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  • When you think of investing, the first thing that comes into mind is this complicated world

  • of the stock market.

  • With so many charts and numbers, it's easy to get confused, so let's break it down and

  • try to make a sense out of it.

  • Let's say you have built a business, but now you need some more money to expand or maybe

  • you just want a private jet.

  • Where do you get the money from?

  • Here is an idea for you, why don't you break down your company and sell part of it while

  • you keep the majority to stay in charge.

  • That's what stock market is for, and this process is known as Initial Public Offering

  • (IPO) But how much money can you make?

  • Let's take an example of Mark Zuckerberg's little toy - facebook.

  • It went public in 2012 with 337 million shares at a price of 38 dollars a share.

  • Not bad, right?!

  • But, when he realized that, that there are so many more people who want a piece of his

  • pie, he added another 84 million shares (421 million).

  • And guess what?

  • He sold every single one of them.

  • And raised 16 billion dollars.

  • He literally became a billionaire in just a few hours.

  • In fact, the stock price increased to 45 dollars within the first day of trading.

  • It seems like Facebook was doing great, but it was too early to celebrate because it felt

  • back to 38 by the end of the day, and that was just the beginning.

  • The bad news was just starting.

  • In the next few weeks, the stock crashed to as low as 20 dollars.

  • Twice smaller than its original price.

  • Now, to understand what's happening here, we have to get to the root of the stock market.

  • In the past stocks were acquired primarily for dividends.

  • Theoretically, when you a buy a stock, you become the owner of that company.

  • Which means that you like any other owner . have the right to the profit of the company.

  • Congratulations, you have purchased 10 facebook stocks in January of 2017, and you are now

  • the owner of Facebook exactly like Mark, and I am not kidding.

  • So, Your company (Facebook) makes 15.934 Billion dollars, How much of that belongs to you?!

  • At the end of the day, you have spent 1300 dollars to buy your 10 stocks.

  • (Facebook stock price in January 2017) But lets first take a look at how much stocks

  • are there in total.

  • It turns out that there are almost 3 billion of them (2.956 Billion).

  • I doubt that your 10 stock matters now.

  • But let's be optimistic.

  • Because, if we divide the net income on the numbers of shares, each stock should earn

  • a little over 5 dollars (5.39= 15.934 Billion/ 2.956 Billion), by the way, that's known as

  • EPS (earnings per share).

  • In other words, your 10 stock suppose to earn you almost 54 dollars (53.9).

  • Not bad, right?.

  • But that's just hypothetically, in practice, you get absolutely nothing!

  • The board of directors is the one who is going to decided what to do with this money.

  • And their first priority is to fill their pockets and expand the company, so no one

  • really cares about your 10 stocks.

  • But don't worry, not everyone is a scammer like Mark Zuckerberg.

  • For example, last year Apple paid 13 billion dollars in dividends (12.769 B) or 2.5 dollars

  • for each stock (2.46).

  • Of course, it's not much for a stock that costs 170 bucks, but something is always better

  • than nothing.

  • However, today, it doesn't really matter how much the company pays as much as the price

  • of the stock.

  • Apple's stockholders experienced a 33% gain within a single year!

  • That's way better than market's average.

  • ( from $120 to $160)

  • You probably have already heard that Apple is the first company to cross a trillion dollar

  • valuation because its stock price crossed 200 dollars.

  • But what if I told you that until June of 2014, Apple stock price was 645 dollars.

  • Does that mean, that the company was already valued at more than 3 trillion dollars?

  • Oh, god, this stock market is so freaking complicated.

  • Let me explain.

  • There is something called stock splits.

  • Each stock was split into 7 pieces, and the prices were decreases proportionally (92.7

  • dollars).

  • Technically nothing really changed, but now more people can afford the stock and join

  • the community of Apple investors.

  • Since the stock now costs 92 dollars.

  • But not all companies do that, some prefer to only work with serious people such as Warren

  • Buffett.

  • His company Berkshire Hathaway has never split their stocks.

  • that's why it only has 1.68 million shares, in comparison Apple has 5 billion (4.91 Billion)

  • That's why a single buffet's stock (Berkshire Hathaway) cost over 300K dollars.

  • I guess most of us will never join buffets secret investors society.

  • But don't worry, Buffett wouldn't mind taking your money as well.

  • That's why he created class B shares which are more affordable (200usd).

  • The topic of the stock market never ends, but this video has to.

  • As always, hit the subscribe button and the bell beside.

  • Thanks for watching and I will see you in the next one.

When you think of investing, the first thing that comes into mind is this complicated world

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