plzfday's notes

What is a preferred Share?Risk: Bond Like a Bond: Preferred shares pay dividends instead of couponsLike a Common Stock: A preferred share is a proportional piece of equity in a businessWhat are considerations when buying a preferred share?Read the certificate of designationCumulative Preferred: You'll eventually get your dividend but you might not have the ability to compound a consistent divide..

4th Rule: A stock must be undervaluedHow do we calculate the intrinsic value of a stockIntrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.How do we use the BuffettsBooks.com intrinsic value calculator

3rd Rule: A stock must be stable and understandableWhy is stability important for determining the intrinsic valueBusinesses manage their finances just like individual people! We must find a company that is less risky to predict.Why it's important to invest in a company that you understand

2nd Rule: A stock must have long term prospectsHow do we identify a company with long term prospects?Predicting which company's will be around in 30 years is impossible, but one's that won't be around are easy to predict.Why do we want to invest in a long term company?Sustained EarningsTaxesWhat is Capital Gains Tax?What is the difference between short term gains and long term gains?

1st Rule: A stock must be managed by vigilant leadersDefine Vigilant LeadershipCarefully observant or attentive; on the lookout for possible danger. And the possible danger is the debt.Understand the Debt to Equity RatioWB likes Debt/Equity Understand the Current RatioHow will the company handle debt in the next 12 months?It compares the current assets to the current liabilities.WB likes the cur..

How does the price of a bond change with interest ratesHow to use the BuffettBooks.com Bond Calculator

What is a yield curve?x-axis: Terms (years)y-axis: Yield (%)Generic positive yield curve (natural)Generic flat yield curveGeneric inverse yield curve (very rare)How can I use a yield curve to predict market behavior?Yield curves are a valuable tool that help investors understand how the federal government is trying to steer the economy.Flat and inverse yield curves mean that the FED wants to slo..

What is a credit ratingMoody's, Fitch, S&PEvaluate the ability of municipal or a company to pay backWhat does a rating tell me about riskLooking at the statistics, the risks of not paid back from BBB muni. and AAA company are the sameThink in statistics, yourself.Don't get swung by others

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..