Original subtitles

Hey guys and this module we're going to be talking about something super simple.

What's a stock?

Now a stock is basically just a security that signifies ownership in a corporation.

So basically by having stocks in a company you have claim on that company's assets and earnings so basically

their buildings, their equipment and all the money they make part of it is yours because you're partial-

owner of that company.

So by having stocks and a company or shares these are synonymous words stocks and shares it's the same

thing.

So if you have shares in a company you're basically part owner of that company and you have a claim on their

assets and earnings.

Now why would a corporation issue shares or stock?

And why would somebody want to buy stocks in a corporation?

Well very simple.

So imagine this: Imagine you're an entrepreneur you like electronics and let's say you sell drones OK

you're making and selling drones and you're selling drones to your family relatives and

in your community and you're making good money doing that.

Now you think drones are going to be a big thing in the future.

So you want to go global or even nationwide right.

So you want to sell way more across across the globe.

So what do you do you need to open more stores right.

How would you do that.

You need capital.

Now let me get on my white board here.

So imagine this imagine right now this year you're able to make $100,000 by selling drones in your community.

Right? Now you're 100 percent owner of your company.

This is your company and let's say we're going to call it DRN for drone.

So you're 100 percent owner of this company which makes a hundred thousand dollars.

Now you want to go nation wide open stores everywhere.

Let's say you want to open five stores and each store that you're going to open is going to cost you

about a million dollars.

OK.

So it's super expensive having done stores.

Again this is just an example.

Numbers don't need to make sense.

So where are you going to get five million dollars you can't collect five million dollars by making

a hundred thousand dollars a year is going to take you wait too long.

So you need investors to give you that money.

Right.

So what you're going to do is you're going to sell shares sell stock in your company.

For them to give you the cash that you require.

So if you require $5 million in total to open these stores you're going to tell investors look I'll give

you part of my company I'll give you shares in my company and let's say you give them 50%.

So maybe you're going to give them 50% of your company.

So they give you five million dollars for you to open all those doors and buy you having all those stores

you're going to be able to make way more money.

OK so let's say with five stores you can make $2,000,000 every single year.

OK.

So even though you're you only own 50% of your company right now that 50% is worth way

much more because you make more money now.

So that 50% is going to make, you're still going to make a million dollars every year

in comparison to only $100,000 every year.

So even though you have less shares in your company you're able to make way more money because your

company is way bigger right?

So this pie here is way bigger then this pie.

So it's actually a very good idea to sell shares in your company when you want to grow your company

and you need the capital.

If you don't want to grow organically because that might take too long.

Right.

So why would a corporation issues talk because they want to grow.

They need the capital to expand and they're willing to sell part of their company to you to get that

capital.

Now why would an investor want to buy shares in a company again very easily to participate in the growth

of that company because that person who's investing will own part of the company so they'll participate

in the growth of the company and make money through their earnings and their growth.

But without even putting in work just by owning the shares right so somebody else is going to be doing

the work and they're going to be collecting money now for traders.

What we want to do is we want to look for mispricing in the price of the stock because again when buyer

sell a stock that has a price.

If we can evaluate at what point that price is too high or too low and we find that mispricing we can

take advantage of it and profit off that mispricing.

So this is really why you would want to companies issue shares and why the investors or traders would

want to buy shares in a company.

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Now, How can you buy a stock?

What do you do to buy a stock?

Now there's two ways to buy a stock and it depends if a stock is private or if the company that you're

buying is public.

Now how and where can you buy stock?

Well it depends if you want to buy stocks in a private company or should buy stocks in a public company.

Now what's private and what's a public company a private company is basically a company that has a relatively

small amount of owners and that doesn't trade on a public exchange. A public company is a big company

that trades on one of the public exchanges.

So when we're talking about Apple, Amazon, Netflix, all these big companies, Facebook, they're public companies.

Now before they were public companies they were private companies they were smaller companies at one point

that didn't trade on an exchange.

OK.

So in the same example that we're talking about where you if you wanted to open a drone company.

Initially it would be a private company.

Right.

You would have a few investors and that's it, it wouldn't be public.

Then there's a process for a private company to go public which we'll cover it in a later model.

But this is what you need to know about that for now.

So you can't just walk down the street and see a restaurant that somebody opens and invest

in it.

Right.

Because any restaurant that's a that's a private company if somebody has a store it's their private

company.

You can't just walk in and say hey I'm buying shares in that company. To be able to buy shares in a private

company.

You got to know the owner.

You got to be either a friend or relative of the owner or somebody who works there or you've got

to be a qualified investor so you've got to have a lot of cash, you've got to be

rich.

And that's the only way that you're allowed to invest in a private company.

So it's not easy to invest in private companies.

And because of that it's not easy for private companies to get funded to get funds when they need

because they've got to know somebody who's going to be able to give them the funds or they get to know

some people who have a lot of money.

Now public companies on the other hand anybody can invest in them.

It doesn't matter how much you have money you have.

You don't need to know the owner.

You don't need to know anybody at the company.

You can just call your broker call the bank tell them hey I want to buy shares in Facebook and that's it.

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You got your shares.

So there's a very big difference in private companies and public companies when we're talking about

buying and selling stocks.

We're only talking about public companies because these are the only shares and stock that we can buy

and that's the only stocks that trade on exchanges. Private companies don't trade on exchanges.

And again if you don't invest in a private company you got to know the owners or somebody who works

there or you've got to be a qualified investor. Qualified investor means that you make....

.. it depends on each state and each country is different.

But let's say for example in Canada you've got to be making more than I think either

between two hundred or four hundred thousand dollars every year for the past three years and you've

got to have more than two million dollars worth of assets under your name.

So you've got to be rich enough that you're financially savvy to be able to understand how private

companies work. Again,

so private companies are very hard to buy shares in.

But public company.

Extremely easy.

And that's what we're going to be looking at in this course.