lemonade stand for going to business together we start a company where to start a lemonade stand and now I don't have any money today so I don't have to raise money for investors to launch the business time I going to do that long a former corporation filing that you make with state income of the name your business Billings lemonade stand for money to get started so we can start our business with a thousand shares of stock we just made up that number and we sell 500 shares more for dollar reached when a pastor at 5 in the morning to put up at the name any idea where and have a thousand ships have 500 shares he's going to win a third of the business for his $500 so what's a business worth of the start was worth $1,500 and $500 in the bank 2009 need a little more than $5 in my going to do on a borrow some money could buy a friend and he's going to lend me $250 and 10% interest a year without love we borrow money instead of selling your stock will my borrowing money we keep more the stock price else if the business is successful we're going to end up with a bigger percentage of the profits of ballon ballon she tells you where the company stands for your assets are when your wife leaves you are and what's your net worth or shareholders equity is you take your assets in this case we pray five hundred dollars in exchange for the $500 the person who put up the money he got a third of the business is owned by cost for starting a company as a thousand dollars a good will of the business I would borrow $250 for a 2003 Dodge has a liability we got $500 in cash and $200 for raising dad and we owe to the dollar loan and have a corporation that has and you'll see on the chart shareholders equity of $1,500 so that's our starting point now let's keep moving what we need to do to start a company with a lemonade stand to cost about $300 that's called a fixed asset unlike a limb suffix with suction tube out of business is going to do overtime where is somewhere to sell 800 couple of the year when a sim to each cup we can sell for $8 and it's going to cost about $503 per year to staff are lemonade stand income state income statement talks about the possibility of the revenues of the business generated what expenses are and what's left over for the owner of the company so we got one lemonade stand for selling 800 cups of lemonade understand charging a dollar is worth about $800 a year in revenue or spending $200 in inventory there's a lot of hair called cause at Stanford cost of goods sold we have depreciation because our lights down gets a bit beat up over time it wears out over 5 years to depreciate over 5 years ago our labor expense 24 people to eliminating collect cash from customers with a profit with it that's burning before interest and taxes of $10 it's kind of our pretax profit for the business we make very much money could you take that pre-tax profit of $10 compared to AR reviews it's about a 1.3% marking that's not a tickly high profit interest on our debts with a loss of $15 and then we don't have any taxes but at the end of the day we still lose money should we continue to invest in a business who lost money in the first year is it time to give up let's think about it let's make some predictions about what the compass going to look like over the next several years and it would take folic acid business generates I'm going to use it to buy more lemonade stand so we can grill Tucson were not going to take any money out of the company let's not going to pay a dividend to keep all the money in a company charge little more each year showing razor price is about a nickel each cup of lemonade and then we can sell fiber send more cops first and pearl heroes who got a built-in growth assumptions take a look at this chart you'll see in your one we start out with one lemonade stand we had 18 year and then we buy your 572 big expansion plan or price per cup goes up a new year and a revenue goes from $800 and starts to grow fairly quickly the growth comes from Chris prices for cups of lemonade and also comes from opening more stands to buy you a thousand dollars a relatively constant lemonade and sugar at 1700 to dollars we have depreciation has needs more more stands start to wear out over time you got lyrics Best Buy your father business after doing pretty well I went from 1.3% margin over a 28% margin businesses now if the scale Western to cover some of arccos growing out still paying $25 a year in interest for a loan we have a rings before taxes after interest of $2,300 by the end of your 5 so we put our bar 250 and buy your fiber making a profit of $2,300 that sounds pretty good don't have to pay taxes to the government says about 35% we generate another word for profits of $1,500 for the fifth year and about a dolar a share if you think about this friend of five hundred dollars to what are the cash flow statement 2 as becomes more more profitable we generate more more cash in a cash builds up company we go from $500 in cash and company to over $2,000 cash on the balance sheet in the starting balance sheet had $1,490 but at the business becomes more profitable profits add to the cash they add to the asset to the company are liabilities have not changed business continues to build value over time again by the end of your 5 week at $4,000 a shareholder equity that's almost three times what it was we started this a good business for about this how do we think about whether it's good or bad one thing two thing about it what kind of earnings are we achieving compared to how much money when is the company about this is a business that we valued at $1,500 we started someone put up $5 for a third of the company you get a 1500 loan value at the end of your 550 over $1,500 in earnings so that's over a hundred percent time on the money to be put into the coming that's actually quite a high number we spent $2,100 in Capitol building lemonade stands and we are in $2,336 in your file on the capital invested over 100% return on capital that's a very attractive turn brings a rapid rate hundred 55% per annum growth company and I'll probably come from 1.3 to tend to 28.6 percent by year five that sounds pretty attractive in this so let's look at personal put up a loan for $50 and the business has been profitable animal to pay them their interest of 10% of 25000 year and are happy because they put up $22 at 10% return on a loan advances worthwhile more than $250 and got more than that in cash as a result there in a sex position for Senator Mike Ellis compare that with the equity investor bought the stock in the company a doller sharing your 5 versus investment of $8 a share so he's running over a hundred percent for about 100% return on his investment versus only 10% people under so who got the better deal now widely acclaimed Esther why do they have the right to earn so much more than the letter answers it's more risk that the business failed the lender will so what's what's the difference between debt and equity debt tends to be a safer investment because you have a senior claims on the assets of a company that comes in lots of different forms of art of mortgage debt on a home that's a secured loan secured by house but you get a mortgage. On a building for a company there senior debt is junior dad this mezzanine that there's convertible debt 11 is all that comes in different orders of priority in a company and the rate you're charged is inversely related to your security better than Siri and less risk the lowest interest rate you're entitled to receive the morning junior the loan received but you don't you can avoid the complexity only need to think about his death comes first the Schaefer alone but your your profit opportunities limited now the equity also the very poor answer something called for decorator preferred stock and common equity or come and talk again stock an equity are basically synonyms their options but everything is left over after the debt paid off so called a residual claim only good thing about the residual claim is a business grows in value you don't own your own your lender's anymore but all that value goes to the stockholder 20 questions why was the lender wants to take on a 10 percent return on equity earned a much higher rate of return the answers when the business started with no way of knowing whether it be successful are non normative bet that if a business failed while they cancel the lemonade stand no cost $200 naked without some lemons and lemonade sold at a much lower price than the dollar they originally drafted risk a lot of people talk about risking stock market Frisco stock prices moving up and down every day we don't think that's the risk that should be focused on the rescue city focused on you invest in a business what are the chances that you can lose your money there's me a permanent loss in your thinking around money into thinking that one another don't worry so much about what the price was up and down along the shore what matters is ultimately you get your money back we weren't turn on urine test how do you think about when one way to think about risks to compare your risk to other alternatives to can buy government bonds government bonds are considered today the lowest risk for investment in the US Treasury issues 10-year three-year 5 your dad is a stated interest rates into a 10-year Treasury run about a 3% return to give your government $2,000 to $30 in 10 years to get your dog back from a war now I'll be seeing you can make a loan you can tell anything you want her and meaningfully more than this case in percent rate of interest white 10% because they want her nice fat spread over what they can make money to the government as a startup lemonade stand business is a higher risk business think about things so far away so the higher the valuation of the risky the business at the higher the rate of return the equity investor is going to expect in the lower the risk business the lower the return the equity investors can expect and don't get interest the same way a lender does would happen investors get if they have the potential to receive dividend of the life of a company I'll talk about crazy cat lady starter this limited business of the point of this was to make money in the first place fitness is very well as a as having started the business bring up with the name in the concept hard all the people I've made nothing the business of growing Valley where's my money I need money to buy a car for $4,000 for my choices what can I do well with taking all the cash the businesses generated we're even if it's not the good news is taking all that money we've been able to use it to buy more lemonade Cincinnati when it stands are more more productive in front of the wrong side of the business so quickly instead of investing more lemonade stands I could simply paid dividends to myself along the way girls quickly they have a business is profitable is lemonade stand company and you can earn $200.06 to keep investing why do I keep my business going in growing taking advantage of the opportunities but take some money off the table how do I do that now I started this one in New York maybe there so many new jerseys can one find me consolidate my limits and company opportunity going forward I believe in this business so I think it's going to be very successful overtime so that's one alternative other than song about a personal businesses to sell a piece of the business no I can't do that privately I can find an investor wants to buy private interests in the company of Business and Professional Regulation stands for initial public offering and its initial cause it's the first time a company going public means you're selling stock to the broad general public as opposed to finding one investor buy an interesting thing as an offering cuz you're offering people the opportunity to participate with interesting as it doesn't make someone rich culturally does it takes a business if they are neon and sells a piece with the public and gets listed on exchange when you decided to take a business public even have to be a lot of information to the public in order to attract investors to participate in the Securities and Exchange Commission they're going to study this perspective spray carefully and make sure that you disclose all the various risks so he was investing in a company have an opportunity to talk about the business that's kind of exciting time when you sell shares to the public that in most cases the way to get off of Lehigh Preiss company but you don't have to sell hundreds in fact typically only sell small penish you get to keep the rest to get to keep control of the company on epic we decide to go public reason to celebrate all pretty good idea to figure out what a business is worth what talk about valuation or how to value a business one with a thing about the business is to compare to other similar businesses at the stock market is actually pretty interesting place to look up the stock market is up a list of companies that have sold shares to the public and you can look in the New York Times The Wall Street Journal online on Yahoo Finance or Google or other sites and look at stock price of coke from McDonalds and little stock prices tell you it's what the value of a company is and how do you get the value of the company we look up with the stock prices count how many shares are outstanding shares outstanding will be listed in various filings with the SEC you multiply the shares outstanding time that tells the price you're paying for the equity the company we go back to our example of our little the lemonade stand we have 1500 shares of stock outstanding we sold them for a dollar initially I 130 them to a doctor of value of $1,500 today tell one way to look at a company that sold price of 10 times earnings attendance problems that would be a sense of value stand companies trading at 20 times are in the stock market but we are in the dark for sharing your 521 that dollar the business is worth according to the constable about $20 per share with a 1500 shares outstanding 1529 our business is worth $30,000 to 1500 5 years later it's worth $3,000 that's quite good will how do we raise $4,000 if that's the appropriate value for a business while he sold 200 shares to an undersheriff that are today now worth $20 a share. We could raise the $4,000 that we're talking about what what would that do what would happen if we sold 200 shares market will our interests and business would go down right today we on 66 and two thirds percent or two thirds of a company a 30 zone bar private investors will be sold stock in the market for 267 percent of 53% good news there is meat still have control of the business schools in most public company owning a majority allows you to control the business going forward but because the company owned by public shareholders have to make sure they're interested probably represents you have to have a Ford Raptor group of individuals who represent the entry how does it matter to you know the purpose of the example of a lemonade stand assist going to give you a primer on what companies are what they do how they earn profits with the various reports that provide investors who invest can figure out what they're worth and the purpose of this lectures to get a sense of something to think about when you're thinking about you wanted us to the lemonade stand what you want company on the market what's shown 22 you got a pretty good job instead of spending your money on in the gadgets or fancy apartment or not so fancy apartment going out and drinking from it but some money aside investing money let's say you could save $10,000 a 22 and you can earn a 10 person returning that money between now that I'm retired what you have in 42 years answer to put aside $10,000 you don't save another penny invested in your percent of your money each year you have six hundred thousand dollars in your. With reason for that is well on your 1 year $10,000 with c** 11 year 2000 dogwood grow by 10% and earning interest not just on your original principle but you turn interest-only interested during the previous year and that compounding effect lost money to grow and exponential fashion Nova sleeper more than 10% you can earn even higher returns no that's it just put $10,000 - $22,000 in 43 years has pretty good what if you have to wait until you are 32 there is when your 33 only have $232,000 maybe that's not enough to retire so here is there going to be an investor really when was the last if you have today as soon as 18 or 19 years old and want to start early so your money can grow over time temperature out of business music going back to the cocoa example Coca Cola has such a strong market presence in people come to expect when they go to a restaurant they can ask for Coke and get a coke very hard for someone else to break in the first Pepsi or other soda brands of patches been around a long time Coca Cola Pepsi and continue to exist side-by-side over long periods of time thinking about choosing a company make sure that they sell a product or a service card for someone else to make a better when the fuel switch to tomorrow you want someone that are not chemically sensitive to outside factors so-called extrinsic factors that you can't control so hood business will get the dramatically if the price of a commodity goes up interest rates moving down or if currency prices change you if you want to come early and noon just going on in the world and I use my Coca Cola example it mean to take a Coca Cola product scanner on probably a hundred twenty years over that period time there been multiple World War Z filming of nuclear weapons all kinds of Unfortunate Events and tragedies and so on and so forth with each other company pretty much makes more money than before next to nothing to do you can be confident based on the history of this is a business it's going to be around almost regardless of what interest rates are 14% when the US dollar is not wearing much of the price of gold up or down in the long-term businesses that are extremely amusing to the events that are going on in the world and other criteria for a lemonade stand company as we grow we had to buy more more lemonade stands alone as insulin cost $300 each. Imagine a business where every time you grew how to build a new factory to produce more more product inspectors were really expensive generate a lot of caffeine this is 40 S&W or more cash into the abyss the best businesses are the ones where does it say don't require a lot of capital to be reinvented the company General lots of cash that you can use to pay dividends to shareholders where you can I return the tractor projects I guess the last point it would make the investing public companies to invest in businesses that are not controlled companies kinda like a lemonade stand public company unless the controlling shareholders how many completely trust someone that has a track record for taking care of so-called minority investors and non controlling shareholders proposition to investment business because you're at the whim of the controlling shareholder even the controlling shareholder today there's no insurance in the future in my self control to someone else is not going to be as supportive of the shareholders the business of thought that you just cannot simply have a profitable business in a business that has done well you have to make sure that the management and the people that control the business think about you as an owner in a can protect your interests of these are some of the key criteria to think about when you're ready to start investing like it says your student loans on credit card debt you can graduate and get a job and start investing in stock market place to invest when you cut your money you can put away and you won't need for 5 years maybe 10 years so if you're paying relatively high interest rates on your credit cards he doesn't want to pay off your credit cards first before you think of it's actually going up every day or next new season 1 of my sew in bubbles you probably should be a seller in boss sushi Raleigh be a buyer have to have that kind of a discipline you have to have a stomach to withstand the vault into the storm vol. 2 in stock market is to be secure yourself you gotta feel comfortable that you got enough money in the bank that you don't need when you have invested in let's live for many years as a key factor to recognize that the stock in the short-term is what we call a voting machine can really represents the winds of people and short term stock prices are affected by many things live events going on in the world if we have nothing to do with value of certain companies that accept the fact that what you want to go down many things all you have to buy if it doesn't mean you made a mistake just the nature of the volatility of a stock market how to get comfortable don't just buy stock was like the name of the company do your own research get a good understanding the business to make sure it's a business that you understand make sure the price for paying a weasel relative to the earnings of a company for you I don't want to invest buy individual stocks it just seems too risky about the time to do my research what are alternatives to turn this or that outsource you are investing to others you can hire money manager or you can hire a group of my mattress there a couple of different alternatives for a startup investor most common alternative mutual fund company so what's a fun mutual fund is a I guess technically it's a corporation but we buy stock in this corporation in the end the manager selective portfolio of stocks what they do they pull together capital money for a large group of investors who say they raise a billion dollars they take that money and invest in a diversified collection securities health benefits approach is that with a tiny amount of money you can even less than $1,000 you can buy into a diversified portfolio managed by a professional men or money manager of any kind to select the one you want someone who has an investment strategy that makes sense. You you understand what they do and how they do it they're not appealing to your insecurities by using complicated words and expressions that you don't understand if they can explain to you in two minutes what they do and how they do it and why it makes sense that it's a strategy you should invest in this is not the end this war is probably should be number one she wants someone with a reputation for an equity for starting out you probably won't invest in some of a mutual fund that sponsor but some of the larger complexes as opposed to Italian little mutual fund this privately owned by an a mutual fund company you've never heard of her some dentists it in the larger institution me more confident that there a Castilian e you want someone an approach with investor invest money on the basis of value in this sounds kind of kind of obvious but no value investing is as a very long term track record and the other other cons of investing including technical investing where people are betting on stocks based on price movements but I highly recommend against kind of roaches see once was making investments with her buying companies based on their belief that the products of the business will be good at the price paid welding with two what the business is worth references significance I just can't crack with water track record then I would take five years is the absolute minimum and ideally want something is caught in 15 20 years experience investing in the market because there's a lot that you can learn the long-term investor in the market has a consistent approach with a haven't changed but they do materially year by year the devastated strategy that they step to thicken then that enabled them to earn an attractive return over their lifetime as an investor in some ways most importantly you want some we started with the limits and company the purpose of that was to give me some the basics on how to fill out of business where the profits come from with revenues are what expenses are with a balance sheet is the income statement is how to think about what a business is worth how to think about what difference in a good business is forces that causes of death I offered his German lower risk but lower return how equity investors are investors who buy the stock the ownership of a business out of detention or more or 4 moves more when you send a text to get some of the vocabulary to think about investing we talked about investing stock market we talked about ways to think about how to select in the fence at a deal with some of the psychological issues of investing recovered a fair amount of ground untitled the lecture everything you need to know if financing investing in less than an hour will it really isn't everything you need to know it's really just an introduction and hopefully I didn't mislead you induce you to watch this for an hour but there's a lot more they can be learned a wonderful book that can teach you on the topic but I think what the first thing about investing why did you choose this as a full-time career or not if you'll be successful in your career you can I make some money and how you invest that money make a big difference in the quality of life that you have any children have it for the tournament that you're going to be able to enjoy it talk about the difference between 10% return at 15 or 20% return over a very long lifetime what impact that happened to welcome create over the period important to you whether you like it or not and learning more about them question is going to have a big impact on your and you are you are calling block money is something that you need in order to meet you know if your goal I got interested probably 2223 started the investor and I read a book read a book called intelligence trailer is written by then gram and Ben was a famous value investor it's kind of like me and John Paul Sartre is exit existentialism we didn and it's either is an opinion affects the way you live your life worth of no interest to you and this was the equivalent of an investing I found it fascinating and so don't worry accessible into someones 22 or 23 what's kept me and trade is that it's one of the few jobs where every day you can study something you learn about new business is the situations new management team issues in Italy challenge end of the world in the stock market are dynamic places so the challenges continue these same concepts with other useful in deciding how to investor portfolio also very helpful to you and thinking about decisions like my home on making decisions in your life work whether to hire additional people in these kinds of calculations and thought prophecies are helpful and learn more thank you for paying attention and wish you well employee productivity imagine what you or your employees could do with spent on your top priority activities it can be achieved since 1990 Fender time using a unique time quarter device time is spent then you can take the right measures to reallocate interesting then all the better the time quarter does just that it's kind of fun with programming number of daily activities into it cost a thing called management meetings travel paperwork 1810 activities in quarter two employees and show them how to use it every time to begin a new activity decisions like buying a home on making decisions in your line of work whether to hire additional people in a list of these kinds of calculations and thought prophecies are helpful or helpful it recommended to learn more thank you for paying attention and I wish you well
No comments:
Post a Comment