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Hey guys and this module we're going to be talking about something super simple.
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What's a stock?
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Now a stock is basically just a security that signifies ownership in a corporation.
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So basically by having stocks in a company you have claim on that company's assets and earnings so basically
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their buildings, their equipment and all the money they make part of it is yours because you're partial-
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owner of that company.
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So by having stocks and a company or shares these are synonymous words stocks and shares it's the same
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thing.
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So if you have shares in a company you're basically part owner of that company and you have a claim on their
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assets and earnings.
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Now why would a corporation issue shares or stock?
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And why would somebody want to buy stocks in a corporation?
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Well very simple.
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So imagine this: Imagine you're an entrepreneur you like electronics and let's say you sell drones OK
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you're making and selling drones and you're selling drones to your family relatives and
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in your community and you're making good money doing that.
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Now you think drones are going to be a big thing in the future.
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So you want to go global or even nationwide right.
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So you want to sell way more across across the globe.
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So what do you do you need to open more stores right.
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How would you do that.
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You need capital.
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Now let me get on my white board here.
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So imagine this imagine right now this year you're able to make $100,000 by selling drones in your community.
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Right? Now you're 100 percent owner of your company.
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This is your company and let's say we're going to call it DRN for drone.
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So you're 100 percent owner of this company which makes a hundred thousand dollars.
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Now you want to go nation wide open stores everywhere.
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Let's say you want to open five stores and each store that you're going to open is going to cost you
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about a million dollars.
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OK.
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So it's super expensive having done stores.
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Again this is just an example.
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Numbers don't need to make sense.
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So where are you going to get five million dollars you can't collect five million dollars by making
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a hundred thousand dollars a year is going to take you wait too long.
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So you need investors to give you that money.
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Right.
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So what you're going to do is you're going to sell shares sell stock in your company.
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For them to give you the cash that you require.
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So if you require $5 million in total to open these stores you're going to tell investors look I'll give
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you part of my company I'll give you shares in my company and let's say you give them 50%.
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So maybe you're going to give them 50% of your company.
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So they give you five million dollars for you to open all those doors and buy you having all those stores
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you're going to be able to make way more money.
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OK so let's say with five stores you can make $2,000,000 every single year.
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OK.
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So even though you're you only own 50% of your company right now that 50% is worth way
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much more because you make more money now.
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So that 50% is going to make, you're still going to make a million dollars every year
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in comparison to only $100,000 every year.
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So even though you have less shares in your company you're able to make way more money because your
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company is way bigger right?
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So this pie here is way bigger then this pie.
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So it's actually a very good idea to sell shares in your company when you want to grow your company
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and you need the capital.
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If you don't want to grow organically because that might take too long.
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Right.
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So why would a corporation issues talk because they want to grow.
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They need the capital to expand and they're willing to sell part of their company to you to get that
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capital.
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Now why would an investor want to buy shares in a company again very easily to participate in the growth
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of that company because that person who's investing will own part of the company so they'll participate
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in the growth of the company and make money through their earnings and their growth.
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But without even putting in work just by owning the shares right so somebody else is going to be doing
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the work and they're going to be collecting money now for traders.
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What we want to do is we want to look for mispricing in the price of the stock because again when buyer
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sell a stock that has a price.
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If we can evaluate at what point that price is too high or too low and we find that mispricing we can
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take advantage of it and profit off that mispricing.
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So this is really why you would want to companies issue shares and why the investors or traders would
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want to buy shares in a company.
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Now, How can you buy a stock?
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What do you do to buy a stock?
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Now there's two ways to buy a stock and it depends if a stock is private or if the company that you're
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buying is public.
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Now how and where can you buy stock?
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Well it depends if you want to buy stocks in a private company or should buy stocks in a public company.
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Now what's private and what's a public company a private company is basically a company that has a relatively
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small amount of owners and that doesn't trade on a public exchange. A public company is a big company
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that trades on one of the public exchanges.
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So when we're talking about Apple, Amazon, Netflix, all these big companies, Facebook, they're public companies.
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Now before they were public companies they were private companies they were smaller companies at one point
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that didn't trade on an exchange.
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OK.
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So in the same example that we're talking about where you if you wanted to open a drone company.
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Initially it would be a private company.
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Right.
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You would have a few investors and that's it, it wouldn't be public.
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Then there's a process for a private company to go public which we'll cover it in a later model.
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But this is what you need to know about that for now.
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So you can't just walk down the street and see a restaurant that somebody opens and invest
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in it.
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Right.
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Because any restaurant that's a that's a private company if somebody has a store it's their private
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company.
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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
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company.
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You got to know the owner.
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You got to be either a friend or relative of the owner or somebody who works there or you've got
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to be a qualified investor so you've got to have a lot of cash, you've got to be
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rich.
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And that's the only way that you're allowed to invest in a private company.
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So it's not easy to invest in private companies.
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And because of that it's not easy for private companies to get funded to get funds when they need
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because they've got to know somebody who's going to be able to give them the funds or they get to know
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some people who have a lot of money.
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Now public companies on the other hand anybody can invest in them.
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It doesn't matter how much you have money you have.
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You don't need to know the owner.
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You don't need to know anybody at the company.
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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.
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So there's a very big difference in private companies and public companies when we're talking about
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buying and selling stocks.
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We're only talking about public companies because these are the only shares and stock that we can buy
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and that's the only stocks that trade on exchanges. Private companies don't trade on exchanges.
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And again if you don't invest in a private company you got to know the owners or somebody who works
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there or you've got to be a qualified investor. Qualified investor means that you make....
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.. it depends on each state and each country is different.
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But let's say for example in Canada you've got to be making more than I think either
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between two hundred or four hundred thousand dollars every year for the past three years and you've
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got to have more than two million dollars worth of assets under your name.
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So you've got to be rich enough that you're financially savvy to be able to understand how private
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companies work. Again,
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so private companies are very hard to buy shares in.
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But public company.
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Extremely easy.
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And that's what we're going to be looking at in this course.
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