Securities Markets and Market Indexes, Chapter 4

00:40:01
https://www.youtube.com/watch?v=_6_z56u074s

Resumo

TLDRChapter 4 of the lecture discusses the role of securities markets and market indices in the economy. Financial markets facilitate capital movement, allowing firms and governments to access funds. The chapter outlines primary and secondary markets, with primary markets dealing with new security issues (IPOs) and secondary markets focusing on trading existing securities. Investment banks play a crucial role in managing IPOs and advising companies. Major exchanges like NYSE and NASDAQ are examined, detailing their structures and operational differences. Various indices, including the Dow Jones and S&P 500, are explained for their significance in tracking market performance. The chapter concludes with insights into career paths in investment banking and the risks associated with foreign market investments.

Conclusões

  • 💰 Financial markets are essential for economic money flow.
  • 📈 Primary markets handle new securities, while secondary markets trade existing ones.
  • 🏦 Investment banks facilitate IPOs and help companies raise capital.
  • 📊 The S&P 500 offers a broader market representation than the Dow Jones.
  • 🌍 Foreign markets provide diversification but carry unique risks.
  • 💼 CFA certification enhances opportunities in investment banking careers.
  • 🗳️ NYSE operates on a traditional auction basis; NASDAQ functions through electronic trading.
  • 📉 Market indices reflect overall market health and investor sentiment.

Linha do tempo

  • 00:00:00 - 00:05:00

    In Chapter 4, an overview of securities markets and market indices is presented, establishing foundational concepts necessary for understanding financial markets that will be built upon in later lectures. The importance of financial markets as a mechanism for capital movement is likened to oil in an engine, emphasizing their role in linking savers and borrowers, which facilitates economic growth.

  • 00:05:00 - 00:10:00

    The market mechanisms of primary and secondary markets are introduced through analogies to textbooks and video games, explaining how new securities are sold in the primary market while used securities are exchanged in the secondary market. Differences in profitability between new and used goods highlight concepts applicable in finance.

  • 00:10:00 - 00:15:00

    The primary market is essential for companies to raise capital through IPOs and bonds, with investment banks acting as facilitators. The competitive nature of the IPO process leads to institutions acquiring shares before retail investors, impacting pricing dynamics in secondary markets.

  • 00:15:00 - 00:20:00

    The role of investment banks is further explored, including their work with IPOs, risk management through underwriting, and their networking abilities to ensure shares are sold efficiently. The importance of timing in an IPO is emphasized, where favorable market conditions can lead to greater funding for companies.

  • 00:20:00 - 00:25:00

    Investment banks are characterized by a high level of competition for jobs within the sector. Success hinges on networking and qualifications such as attending top schools or obtaining a CFA. This competitive landscape prepares students for entry into investment banking roles, emphasizing proactive engagement in their career pursuits.

  • 00:25:00 - 00:30:00

    Different stock exchanges are detailed, such as the NYSE and NASDAQ, explaining their operational frameworks, listing requirements, and the mechanics of buying and selling stocks. The distinction between how each exchange functions highlights their respective roles in the financial market ecosystem.

  • 00:30:00 - 00:40:01

    The chapter wraps up by discussing various equity indicators, particularly focusing on the Dow Jones Industrial Average and the S&P 500, comparing their methodologies and emphasizing the importance of market indices in evaluating overall market performance, which aids investors in assessing their own stock portfolios.

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Vídeo de perguntas e respostas

  • Why are financial markets important?

    They facilitate money flow in the economy, enabling firms and governments to borrow from individual savers.

  • What are primary and secondary markets?

    Primary markets are where new securities are issued, while secondary markets are for trading existing securities.

  • What is an IPO?

    An Initial Public Offering (IPO) is the first sale of stock by a company to the public.

  • How do investment banks help companies?

    Investment banks assist with IPOs by managing the regulatory and marketing efforts to ensure successful capital raising.

  • What are the roles of NYSE and NASDAQ?

    NYSE is a prominent auction-based market for equities, while NASDAQ operates electronically with a dealer-based system.

  • What is the S&P 500?

    The S&P 500 is a market capitalization-weighted index representing 500 of the largest US companies.

  • What are the risks of investing in foreign markets?

    Investing in foreign markets can involve risks such as illiquidity and political uncertainty.

  • What is the significance of the Dow Jones Industrial Average?

    It is a price-weighted index of 30 significant stocks but is criticized for not representing the broader market.

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  • 00:00:00
    okay chapter 4 Securities markets and
  • 00:00:03
    market
  • 00:00:05
    indices so here we're continuing in the
  • 00:00:08
    first couple lectures and chapters of
  • 00:00:09
    this book we're just laying a framework
  • 00:00:12
    or Baseline of some common knowledge in
  • 00:00:14
    the markets it's fairly easy fairly
  • 00:00:17
    routine stuff as the chapters progress
  • 00:00:20
    it's going to be becoming more diff
  • 00:00:22
    difficult more calculations a little bit
  • 00:00:24
    more uh computational work which I guess
  • 00:00:28
    is the same as calculations more
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    uh complex ideas and a little bit more
  • 00:00:33
    application of applying those ideas to
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    the
  • 00:00:36
    marketplace so what is why are financial
  • 00:00:40
    markets important to
  • 00:00:42
    society uh and the governments so the
  • 00:00:46
    financial markets is what enables money
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    to move around in the system think of
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    money like the oil in a car's engine so
  • 00:00:54
    the financial markets are like or the
  • 00:00:56
    circulatory system of the human body
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    it's like you know get gets the the
  • 00:01:00
    blood going and move to where it needs
  • 00:01:02
    to be and or an engine moves the oil to
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    where it needs to be so the end the car
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    can perform in a high performance so
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    think of the economy like an engine and
  • 00:01:12
    the money like the oil inside the engine
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    and in the financial markets of what is
  • 00:01:17
    the pump to move the money around like
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    the heart or the circulator in the
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    car now for firms and governments they
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    they need money actually individuals are
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    the net savers of the economy for the
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    most part and firms and governments are
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    net borrowers so companies need to
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    borrow
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    money they need to do an IPO or issue
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    bonds governments always most
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    governments run on a deficit they need
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    to issue bonds and raise money as well
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    so that all comes from individuals who
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    save
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    and the individuals who do save are
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    investors so they are able to share in
  • 00:01:59
    the prosperity of governments and uh
  • 00:02:02
    firms and businesses when they lend the
  • 00:02:04
    money or invest in those
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    Enterprises and the financial markets
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    help direct the money to the most
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    productive or efficient places so when a
  • 00:02:17
    a company is doing very well and their
  • 00:02:18
    returns are doing well more money will
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    flow to them as far as their Capital
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    capitalization but also will make it
  • 00:02:25
    easier for them to issue additional
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    stock or issue bonds and receive even
  • 00:02:29
    more money to grow even faster so if you
  • 00:02:31
    have a very hot restaurant like Shake
  • 00:02:33
    Shack and they currently have 63
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    locations and they want to expand to 400
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    locations they do an IPO to raise a
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    billion dollars they do Bond issuing to
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    raise x amount of money so they can open
  • 00:02:48
    their locations and grow while the
  • 00:02:50
    company is doing well and people like
  • 00:02:52
    their products and there's a good Buzz
  • 00:02:53
    about them you know so common sense and
  • 00:02:56
    it actually helps lower the the the cost
  • 00:02:58
    of the exchange ofone money so
  • 00:03:00
    everything is standardized and works
  • 00:03:02
    through an efficient markets using
  • 00:03:04
    supply and demand so the actual cost of
  • 00:03:07
    the uh the the capital is
  • 00:03:10
    lower and in for economies it helps to
  • 00:03:13
    you know uh for companies not just any
  • 00:03:16
    company can do an IPO or do a big Bond
  • 00:03:18
    release so generally the best companies
  • 00:03:21
    who have the most optimistic future are
  • 00:03:23
    the ones that get the opportunity to
  • 00:03:25
    borrow a raise Capital because they have
  • 00:03:27
    the best opportunity to generate returns
  • 00:03:29
    for investors so it keeps the the
  • 00:03:31
    economy at the uh in top shape the
  • 00:03:34
    financial markets because they're always
  • 00:03:36
    judging different aspects of the economy
  • 00:03:38
    so the financial markets if investors
  • 00:03:41
    you know they have a conduit or medium
  • 00:03:43
    to reach and invest in companies if
  • 00:03:45
    companies aren't doing well you know the
  • 00:03:47
    financial markets will you know starve
  • 00:03:49
    them they won't provide them with you
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    know you know they won't be able to do
  • 00:03:53
    an IPO because no one wants the stock
  • 00:03:54
    and they won't be able to borrow money
  • 00:03:56
    because they're so risky so the money
  • 00:03:58
    will flow to the better oper operations
  • 00:04:00
    Now new Securities are listed in the
  • 00:04:04
    primary
  • 00:04:06
    market and we call those generally for
  • 00:04:08
    stocks and IPO initial public offering
  • 00:04:11
    so the primary Market think of the
  • 00:04:12
    primary Market sort of like the
  • 00:04:14
    bookstore on campus so you go there to
  • 00:04:17
    buy uh you can go there to buy a new
  • 00:04:22
    textbook and you you buy that new
  • 00:04:24
    textbook for the class and the textbook
  • 00:04:27
    publisher gets the profits from that but
  • 00:04:29
    not only is the campus bookstore a
  • 00:04:31
    primary market for for buying a new book
  • 00:04:34
    it's also a secondary market for buying
  • 00:04:36
    and selling used
  • 00:04:39
    books so if you want to take your
  • 00:04:41
    textbook and sell it back to the
  • 00:04:44
    bookstore and then they're going to sell
  • 00:04:46
    it as you used book to another student
  • 00:04:48
    the next semester that would be an
  • 00:04:50
    example of a secondary market now the
  • 00:04:53
    the textbook manufacturer doesn't make
  • 00:04:55
    any profits from the sale of used
  • 00:04:58
    textbooks
  • 00:05:00
    that's why when you buy a new textbook
  • 00:05:03
    say you buy a textbook for this class
  • 00:05:04
    it's
  • 00:05:06
    $200 but if you buy the online edition
  • 00:05:09
    it's
  • 00:05:10
    $60 because they know you can't reuse or
  • 00:05:13
    resell the online edition so the reason
  • 00:05:15
    the textbook prices are so high for the
  • 00:05:17
    primary Market is because they only get
  • 00:05:19
    to sell it once and then it starts can
  • 00:05:22
    be resold four or five six times and
  • 00:05:25
    that's why the prices are so high on
  • 00:05:26
    textbooks if all the all the if all
  • 00:05:30
    parties agreed not to sell used books
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    the textbook companies would sell more
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    textbooks and they would be able to
  • 00:05:37
    lower the price of the
  • 00:05:39
    textbooks it's a similar Dynamic and say
  • 00:05:41
    GameStop if you want to buy a new uh
  • 00:05:44
    Xbox or PlayStation game it's
  • 00:05:47
    $60 however you can sell that game back
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    or buy you know that's the primary
  • 00:05:52
    Market the brand new $60 game but they
  • 00:05:54
    have a secondary Market at GameStop
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    which they drive most of their profits
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    from where people sell them the used
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    games and then they resell the used
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    games to other parties and they could
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    you know that game could be sold and
  • 00:06:06
    resold by GameStop multiple times and
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    they make a much bigger margin on the
  • 00:06:11
    reselling of old games than the new
  • 00:06:14
    games maybe they have a a 10 or 15%
  • 00:06:16
    profit margin in the sale of a brand new
  • 00:06:18
    game but they could have a a 30 to 50%
  • 00:06:21
    profit margin in the sale of a used game
  • 00:06:24
    so um those are just two examples in
  • 00:06:28
    your world the textbook store and and uh
  • 00:06:31
    GameStop of primary and secondary
  • 00:06:33
    markets so the primary Market uh in
  • 00:06:36
    financial markets is where things are
  • 00:06:38
    first sold bonds or stocks and the
  • 00:06:41
    company will receive the money for
  • 00:06:44
    selling those financial instruments to
  • 00:06:50
    investors now this primary Market is
  • 00:06:53
    facilitated by investment Banks so this
  • 00:06:55
    is one big area of what investment Banks
  • 00:06:57
    get involved in is they will do all the
  • 00:07:00
    leg work to issue an IPO to uh issue a
  • 00:07:03
    bond which means all the legal work all
  • 00:07:05
    the regulatory work um all the
  • 00:07:08
    networking work to to to gain access to
  • 00:07:11
    the capital so they can guarantee that
  • 00:07:13
    all the sale all the sale uh shares will
  • 00:07:15
    be sold because they have they have a
  • 00:07:17
    network of other Affiliated investment
  • 00:07:19
    Banks and other Banks and other
  • 00:07:20
    brokerages that can easily push out um
  • 00:07:24
    these stocks to be purchased and they're
  • 00:07:25
    so
  • 00:07:27
    efficient at sell these IPOs that
  • 00:07:31
    there's never anything left for the
  • 00:07:33
    ordinary small
  • 00:07:35
    investor so all the big institutions buy
  • 00:07:38
    up all the shares of the good IPOs and
  • 00:07:40
    you as a small investor if you want to
  • 00:07:41
    get into an IPO before it's launched you
  • 00:07:44
    can't it's virtually
  • 00:07:46
    impossible it's possible but virtually
  • 00:07:49
    impossible
  • 00:07:51
    uh but you could buy it the first day in
  • 00:07:53
    the secondary
  • 00:07:55
    market so in the first day of trading
  • 00:07:58
    people who have who who got the price at
  • 00:08:00
    the IPO price say $17 or $20 and now
  • 00:08:04
    it's trading at $50 in the IP in the
  • 00:08:06
    regular secondary market and they sell
  • 00:08:07
    it now you're buying it from them in the
  • 00:08:09
    secondary Market but you're paying a
  • 00:08:10
    much higher price the initial than the
  • 00:08:12
    initial IPO so who's buying all these
  • 00:08:15
    shares of the IPOs big players like
  • 00:08:17
    Fidelity and Charles Schwab and uh big
  • 00:08:20
    uh um retirement uh portfolios these big
  • 00:08:25
    institutional investors who belong to a
  • 00:08:27
    Syndicate and are associated with
  • 00:08:28
    investment will say yeah we'll take 5
  • 00:08:30
    million we'll take 10 million shares and
  • 00:08:32
    they buy all that
  • 00:08:34
    up now the Investment Bank
  • 00:08:38
    um they get compensated very well for
  • 00:08:42
    packaging and selling these IPOs and
  • 00:08:43
    they can either take a straight out uh
  • 00:08:46
    commission or or they can take a piece
  • 00:08:49
    of get paid in shares of stock so the
  • 00:08:52
    the Investment Bank often wants to keep
  • 00:08:54
    the initial IPO price low so that way
  • 00:08:57
    when it does open there's a there's a
  • 00:08:58
    pop of 15 to 100% in the price of the
  • 00:09:01
    IPO so that way all the parties that
  • 00:09:04
    they've sold the IPO to to have made
  • 00:09:06
    money and are very happy so that's sort
  • 00:09:08
    of their motivation now as a company you
  • 00:09:10
    want the opposite you want to price the
  • 00:09:11
    IPO as high as possible because you want
  • 00:09:14
    to get as much money the first time you
  • 00:09:15
    sell the stock so you're not so you know
  • 00:09:19
    you don't really care that the stock
  • 00:09:20
    it's nice it went up 50% but you're
  • 00:09:22
    looking at it that's money that I should
  • 00:09:24
    have had because that is the demand that
  • 00:09:25
    people would pay for the stock that I
  • 00:09:26
    didn't get as IPO so let's look at the
  • 00:09:29
    IPO Market let's go back to the year
  • 00:09:32
    2000 and in the year 2000 we had the a
  • 00:09:36
    record Equity of IPOs 20 223 billion in
  • 00:09:41
    US Stock um and 391 IPOs which raised
  • 00:09:47
    $61
  • 00:09:48
    billion in that year then in 2002 after
  • 00:09:52
    the internet Bubble Burst uh the number
  • 00:09:55
    had dropped from 391 to 97 IPOs and but
  • 00:09:58
    only rais 27 billion because when the
  • 00:10:01
    economy and the stock market is not hot
  • 00:10:04
    you don't want to bring your company
  • 00:10:06
    public and this is one of the reasons
  • 00:10:07
    Google was ready to go public at this
  • 00:10:09
    time but they waited until a better
  • 00:10:11
    stock market because you know they're
  • 00:10:13
    they could get much more in a in a bull
  • 00:10:15
    market than in a bare market like in
  • 00:10:17
    2002 so many companies will hold off on
  • 00:10:19
    their IPO until the market timing is
  • 00:10:22
    right where the market is like right now
  • 00:10:24
    right now there's a lot of IPOs and the
  • 00:10:26
    Market's good so companies want to bring
  • 00:10:28
    out their their their IPOs now while the
  • 00:10:30
    Market's still good but if the market
  • 00:10:32
    turns and go sour you know we could see
  • 00:10:34
    in 2010 we had 36 billion was raised in
  • 00:10:38
    2011 34 billion was raised so it's still
  • 00:10:43
    not at the height of 2000 was really the
  • 00:10:46
    height of the IPO markets because of the
  • 00:10:49
    internet and there were so many internet
  • 00:10:51
    companies they were coming becoming
  • 00:10:53
    public as an IPO without any profits
  • 00:10:55
    without much sales you know just with a
  • 00:10:58
    nice uh concept which was a rarity and
  • 00:11:00
    that has reversed now companies go IPO
  • 00:11:03
    must have profits in sales and establish
  • 00:11:05
    business it can't just be an idea like
  • 00:11:07
    it was back people were so hungry for
  • 00:11:09
    these back in 2000 they pay for
  • 00:11:12
    anything
  • 00:11:14
    right but there's really very little of
  • 00:11:17
    no shares available to the small
  • 00:11:18
    investors like us now let's talk about
  • 00:11:21
    the Investment Bank this is where a lot
  • 00:11:23
    of students come up to me and say I want
  • 00:11:24
    to work for Investment Bank Professor
  • 00:11:26
    nent make that happen and I said well I
  • 00:11:29
    wish I could get you a job at Investment
  • 00:11:31
    Bank and unfortunately I
  • 00:11:33
    can't um but if you want to work in an
  • 00:11:36
    investment bank there's a lot of
  • 00:11:38
    competition so you're going to have to
  • 00:11:40
    develop some inroads with them ahead of
  • 00:11:42
    time you know uh seek out people who may
  • 00:11:48
    already work there or try to try to go
  • 00:11:50
    to their websites and see do they have
  • 00:11:51
    internships available do they have
  • 00:11:53
    special events a lot of these investment
  • 00:11:55
    banks have I know um some of them had
  • 00:11:59
    that I heard from the career center they
  • 00:12:02
    usually have this information some of
  • 00:12:03
    the investment banks have a special day
  • 00:12:04
    for minor minorities to come in and see
  • 00:12:07
    the Investment Bank in a career day they
  • 00:12:09
    had I think one of the banks had a
  • 00:12:10
    career day for
  • 00:12:12
    LGBT uh people and so they do have some
  • 00:12:15
    kind of sometimes they do have some
  • 00:12:16
    special interests operations and they do
  • 00:12:18
    have some uh and then they also have
  • 00:12:21
    networking in different events for
  • 00:12:23
    everybody as a finance person though the
  • 00:12:26
    easiest way into an investment Bank
  • 00:12:28
    there two tracks track one is Ivory
  • 00:12:31
    League school Wharton Harvard Yale those
  • 00:12:35
    type of schools they seem to have a lot
  • 00:12:37
    of connections and a and a a direct
  • 00:12:40
    conduit into a lot of those jobs in the
  • 00:12:41
    investment Banks track number two is you
  • 00:12:44
    get your
  • 00:12:44
    CFA so the CFA means if you have a CFA
  • 00:12:49
    they don't care what school you went to
  • 00:12:50
    because now we have a test saying that
  • 00:12:52
    you're one of the top 1% of financial
  • 00:12:55
    people who have this uh qualification in
  • 00:12:58
    a credential and that will definitely
  • 00:13:01
    make it much easier to get a job at an
  • 00:13:02
    investment
  • 00:13:04
    Bank you know cuz you have something a
  • 00:13:06
    lot of the ivory League people don't and
  • 00:13:08
    many of the employers respect the CFA
  • 00:13:10
    more than the ivory League degree so
  • 00:13:13
    that's that's another way if you want to
  • 00:13:15
    spend the extra effort to start getting
  • 00:13:17
    engaged in a CFA exam that's another way
  • 00:13:20
    to get into an investment Bank uh and
  • 00:13:23
    like I said last week I was looking at
  • 00:13:24
    LinkedIn and I've had approximately I
  • 00:13:27
    have um I've had approximately 5,000
  • 00:13:30
    students that I've taught in the past 10
  • 00:13:33
    years or so and a surprising number of
  • 00:13:35
    them are placed at top banks in in
  • 00:13:37
    Manhattan and investment Banks as well
  • 00:13:39
    as well as mutual fund companies so I
  • 00:13:41
    know that students from this program
  • 00:13:43
    have been getting those jobs but they
  • 00:13:45
    haven't been handed to them they had to
  • 00:13:46
    work very hard for them some cases they
  • 00:13:48
    had to start in a lower position and
  • 00:13:49
    work the way up and in some cases they
  • 00:13:52
    had help from people that they networked
  • 00:13:54
    with uh I talked to one student who who
  • 00:13:56
    wound up being a vice president of a
  • 00:13:58
    very big bank and uh actually two
  • 00:14:01
    students and the other student was the
  • 00:14:02
    Royal Bank of Canada or some such thing
  • 00:14:05
    and I asked them well how did you get
  • 00:14:07
    these jobs and they said well you know
  • 00:14:08
    what I was friends with um students in
  • 00:14:12
    the NBA program who had graduated year
  • 00:14:14
    or two ahead of me and I just looked
  • 00:14:16
    them up after graduation they helped me
  • 00:14:18
    get a job because they had already got
  • 00:14:20
    into the bank and they helped bring me
  • 00:14:21
    in and I had known them from either
  • 00:14:24
    teamwork that's why teamwork in the
  • 00:14:25
    class projects are good because you get
  • 00:14:27
    to know people and establish
  • 00:14:29
    relationships and the these these two
  • 00:14:31
    people I think were on the NBA
  • 00:14:33
    Association so they also knew each other
  • 00:14:35
    from that that's back when the NBA
  • 00:14:37
    Association was about 40 students strong
  • 00:14:39
    and the meetings were pretty involved
  • 00:14:41
    now you know it's it's a different story
  • 00:14:44
    now it's not as quite as involved but
  • 00:14:46
    just some hints for you if you wanted to
  • 00:14:48
    get a job at these investment Banks
  • 00:14:49
    things that you can do or think about
  • 00:14:51
    but you definitely want to start
  • 00:14:52
    thinking and planning now don't graduate
  • 00:14:54
    and then you know try to apply because
  • 00:14:57
    their applications since most of the
  • 00:15:00
    when you apply for these places it's
  • 00:15:02
    electronic they'll get probably 5,000
  • 00:15:05
    resumés and then they'll use an
  • 00:15:06
    automatic sifter to go through okay
  • 00:15:08
    these are the schools we want students
  • 00:15:09
    froms and these are the gpas we want so
  • 00:15:11
    they won't even read your resume they'll
  • 00:15:12
    just say you're not on a list of schools
  • 00:15:14
    or you haven't made the G GPA
  • 00:15:16
    requirement and then you're just not
  • 00:15:17
    even considered so that's why you have
  • 00:15:19
    to think of a more creative way to get
  • 00:15:21
    yourself known to get into some of these
  • 00:15:23
    big jobs in
  • 00:15:25
    Manhattan another criteria is CFA if you
  • 00:15:28
    have a CFA that's scanned right away and
  • 00:15:31
    only probably out of the 5,000
  • 00:15:33
    applicants probably only five to 10 have
  • 00:15:35
    a
  • 00:15:37
    CFA okay um so what what else do
  • 00:15:41
    investment Banks do so there's so many
  • 00:15:43
    jobs at investment Banks and not just
  • 00:15:45
    financial markets they're jobs in many
  • 00:15:46
    different localities and positions in an
  • 00:15:49
    investment Bank a very big organization
  • 00:15:51
    a lot of what they do is client advice
  • 00:15:53
    uh and you know where they uh different
  • 00:15:56
    features of security is offering uh
  • 00:15:59
    price in a timing of sale and that's
  • 00:16:01
    that would be the client of the IPO so
  • 00:16:04
    the client advice if you're coming in
  • 00:16:06
    you say I want to do an IPO the
  • 00:16:08
    Investment Bank can do um any different
  • 00:16:12
    types of features of the security the
  • 00:16:14
    offering price the timing of the sale
  • 00:16:15
    they'll provide you all this advice okay
  • 00:16:17
    this is when we think the Market's best
  • 00:16:19
    for your company this is what we value
  • 00:16:21
    your company at and should be how many
  • 00:16:22
    shares you're going to issue and at this
  • 00:16:24
    price um and what type of classification
  • 00:16:27
    of stock they can do all that for you
  • 00:16:30
    and the underwriting service so they
  • 00:16:31
    will guarantee they'll take the risk of
  • 00:16:33
    selling um to investors uh so that way
  • 00:16:38
    you don't have to worry about if you
  • 00:16:39
    want to Issue 5 million shares they can
  • 00:16:42
    take the risk out of those not selling
  • 00:16:43
    and they'll guarantee that those are
  • 00:16:44
    going to be sold but that comes at you
  • 00:16:46
    know you're going to have to pay them a
  • 00:16:48
    little bit extra for that
  • 00:16:50
    guarantee uh they'll coordinate the
  • 00:16:52
    marketing is uh they'll help with the
  • 00:16:54
    registration with all the uh Securities
  • 00:16:57
    Exchange Commission and govern
  • 00:16:58
    government and I and the IRS they'll
  • 00:17:00
    issue the prospectus and they'll sell
  • 00:17:03
    the Securities they have the Investment
  • 00:17:05
    Bank Syndicate where the investment
  • 00:17:06
    Banks and the brokerages and the mutual
  • 00:17:08
    funds all kind of work together so they
  • 00:17:10
    have those are the how they sell it
  • 00:17:12
    because they have connections to
  • 00:17:13
    everybody else so there's a hot IPO the
  • 00:17:15
    investment Banks the other investment
  • 00:17:17
    Banks want to be involved too so if it's
  • 00:17:19
    a big IPO that One Bank may not be able
  • 00:17:21
    to handle all the sales of all those
  • 00:17:23
    shares they'll bring all their buddies
  • 00:17:25
    in from all the other investment Banks
  • 00:17:27
    and their other uh uh Syndicate to help
  • 00:17:30
    sell the stock as well that's how they
  • 00:17:33
    can guarantee it now the perspectus is
  • 00:17:37
    issued uh as sort of a tell all about
  • 00:17:40
    the the stock that's going to come out
  • 00:17:41
    so before you buy the stock you want IPO
  • 00:17:43
    you need to read the perspectives
  • 00:17:45
    because that gives you the financial
  • 00:17:46
    statements the management statements the
  • 00:17:48
    company's profile you know uh what
  • 00:17:51
    products they sell all about the
  • 00:17:52
    companies in this perspective and once
  • 00:17:54
    it's issued then AC quiet period becomes
  • 00:17:56
    where no new information can be released
  • 00:17:58
    until it goes IPO so no one gets unfair
  • 00:18:01
    Advantage about the company that could
  • 00:18:03
    be you know anywhere from one to six
  • 00:18:05
    months in between hopefully not as long
  • 00:18:07
    as six months but the perspectus is what
  • 00:18:09
    you buy as an investor to get an idea
  • 00:18:10
    whether or not you want to buy these
  • 00:18:12
    IPOs now not every IPO is a pot of gold
  • 00:18:15
    some IPOs come out and they tank they go
  • 00:18:18
    lower than the IPO price and they just
  • 00:18:20
    don't do very well um and they Mis
  • 00:18:24
    misread the market or investors interest
  • 00:18:26
    in
  • 00:18:27
    that now now investment Banks can also
  • 00:18:29
    facilitate a private placement for
  • 00:18:32
    companies and securities that are sold
  • 00:18:34
    directly to investors and bypass the
  • 00:18:36
    open market so you could you know stock
  • 00:18:39
    most every company has
  • 00:18:41
    stock but it's just not public it's
  • 00:18:43
    private stock so the Investment Bank can
  • 00:18:45
    you know some companies can just raise
  • 00:18:48
    money by selling stock privately to a
  • 00:18:49
    couple very wealthy individuals or
  • 00:18:53
    organizations so if they want to go
  • 00:18:55
    through the time and the expense and the
  • 00:18:56
    money and and the regulations and the
  • 00:18:58
    account accounting new accounting
  • 00:18:59
    requirements to go public they can also
  • 00:19:01
    stay private and just issue uh shares in
  • 00:19:05
    a private form and in Banks Bank
  • 00:19:07
    investment banks have done that for a
  • 00:19:08
    lot of companies that just didn't feel
  • 00:19:10
    that the IPO was right for them so no
  • 00:19:12
    registration is required um you don't
  • 00:19:15
    have to deal with the SEC it saves a lot
  • 00:19:18
    of time and money and it's typically uh
  • 00:19:22
    a lot lower Banking and uh banking fees
  • 00:19:25
    from the Investment Bank if you do a
  • 00:19:26
    private placement but on the negative
  • 00:19:29
    side there's not as much capital or
  • 00:19:31
    money available in the private placement
  • 00:19:33
    as there is in the
  • 00:19:35
    IPO okay so the secondary markets I
  • 00:19:38
    began earlier talking about this when we
  • 00:19:40
    mentioned the primary markets and it's
  • 00:19:42
    basically an auction-based system where
  • 00:19:44
    people can buy and sell um basically use
  • 00:19:48
    stock we don't call it used stock but
  • 00:19:50
    since I said use textbooks before and
  • 00:19:51
    use video games think of it as used
  • 00:19:54
    stock so the IPO is a brand new shiny
  • 00:19:55
    stock you buy and then when you want to
  • 00:19:57
    sell that to somebody else it's used so
  • 00:19:59
    it sells in a secondary Market in in a
  • 00:20:02
    in a a bidden ask um supply and demand
  • 00:20:07
    format so the more people who want to
  • 00:20:09
    buy the stock the orders go in and if
  • 00:20:11
    there isn't enough people wanting to
  • 00:20:12
    sell it the price Rises until encourages
  • 00:20:14
    people to sell it so that they need an
  • 00:20:16
    equilibrium so supply and demand is what
  • 00:20:19
    moves the prices up and down in in the
  • 00:20:21
    uh secondary Market of stock same thing
  • 00:20:24
    for video games if there's a very hot
  • 00:20:26
    video game that people don't want to
  • 00:20:28
    sell back because they like playing it
  • 00:20:29
    so much or they want to own it then the
  • 00:20:31
    price of that um the the re the used
  • 00:20:34
    price goes up as they try to encourage
  • 00:20:36
    more people to sell it back and as you
  • 00:20:38
    know if everybody kind of you know there
  • 00:20:41
    are some times where some games come out
  • 00:20:42
    and they're very popular and everybody
  • 00:20:43
    gets a copy but it winds up really not
  • 00:20:45
    being that great so they all kind of
  • 00:20:46
    sell it back at the same time and those
  • 00:20:48
    prices go very low so so if you're if
  • 00:20:50
    you're familiar with that that's a
  • 00:20:52
    supply and
  • 00:20:55
    demand all
  • 00:20:57
    right so some of the markets in the
  • 00:20:59
    secondary Market you have the New York
  • 00:21:01
    Stock Exchange it's a secondary
  • 00:21:03
    auction-based uh market for Equity
  • 00:21:05
    shares we all know about the New York
  • 00:21:07
    Stock Exchange uh it's a non-for-profit
  • 00:21:11
    organization of members and they have
  • 00:21:12
    listing requirements and I think I put I
  • 00:21:14
    guess I put a
  • 00:21:16
    web page
  • 00:21:19
    here to give some of the listing
  • 00:21:21
    requirements I put a link in the
  • 00:21:24
    presentation hopefully it comes up uh so
  • 00:21:27
    they to get on New York Stock Exchange
  • 00:21:28
    is one of the best exchange uh to get on
  • 00:21:32
    to and I I don't think you you can cont
  • 00:21:36
    see this so the New York Stock Exchange
  • 00:21:38
    you have to have pre-tax income of $2
  • 00:21:41
    million you uh two-year average pre-tax
  • 00:21:44
    income of 2 million as a
  • 00:21:47
    minimum uh the the NASDAQ is 1 million
  • 00:21:52
    as far as the NASDAQ area that's we're
  • 00:21:54
    familiar with that and then the uh MX
  • 00:21:57
    the American Exchange which which is now
  • 00:21:58
    part of the New York Stock Exchange
  • 00:22:00
    that's only 750,000 of pre-tax assets
  • 00:22:03
    the now you can get in the you have the
  • 00:22:07
    New York Stock Exchange but the NASDAQ
  • 00:22:08
    is part of what we call over-the-counter
  • 00:22:10
    so NASDAQ is one say uh one part of the
  • 00:22:14
    over-the-counter Market there are other
  • 00:22:16
    over-the-counter markets like the
  • 00:22:17
    bulletin boards which is back here see
  • 00:22:20
    over- the-counter bulleon boards and
  • 00:22:21
    they don't have as many if any listing
  • 00:22:24
    requirements um Okay so
  • 00:22:29
    you can look this
  • 00:22:31
    over at your at your own Leisure to kind
  • 00:22:34
    of get some of the differences but just
  • 00:22:36
    just the important thing here is here to
  • 00:22:39
    know that not each each exchange has a
  • 00:22:42
    different set of requirements for you to
  • 00:22:44
    become part of their exchange and for
  • 00:22:45
    these exchang if your share price Falls
  • 00:22:47
    too low they will remove you from The
  • 00:22:50
    Exchange so that's why what they kind of
  • 00:22:53
    invented this reverse stock split so if
  • 00:22:55
    your stock price say goes to $5 nobody
  • 00:22:57
    wants to buy a stock that's $5 or under
  • 00:22:59
    because they know that those aren't
  • 00:23:01
    really great typically are not great
  • 00:23:03
    performing stocks so when this happened
  • 00:23:05
    to a company like say AT&T they did a
  • 00:23:08
    reverse stock
  • 00:23:09
    split five five for one to get the share
  • 00:23:12
    price back up to $25 and stay on the
  • 00:23:14
    exchange and also seem more respectable
  • 00:23:17
    to potential investors a lot of
  • 00:23:19
    investors feel that if the price is too
  • 00:23:21
    low on a stock it must mean that there's
  • 00:23:23
    something wrong that people have sold it
  • 00:23:24
    so low and generally a lot of times
  • 00:23:26
    they're right about that
  • 00:23:28
    um now in the New York Stock Exchange we
  • 00:23:30
    have Specialists who are assigned to
  • 00:23:33
    trade the equity to make a market for
  • 00:23:34
    the stock so Specialists are assigned
  • 00:23:37
    and they basically create a Marketplace
  • 00:23:40
    for supply and demand to trade the
  • 00:23:42
    stock uh a lot of this is all done on
  • 00:23:45
    computers this day these days though so
  • 00:23:47
    it's it used to be a very physical world
  • 00:23:49
    where there were tickets and people
  • 00:23:50
    would stand at posts and everything was
  • 00:23:52
    yelling and shouting and hand signals to
  • 00:23:54
    trade the stock but today we live in a
  • 00:23:56
    modernized society so there's much less
  • 00:23:58
    of that and there's much more of
  • 00:24:00
    electronic help in actually trading and
  • 00:24:02
    exchanging shares on the marketplace the
  • 00:24:05
    MX was used to be a separate American
  • 00:24:07
    Stock Exchange located down the block
  • 00:24:09
    from the New York Stock Exchange that
  • 00:24:11
    operated as a separate exchange sort of
  • 00:24:13
    sort of like a smaller specialized
  • 00:24:16
    exchange dealing with a lot of warrants
  • 00:24:17
    and options and closed-ended mutual
  • 00:24:19
    funds and ETFs and but recently uh it
  • 00:24:24
    was purchased by the New York sock
  • 00:24:26
    exchange there's also what they call
  • 00:24:28
    Regional exchanges which are many New
  • 00:24:31
    York stock exchanges placed around the
  • 00:24:32
    country say in Boston and California and
  • 00:24:35
    Philadelphia and these are just uh when
  • 00:24:37
    it was a physical world sometimes the
  • 00:24:39
    New York shock exchange would get
  • 00:24:40
    overwhelmed and these Regional exchanges
  • 00:24:42
    would help with uh buying and selling of
  • 00:24:44
    the
  • 00:24:45
    shares uh and it also helps for time
  • 00:24:48
    zone differences and things like that so
  • 00:24:50
    there are these smaller Regional
  • 00:24:51
    exchanges as well but they're all tied
  • 00:24:53
    to the New York Stock Exchange the New
  • 00:24:55
    York Stock Exchange is considered the
  • 00:24:56
    elite the the very the most
  • 00:24:59
    respectable um exchange there is in the
  • 00:25:01
    world and has the most liquidity and the
  • 00:25:03
    most money FL flowing through it um
  • 00:25:07
    generally but there's also the NASDAQ
  • 00:25:09
    which is its biggest
  • 00:25:12
    rival and they have a a dealing a
  • 00:25:14
    dealers
  • 00:25:16
    traded uh dealers will trade and list of
  • 00:25:18
    Securities so instead of uh the
  • 00:25:21
    Specialists are like the dealer the
  • 00:25:22
    dealers are like the specialist of the
  • 00:25:24
    NASDAQ and they basically this the
  • 00:25:26
    NASDAQ runs completely computer there's
  • 00:25:28
    no physical trading site you sometimes
  • 00:25:30
    you go to Times Square and you see that
  • 00:25:31
    big NASDAQ sign that's just a studio
  • 00:25:34
    I've been inside of it with a class
  • 00:25:36
    before and what they do is they have a
  • 00:25:37
    big wall where they talk about stocks
  • 00:25:39
    they have a a news studio in there but
  • 00:25:41
    no one's physically trading stocks in
  • 00:25:43
    there it's all advertisements when you
  • 00:25:44
    come to Time Square you see their big
  • 00:25:46
    ticker board and it's just to promote
  • 00:25:48
    the name NASDAQ in the the marketplace
  • 00:25:50
    but there's not actually any trading
  • 00:25:52
    going on there all the trading is done
  • 00:25:54
    by computer through an internet like uh
  • 00:25:57
    service so it's just linking computers
  • 00:25:59
    together and a market maker is someone
  • 00:26:02
    who just uh facilitates the trades you
  • 00:26:05
    know uh they connect people who want to
  • 00:26:06
    buy the stock to people who want to sell
  • 00:26:08
    the stock and how do they make money the
  • 00:26:11
    commission the difference in between so
  • 00:26:13
    stocks trade as a bid in the ask so an
  • 00:26:15
    ask is say $5 the bid may say as an
  • 00:26:18
    exaggeration $4 so the market maker will
  • 00:26:22
    buy the stock from you at $4 and then
  • 00:26:24
    sell it at five so the market maker Buys
  • 00:26:27
    in bid and sells them the ask you buy at
  • 00:26:29
    the ask and sell it the bid go back to
  • 00:26:31
    the example of the textbook store the
  • 00:26:34
    video game store when you go to the
  • 00:26:36
    textbook store when you buy when you
  • 00:26:39
    sell your used book back to them you're
  • 00:26:41
    not going to get the same price if
  • 00:26:42
    they're going to turn around and sell it
  • 00:26:43
    to another student next semester you're
  • 00:26:45
    going to get the lower price if you go
  • 00:26:47
    to GameStop they you they'll pay you one
  • 00:26:49
    price for the game you might be want to
  • 00:26:51
    return Destiny they'll give you $20 for
  • 00:26:53
    it then turn around and sell it for
  • 00:26:55
    35 so think of that business philosophy
  • 00:26:58
    they're going to keep GameStop and the
  • 00:27:00
    bookstore keeps the spread the
  • 00:27:02
    difference between the the buyer and
  • 00:27:04
    seller of the copies it's the same thing
  • 00:27:05
    in in the marketplace now it's an
  • 00:27:08
    automated quotation system that's
  • 00:27:10
    actually where the um the AQ at the end
  • 00:27:13
    of the NASDAQ comes from it's National
  • 00:27:14
    Association of Securities dealers audit
  • 00:27:17
    automated quotation system uh and
  • 00:27:20
    there's no fixed number of participants
  • 00:27:23
    so it anybody who wants to be a market
  • 00:27:25
    maker once you you fill out the proper
  • 00:27:27
    paperwork working past the SEC
  • 00:27:28
    requirements and things like that you
  • 00:27:30
    can go up and sit up shop and start
  • 00:27:31
    trading a stock so it's all very much
  • 00:27:34
    competitive and supply and demand so if
  • 00:27:35
    you have a company like um Cisco Systems
  • 00:27:39
    you could have 60 market makers working
  • 00:27:42
    that stock and the spread could be is
  • 00:27:43
    down to one penny or you could have
  • 00:27:46
    another stock that's that's very
  • 00:27:47
    uncommon it may only be one or two
  • 00:27:49
    market makers and the spread could be 50
  • 00:27:50
    cents to a dollar so if a stock is
  • 00:27:53
    trading it may not trade the reason
  • 00:27:55
    there's only one or two market makers
  • 00:27:56
    because a stock does not trade much when
  • 00:27:58
    a stock a stock starts to pick up in
  • 00:28:00
    volume and trading and a lot of profits
  • 00:28:02
    are being made other people pick up on
  • 00:28:04
    that quickly and they move in become
  • 00:28:05
    market makers as well and the market
  • 00:28:08
    maker basically has to facilitate manage
  • 00:28:10
    the inventory of the amount of people
  • 00:28:13
    want to buy and who want to sell and
  • 00:28:15
    they Place their their prices on a on a
  • 00:28:18
    list so whoever has the best prices goes
  • 00:28:21
    to the top of the list so if you're a
  • 00:28:22
    market maker and your prices aren't good
  • 00:28:24
    you're at the very bottom because the
  • 00:28:26
    SEC requires that the lowest price uh
  • 00:28:29
    asking price has to be sold to the
  • 00:28:30
    consumer first so whoever wants to
  • 00:28:33
    Discount the shares you know the most
  • 00:28:36
    will be the one who's selling them so uh
  • 00:28:40
    to keep things fair and honest for
  • 00:28:42
    buyers or purchasers or
  • 00:28:45
    stock NOW the na inside the NASDAQ they
  • 00:28:48
    have a national Market which is where we
  • 00:28:50
    hear the most about they also have a
  • 00:28:51
    small cap market and more firms are
  • 00:28:54
    actually listed on the NASDAQ than on
  • 00:28:57
    the New York Stock Exchange but most of
  • 00:28:59
    them are are much smaller and have a
  • 00:29:02
    much smaller market
  • 00:29:04
    cap and this this electronic Network can
  • 00:29:06
    TR can uh connect these Traders around
  • 00:29:09
    the world all together so you could be
  • 00:29:10
    anywhere in the world and be a market
  • 00:29:12
    maker for the
  • 00:29:13
    NASDAQ okay so the NASDAQ is just one
  • 00:29:16
    piece of what we call the
  • 00:29:17
    over-the-counter market so the over the
  • 00:29:19
    counter market has just been a mechanism
  • 00:29:21
    to sell Securities for a long time but
  • 00:29:23
    it always had a bad Wild West type of
  • 00:29:26
    reputation so they decided to come up
  • 00:29:29
    with that name NASDAQ and listing
  • 00:29:31
    requirements in an advertising campaign
  • 00:29:33
    and a and a a media shop on on Time
  • 00:29:36
    Square to promote it as a more secure a
  • 00:29:40
    different type of over-the-counter
  • 00:29:41
    Market that was more similar to New York
  • 00:29:43
    Stock Exchange and it worked the NASDAQ
  • 00:29:45
    became a big player once they put in the
  • 00:29:47
    marketing effort and and the they
  • 00:29:49
    cleaned up the stocks listed on the
  • 00:29:51
    NASDAQ area it became a very successful
  • 00:29:53
    Venture but the over-the-counter Market
  • 00:29:55
    also has a Bolton board Market which is
  • 00:29:59
    for much smaller companies which with Z
  • 00:30:03
    very little to none listing requirements
  • 00:30:06
    and they file they just do the minimum
  • 00:30:08
    SEC filing requirements there's even a
  • 00:30:11
    more um riskier area over the C Market
  • 00:30:14
    called the pink sheets and you could if
  • 00:30:15
    you open up this lecture at home you
  • 00:30:17
    could go to that website and the pink
  • 00:30:20
    sheets is the penny stock area so the 1
  • 00:30:23
    to 25 to up to 99 cent area stocks will
  • 00:30:26
    trade in penny stock pink sheets area
  • 00:30:29
    and you see that that movie The Wolf of
  • 00:30:31
    Wall Street with Leonardo DiCaprio
  • 00:30:34
    that's what he was trading he was
  • 00:30:35
    trading on the pink sheets these penny
  • 00:30:37
    stocks where the commissions they were
  • 00:30:38
    saying are 50% and it's really all crap
  • 00:30:42
    it's all high risky highly speculative
  • 00:30:46
    none of those companies have much of a a
  • 00:30:48
    chance of being anything and it's unre
  • 00:30:50
    unregulated and it's just a really
  • 00:30:52
    sucker bet these pink sheets so have
  • 00:30:55
    some people made money there yes some
  • 00:30:57
    people have most people hav it uh but
  • 00:31:00
    you could check out there's also through
  • 00:31:02
    the over the counter these ecn exchange
  • 00:31:05
    traded networks these are additional um
  • 00:31:09
    mechanisms for trading stock before and
  • 00:31:12
    after the close of the market so the
  • 00:31:14
    stock markets open at 9:30 and close at
  • 00:31:17
    4: and the reason they're 9:30 to 4 is
  • 00:31:19
    because Traders will cut get in at 8:30
  • 00:31:21
    and they need to set up and get ready
  • 00:31:24
    and it closes at 4 because after 4 then
  • 00:31:26
    the Traders have to do some work and
  • 00:31:28
    some close out and so their so their
  • 00:31:29
    hours could be 9 to5 or 8:30 to 5 so
  • 00:31:32
    that's why the market isn't a full open
  • 00:31:34
    for a full eight
  • 00:31:36
    hours and because the market was very
  • 00:31:38
    physical in the past it had a limitation
  • 00:31:41
    It could only really be open from 9:30
  • 00:31:43
    to four there's a very physical market
  • 00:31:45
    and they've they've hung on to those
  • 00:31:47
    trading hours but in the electronics
  • 00:31:49
    World it could be it could really be a
  • 00:31:51
    24-hour market so these ecn were created
  • 00:31:54
    to trade stock after the traditional
  • 00:31:56
    trading hours of the 9:30 to 4 the one
  • 00:32:00
    reason they kind of stick to these
  • 00:32:01
    trading hours also is because they have
  • 00:32:03
    rules about when companies can release
  • 00:32:04
    information so they generally don't like
  • 00:32:07
    or allow companies release big
  • 00:32:08
    information during the day of the market
  • 00:32:10
    it usually is open the information comes
  • 00:32:13
    out before the Market opens or after the
  • 00:32:15
    market closes to give everybody a fair
  • 00:32:17
    chance of reading it and thinking about
  • 00:32:18
    it before they trade the
  • 00:32:20
    stock okay again we're going back to
  • 00:32:22
    foreign markets the US isn't the only
  • 00:32:24
    one with exchanges um
  • 00:32:28
    so the US Equity markets are actually
  • 00:32:30
    becoming a smaller and smaller piece
  • 00:32:32
    they used to be greater than 50% of the
  • 00:32:33
    world's Equity or stocks were traded in
  • 00:32:36
    the United States uh were United States
  • 00:32:38
    companies now it's it's it's less than
  • 00:32:41
    that because many of the world's other
  • 00:32:43
    economies have grown up and stock
  • 00:32:45
    markets in India and China and Japan and
  • 00:32:48
    and Germany have become big places where
  • 00:32:51
    uh a lot of equity is now traded even
  • 00:32:53
    the Emerging Markets uh have more stable
  • 00:32:56
    political system systems like are
  • 00:32:58
    Brazil um lower regulation more
  • 00:33:00
    standardized trading activities so some
  • 00:33:02
    even the brink company countries as they
  • 00:33:04
    call them Brazil Russia India China
  • 00:33:08
    they're becoming more respectable in a
  • 00:33:10
    place where a a lot of uh Equity is
  • 00:33:13
    Flowing to but the reason to be invested
  • 00:33:16
    in these foreign markets is so that you
  • 00:33:19
    have
  • 00:33:21
    um more
  • 00:33:24
    diversification now there are more risks
  • 00:33:27
    in these foreign markets such as ill
  • 00:33:29
    liquidity a difficulty for trading your
  • 00:33:31
    stock when you want to uh liquidity is
  • 00:33:34
    about how quickly can convert your stock
  • 00:33:36
    Into Cash you know some assets are very
  • 00:33:38
    typically stocks are pretty liquid uh
  • 00:33:41
    real estate is an example of something
  • 00:33:42
    that's not very liquid takes a lot
  • 00:33:43
    longer to convert to cash but in the
  • 00:33:45
    international market sometimes you have
  • 00:33:47
    a lack of information there could be
  • 00:33:49
    political uncertainty I mean there are
  • 00:33:51
    stock markets in Egypt and Greece and
  • 00:33:53
    Iraq but very few people right now would
  • 00:33:56
    really want want to invest in in some of
  • 00:33:58
    these markets because of the the
  • 00:34:00
    instability of these
  • 00:34:02
    countries okay so let's talk let's move
  • 00:34:05
    into Equity indicators so we have the
  • 00:34:08
    big daddy is the Dow Jones Industrial
  • 00:34:11
    Average this is created long
  • 00:34:15
    ago and it only includes 30 stocks but
  • 00:34:18
    to be fair when this was created those
  • 00:34:20
    30 stocks that were in the Dow were a
  • 00:34:22
    significant portion of the the equity
  • 00:34:25
    capital in the marketplace
  • 00:34:28
    you know so it really was a big a a
  • 00:34:31
    pretty close representation of the
  • 00:34:33
    market now this is what we call a price
  • 00:34:36
    weighted index which isn't as which
  • 00:34:38
    isn't the best way of calculating um an
  • 00:34:42
    index uh essentially we add the price of
  • 00:34:45
    all 30 stocks together and divide by
  • 00:34:48
    30 the problem with this is it doesn't
  • 00:34:50
    reflect the amount of outstanding shares
  • 00:34:52
    of the total market cap of these
  • 00:34:53
    companies it's just going by the share
  • 00:34:55
    price in a divisor now this divisor over
  • 00:34:58
    time had to be adjusted for stock splits
  • 00:35:01
    and stock dividends so the Dow Jones
  • 00:35:03
    Industrial Average their divisor has
  • 00:35:06
    changed um throughout the years to
  • 00:35:09
    compensate when the stocks on the
  • 00:35:11
    exchange have you know either in some
  • 00:35:15
    cases they may have merged with other
  • 00:35:17
    companies or they may have had a stocks
  • 00:35:19
    um a stocks uh spin-off which lowered
  • 00:35:23
    the shares of the company so anytime the
  • 00:35:24
    company's per share price change due to
  • 00:35:27
    something other than uh uh supply and
  • 00:35:29
    demand forces they have to adjust the
  • 00:35:31
    divisor so there's no effect on the
  • 00:35:33
    average so if a company has two for one
  • 00:35:35
    stock split we don't want to see the Dow
  • 00:35:38
    Jones Industrial Average go down because
  • 00:35:39
    of that because it really isn't going
  • 00:35:41
    down so the divisor will be adjusted to
  • 00:35:43
    make sure that doesn't happen so
  • 00:35:45
    generally the the Dow 30 are the oldest
  • 00:35:47
    most
  • 00:35:48
    well-known uh stable stocks you can
  • 00:35:50
    think of and the big criticism today is
  • 00:35:55
    that it doesn't really repres represent
  • 00:35:57
    the broader Marketplace so the overall
  • 00:35:59
    Market isn't fairly represented in these
  • 00:36:02
    30 stocks as they used to be because
  • 00:36:04
    there's so many great companies out
  • 00:36:05
    there now that 30 is really too small of
  • 00:36:07
    a number and the other problem is that
  • 00:36:09
    it's because it's price weighted it's
  • 00:36:13
    not a fair representation of the wealth
  • 00:36:14
    being created because you're not you're
  • 00:36:16
    not factoring the amount of outstanding
  • 00:36:17
    shares so if we um a
  • 00:36:21
    valuated index or average be much is a
  • 00:36:23
    much more closer representation of the
  • 00:36:26
    wealth being created
  • 00:36:29
    then we come to the standard pores 500
  • 00:36:31
    now this is a much better um index to
  • 00:36:35
    look at because this one is valuated
  • 00:36:38
    index they do take into account all of
  • 00:36:40
    the outstanding shares and the stock
  • 00:36:43
    price and valuing the index this is uh
  • 00:36:46
    we're going to actually do these
  • 00:36:47
    calculations next class we'll uh
  • 00:36:50
    actually have a handout and I'll have to
  • 00:36:51
    do these calculations
  • 00:36:54
    um now it's 500 the largest firms so
  • 00:36:57
    it's a much broader representation of
  • 00:37:00
    the marketplace so that's why the S&P
  • 00:37:01
    500 is what you should look at on a
  • 00:37:03
    daily basis to see how the market is
  • 00:37:05
    doing and how uh they've increased or
  • 00:37:09
    decreased the their wealth in one day
  • 00:37:11
    rather than looking at the Dow
  • 00:37:14
    30 okay now the New York Stock Exchange
  • 00:37:18
    and the NASDAQ also have what we call
  • 00:37:20
    composit indices which are valuated
  • 00:37:23
    indices of a broad measure of companies
  • 00:37:26
    is that the New York Stock Exchange
  • 00:37:28
    composite is just companies on the New
  • 00:37:29
    York Stock Exchange just like the NASDAQ
  • 00:37:31
    Composite is companies on the NASDAQ
  • 00:37:33
    another popular one is the nk225 average
  • 00:37:37
    and this is another price weighted sort
  • 00:37:39
    of like the Dow of
  • 00:37:41
    Japan the Russell 1000 which um is like
  • 00:37:45
    the S&P 500 but instead of having 500
  • 00:37:47
    stocks it has 1,000 stocks so a th000
  • 00:37:50
    large caps sock so the the Russell 1000
  • 00:37:53
    is considered even broader measure than
  • 00:37:54
    the S&P 500 and then we have have the
  • 00:37:58
    um the last index is a Europe Asia and
  • 00:38:02
    Far East index that's sort of what those
  • 00:38:04
    acronyms stand for and that's an index
  • 00:38:06
    for the broader world markets and these
  • 00:38:09
    are all important because investors want
  • 00:38:11
    to know well how is how is the market
  • 00:38:13
    doing I mean I think a more important
  • 00:38:15
    question is how am I I don't care how
  • 00:38:17
    the Market's doing I want know how my
  • 00:38:18
    stocks are doing I want to have great
  • 00:38:19
    stocks so even the Market's doing bad my
  • 00:38:21
    stocks are going up so the focus should
  • 00:38:24
    be on the stocks you own but a prime
  • 00:38:26
    secondary Focus could be on how markets
  • 00:38:28
    are doing so it's a little constellation
  • 00:38:30
    if the market goes down 10% in a day and
  • 00:38:32
    your stocks went down 5% you could least
  • 00:38:34
    say you're doing better than the
  • 00:38:36
    marketplace now bonds also have a
  • 00:38:38
    secondary Market where bonds can trade
  • 00:38:40
    back and forth so they have a primary
  • 00:38:42
    Market where Bond comes out and the
  • 00:38:43
    company receives the money for the bond
  • 00:38:46
    but then after that you're free as a
  • 00:38:48
    bond owner to sell it to somebody else
  • 00:38:50
    because it's an asset if you no longer
  • 00:38:51
    want it you can sell it to somebody else
  • 00:38:53
    so it'll trade uh in exchange and the
  • 00:38:56
    New York Stock Exchange does have
  • 00:38:57
    features to do an automated bond trading
  • 00:39:00
    system to execute orders mostly
  • 00:39:02
    corporate bonds um the treasury bonds
  • 00:39:05
    are the most active Bonds in the world
  • 00:39:07
    the biggest market and they and they
  • 00:39:08
    have dealers of their Marketplace as
  • 00:39:11
    well and municipal bonds aren't traded
  • 00:39:13
    as actively as treasuries but they still
  • 00:39:16
    marketplaces where those trade so if you
  • 00:39:18
    need to if you want to buy individual
  • 00:39:20
    municipes or treasuries you could do
  • 00:39:21
    that however most people find it much
  • 00:39:23
    more convenient to buy treasuries or
  • 00:39:25
    municipals inside a closed end or
  • 00:39:28
    open-ended mutual fund or even an ETF
  • 00:39:31
    makes it a lot simpler then it also
  • 00:39:33
    diversifies you where you're not just
  • 00:39:34
    getting one particular bond that could
  • 00:39:36
    run into problems you're getting a few
  • 00:39:38
    uh dozens of bonds at one time okay so
  • 00:39:41
    this is there is a class handout we're
  • 00:39:44
    not going to do that today we're going
  • 00:39:46
    to do that next class but this is a spot
  • 00:39:48
    where I would usually hand it out I'm
  • 00:39:50
    just going to keep going with the
  • 00:39:51
    lecture I have something else planned
  • 00:39:52
    for today that we're going to get to in
  • 00:39:53
    a minute actually we're going to get to
  • 00:39:55
    now so
  • 00:39:56
    uh let me just end
  • 00:39:59
    this
Etiquetas
  • financial markets
  • investments
  • IPOs
  • investment banks
  • secondary markets
  • NYSE
  • NASDAQ
  • market indices
  • Dow Jones
  • S&P 500