plzfday's notes

What is InflationHow and why does the government inflate the currencyWHY?A moderate amount of inflation protects the country from deep recessions / depressionsIt serves as an indirect form of taxationHOW?The FED increases the money supplyReserve ratio. 1/Reserve ratio = multiplier to the base moneyHow does inflation affect bonds and stocksBondActual Bond Yield = Bond Value - Inflation RateTIPS =..

Risk Vs RewardRisk: You'll loose all or some of your moneyReward: You'll make a lot of money that you didn't have to work forWhat is the baseline value for risk and reward10 year, U.S. Federal Note is the baseline investment value. This is our benchmark and it changes everyday.What causes financial risks in a businessExcessive DebtCompanies incur debt because they want to speed up timeThey can o..

10. Stock Market Crashes and Market BubblesUnderstand Fear and Greed CyclesWarren Buffett's opinion on Market PsychologyAccumulating Shares versus Trading Shares11. What is the FEDWhat is the FED?What is the mission of the FED?Maximize employment and stabilize pricesSupervise and regulate banksMaintain the stability of the Financial systemService debts for the US. Federal GovernmentHow does the ..

What is a stock market?How does the stock market work?Sellers > Buyers: Buyers MarketSellers What is a limit and stop order?Market order is an order that doesn't care about the price but buy/sell shares.Stop order: Transaction happens once, so the price you set is not the same if you sell them to more than one buyers. For example, selling 100 shares, you could sell it at $65 for the first 10 sha..

Simple InterestSimple interest = # of coupons * coupon payment$1,500 = 60 * $25Coupon yield is set when a bond is issued. It is the annual coupon divided by the par value.Coupon Yield = 1 year coupon payments / Par Value5% = $50 / $1,000Compound InterestCompound interest is a return when you keep reinvesting the coupon every time you the money.Current YieldCurrent Yield is the annual coupon divi..

What is Par ValuePar value, also known as face value or nominal value, is the amount printed on the bond certificate. It represents the principal amount that will be paid to the bondholder at maturity.What is a CouponA coupon is the annual interest rate paid on a bond, expressed as a percentage of the bond's par value. The term comes from the physical coupons that bondholders once had to redeem ..

What is a Bond?Nothing more than a loan.Who uses bonds?Corporation, GovernmentBond RisksCompany or Government FailureInterest Rates ChangeInflationProvided corporate liquidations/failure, the order of equity distribution:Bond holdersPreferred share holdersCommon share holdersWhy is bond investing lucrativeBefore market crashed in around 2008, 30 year federal bond rate had been 5.00% and DJI's av..

Warren Buffett's 4 rules for buying stocksA stock must be stable and understandableA stock must have long term prospectsA stock must be managed by vigilant leadersA stock must be undervaluedA Warren Buffett valuation techniqueMarket Price: $10Earnings: $2 (Potential returns)Book Value: $.70 (Margin of safety)P/E = $10/$2 = 5Returns = 20%P/BV = $10/$0.70 = 14.3Every 14.3 dollars paid for this com..

What is a share?A portion of the whole business divided into a certain amount of pieces.What is Shares Outstanding?The number of pieces that the company has divided up into.Comparing terminology between a whole business and 1 shareWhole BusinessMarket Price: $100,000Income Statement: Net Income of $20,000Balance Sheet: Equity of $7,000Cash Flow Statement: Taught in course 21 ShareShares outstand..

Understand the importance of a balance sheetIncome Statement, used to find the company profit, details out the net income or earnings.On the other hand, we can use the balance sheet to determine the margin of safety that you'd get if you were to purchase the business.To understand the concept of balance sheet, ask this question: what would happen if the business would liquidate right now?How to ..