking at the graph maybe at 40, and they say if the graph is going up to 48, this probably will mean that the curve, we continued to grow to 50-60, et cetera. So they put a buy stop order to say Broca, if the share price of BMW reaches 48, then you buy. This is a buy stop order. May seem, may feel a little bit complex. But that's again, not for investors, that for speculators because they look at technical grounds and they try to predict, depending on the graph, how the movement of the share price will go. That's not something I do. I'd look at the financial fundamentals of the company. And obviously, when you're buying assets, I will show you my broker screens. That was real screens from my Broca. But you may have other I mean, if you're looking at TD Ameritrade, I mean, everybody has it's screens. But the terminology you gonna see, for example, stop limits, market orders, those terminologies, they will always come back because those are general and generic principles that you can use all the time. But again, remember that the ergonomics of one broke completely different compared to another broker. So you just need to become familiar. If you're picking one Broca that you get familiar with, how you should place an order, that's fine. I'm showing you here other screens, but the vocabulary and the principles remain the same so that we are going to the conclusion. And thanks for having tuned into chapter number four. And hope you were listening to my last lecture that is ranked the conclusion. Thank you very much. 16. Conclusion: Alright investors final lecture. We have achieved the end of this training stock market for beginners. And I want a nonetheless to take the opportunity to conclude properly and to share some thoughts with you. The, so maybe just summarizing what we went through this training and I hope that you found it useful and valuable that you have hopefully learn something out of it. Maybe some terms were already known to you. Other ones potentially have been, were new in fact. So when we discuss the stock market, what's the purpose of the stock market? So from people who have ideas but no money to, and taking the money from people who have the money and but don't have ideas. Understanding the main indices of the market like the Dow Jones or the S&P 500s. And I tried, hopefully it was clear for you to build up who are the market participants to bias the sellers, the intermediates, the information providers, but also how trust safety transparency is built up in those markets by regulatory authorities or oversight authorities. And he worked for speaking for a little bit deeper on the Securities and Exchange Commission. Then again, it has to remain stuck mode for beginners training. I didn't go too much into the details in the financial instruments, but I tried to elaborate what are the typical financial instruments and always keep in mind this risk versus return. A risk versus reward scheme. Where the higher the risk you take, the higher, the higher the return potential, but at the same time, the higher the risks as well. So you potentially going to lose all your money. And this is where we were discussing cash instruments like a bank savings account than fixed income ones like corporate and government obligations, equities and then some kind of derivatives. Where you remember I told you I'm not saying that derivatives offer speculators because some businesses, it absolutely makes sense that the US derivatives are protecting their profits and their margins. And in the Tools I tried to be as transparent as possible on the truth that I'm using. And those tools are all tools for free. With one exception, there was a where I have decided to purchase a premium, a monthly subscription because they give me access to a bit more information that I need when I do my analysis from time to time every quarter. And then I hope that I was able to shed some lights and give you some insights and raise the awareness about how to place a first order. What are the things that you need to be careful about? So spotting and let's say targeting the right security that you want to buy and not to mess it up cause you thought you bought one type of security and actually you didn't care about the ISO number, the QC of Naaman And just bought the wrong one. So that's the kind of, let's say failure as a beginner that I do want you to have and I hope it was useful to show you a first-order. Example. So having, having said that, you, I mean, and again, I'm not telling you to go into those courses, but obviously, this is just an intro course into the stock market. And if you really want to become a value investor or even a dividend vast, I have two courses and you see here the table of contents, where this is the table of contents of the value investing cause this is currently a nearly eight hours course where I really go deep into how to become a value investor. And then I have dividend course because there are people who don't want to be value investors and, but they want to understand and earn money. Passive income get passive revenue streams through by companies who pay out dividends. But you need to know some attributes and you need to do some sanity checks. And not every dividend-paying company will pay out dividends for the next 30 years and even grow that dividend yields. So this is, I think it's a five-hour training or for our 46 minutes training. Where I'm really going deep into how to become a dividend investor, which is a subset in fact of a value investor. And so you have them on the Udemy and skill share platforms. So feel free to go there. And if you're going there, I'm obviously, I hope that you will also learn a lot out of it. And with that, as I'm always saying, and I have to put this disclaimer because money is a serious matter. And I'm trying really to be as transparent as possible with you that you become a good investor and fluent investor. But as I'm always saying, investing is like becoming a professional sports athlete. It needs practice. And if you think that you're going to earn a lot of money very fast, I can guarantee you this will not happen without taking huge risks. It may pay off. But I have seen people losing their shirts. And that actually came to me to say, I have another being a trader speculator. You can, you, can, you can you teach me value investing because I'm gonna assume that there are other ways of soundly and seriously investing into the stock market. And this is all about, I'm trying really to share my culture, my attributes, my values on how to become a serious investor. And as always, I mean, you have my contact information, do not hesitate to come back to me or use in the Udemy or the skill shall platform. You can use forums. You can post public Q&A questions that I will answer. And yeah, and I hope that that's that you hopefully learn something that maybe the stock market is now little, a little bit more clearer to you as it was before. And most importantly, I really like to thank you for taking the time of having selected my training and having taking the time to go with me through this training and do not hesitate to provide feedback, and I hope it was variable. So that's thank you very much and maybe hopefully see you in one or the other trainings that are available where we go deeper into investment practices and principles. Thank you and hopefully talk to you very soon. Thanks. Bye-bye.