William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour

William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour

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Hi. I'm Bill Ackman I'm the CEO of Pershing Square Capital Management, and I'm here today to talk to you about everything. You need to know about finance, and investing and I'm gonna get it done in an hour and you'll be ready to go, so. Let's begin in, order for you to get a better sense, of finance, and some of the basic terms associated with a, business. And investing in a business I'm gonna use the example of a lemonade stand we're, gonna go into business together we're, gonna open up lemonade soon so. The reason, why I'm using an example of a lemonade stand is a very simple way to understand. The basics of the business how. To understand how our business works our, business generates profits, what's, involved in raising capital to, start a company what, you do when you're ready to decide, to monetize, your investment, or take some money off the table you'll, be able to understand each of these concepts, through the very simple, lens of a small. Startup business like a lemonade stand. We're. Gonna go into business together we're. Gonna start a company and. We're gonna start a lemonade stand and no, I don't have any money today so I'm gonna have to raise money from investors to launch the business so. How am I gonna do that well I'm going to form a corporation it's. A little filing that you make with the state and you've come, up with a name for your business will call it Billy's lemonade stand, and, we're gonna raise money from outside investors, we need a little money to get started so we're going to start our business with a thousand, shares of stock we just made up that number and. We sell 500, shares more for $1 each to an investor, the. Investor is gonna put up $500. We're gonna put up the name, and the idea we're gonna have a thousand, shares he's gonna have 500, shares he's, gonna own a third of the business for his $500, so, what's our business worth at the start well, it's worth $1,500.

We Have $500 in the bank plus, $1,000, because I came up with the idea for. The company now, we need a little more than $500. So what am I gonna do I'm gonna borrow some money and, borrow from a friend and he's gonna lend me $250, and we're. Gonna pay him 10% interest, a year for, that loan now. Why do. We borrow money instead of just selling more stock well by borrowing, money we, keep more of the stock for ourselves so, if the business is successful we're. Gonna end up with a bigger percentage of the profits. So. Now we're gonna take a look at what the business looks like on a piece of paper we're gonna look at something called a balance sheet balance sheet tells you where the company stands what, your assets are what your liabilities, are and what your net worth or, shareholders, equity is you take your assets in this case we've raised five hundred dollars in exchange for the five hundred dollars the person who put up the money only got 1/3 of the business the other two-thirds is owned by us. For starting the company well that's a thousand, dollars of goodwill for. The business, we're. Borrowed two hundred fifty dollars we're. Gonna owe twenty. Fifty dollars it's a liability so, we've got five hundred dollars in cash from selling stock two, hundred and fifty dollars from raising debt and we. Owe, $250. Loan and we have a corporation, that has and you'll, see on the chart shareholders, equity of fifteen hundred dollars so, that's, our starting point now let's keep moving. What. Do we need to do to start, our company we need a lemonade stand that's, gonna cost us about three hundred dollars that's called a fixed asset unlike. A lemon, or sugar or, water this is something you like, a building you buy and you build it it wears out over time but it's it's a fixed asset and then, you need some inventory what do you need to make lemonade well you need sugar you need water you need lemons you need cups you, need little. Containers and. Perhaps some napkins and you need enough supplies so, let's say have 50 gallons of lemonade in, our of the start of our business now 50 gallons gets us about eight hundred cups of lemonade and we're ready to begin, let's. Take a new look at the balance sheet so now we've. Spent five hundred dollars we only have two hundred fifty dollars left in the bank but, our fixed assets are now three hundred dollars that's our lemonade stand our, inventory is two hundred dollars those are the supplies and things that lemons that we need to make the lemonade goodwill hasn't changed at a thousand, so our total assets are. $1,750. We. Still owe $250. To the person who lent us the money surely. The equity hasn't changed we haven't made any money all we've done is we've taken cash we've. Turned it into other assets that we're going to need to succeed in our lemonade. Stand business. Let's. Make some assumptions, about how the business is going to do over time we're. Gonna soon we're going to sell eight hundred cups eliminate a year we're gonna assume that each cup we can sell for a dollar and. It's gonna cost us about five hundred thirty dollars per year, to staff our lemonade stand so. Now let's take a look at the income statement so the income statement talks about. The profitability about. The revenues that the business generate what the expenses are and what's left over for. The owner of the company so we've got one lemonade stand, we're, selling eight hundred cups of lemonade and our stand charging. A dollar so we're generating about eight hundred dollars a year, in revenue and, we're spending two, hundred dollars in inventory there's, a a line item here called cogs, that, stands for cost of goods sold, we have depreciation. Because our lemonade stand gets a bit beat up over time and it wears out over five years so it depreciates, over, five years we've, got our labor expense, - for. People to actually, pour the lemonade and collect the cash from customers, and, we have a profit we, have an e bit and. That's earnings, before interest in, taxes, of ten dollars it's kind of our pre-tax profit. For, the business we didn't make very much money because you take that pre-tax, profit. Of ten dollars and, you compare it to our revenues. It's about a 1.3. Percent margin. That's not a particularly, high profit, now. We've got to pay interest on our debts and. We have a loss of $15, and then we, don't have any taxes, but at the end of the day we still lose money. Should. We continue to invest in the business we've lost money in the first year is it time to give up well let's think about it. Let's. Make some projections about what the company's gonna look like over the next several years, let's. Assume that we take all the cash the business generates and we're gonna use it to buy more lemonade stand so we can grow let's.

Assume We're not gonna take any money out of the company let's we're not gonna pay a dividend, we're gonna keep all the money in the company and reinvest it as we build our brand we can charge a little more each year so we're gonna raise our prices about a nickel five. Cents more for each cup of lemonade each year and then. We're going to assume we can sell 5% more cups, per stand per year so we've got a built in growth assumptions. So. Let's take a look at the company, take. A look at this chart you'll see in year one we started out with one lemonade stand we add one, a year and then we buy, your five we're up to seven. Because we've got a big expansion, plan our, price per cup goes up a nickel a year and our revenue goes from eight hundred dollars and starts to grow fairly, quickly and the growth comes from increased, prices, four cups. Of lemonade and it also comes from opening more, stands so, by year five we have almost $8,000, in revenue our. Costs, are relatively. Constant which is lemonade, and the sugar that's. About seventeen, hundred two, dollars we, have depreciation. As the more and more stands, start. To wear out over time we've. Got labor expense, but. By year five the business actually doing pretty well we went from a 1.3, percent margin, to, a over a 28 percent markets, the business is now up to scale we're starting to cover some of our costs we're growing, we're. Still paying $25 a year in interest for our loan and. We have a earnings, before taxes. After interest of $2,300. By the end of year five so, we put five hundred dollars into the business we, borrow 250, and by, year five we're making a profit of, $2,300. That sounds pretty good now we have to pay taxes to the government that's about thirty five percent we. Generate net. Income or another word for profits of fifteen hundred dollars by the fifth year and about. A dollar, a share so, if you think about this our. Friend put up five hundred dollars to buy five. Hundred shares of stock he paid a dollar and. After five years if our business goes as we expect he's actual making $1 a share in profit that sounds like a pretty good peel. Let's. Look at the cash flow statement so. As the business becomes more and more profitable, we, generate more and more cash and the, cash builds, up in the company we go from $500, of cash in the company to over, $2,000, of cash over the period. The. Balance sheet you know again the, starting balance sheet had shoulders. Equity of fourteen, hundred ninety dollars but as the business becomes more profitable, the. Profits add to the cash they add to the, assets of the company our liabilities, have not changed, and the business continues to build value over. Times again by the end of year five we've got four thousand, dollars. Of shareholder equity, and that's almost, three times what it was we started. Now. Is this a good business or a bad business how do we think about whether. It's good or bad one, thing to think about is what, kind of earnings, are we achieving compared. To how much money went into the company. Now, this is a business that we valued at $1500, when he started someone put up $500, for a third of the company we give it a $1,500, value but the Ender fear your five it's earning 50 over $1500. In earnings. So, that's a over a hundred percent return on the, money that we put into the company that's actually quite a high number, we've spent $2,100. In Capitol. Building lemonade stands and, we earn twenty, three hundred and thirty six dollars in year five on the capital we invested that's over, a hundred percent, return on capital that's a very attractive turn. Earnings. Have grown at a very rapid, rate a hundred. And fifty five percent per annum this is really a growth. Company and our, profitability is gone from 1.3 percent to 28.6%. By. Year five that sounds pretty, attractive and it is so. Let's look at the. Person who put up the loan well that person put up $250, and the. Business has been profitable we've been able to pay them their interest of 10% a year $25, a year and, they're happy because they put up $250, they're getting a 10% return on their loan and the business is worth well more than $250.

We've Got more than that in cash as, a result they're in a safe position. But. They've only made 10%, of their money now let's compare that with the equity investor the person who bought the stock in the company that. Person earned $1 a share in year five versus. An investment, of $1 a share so, he's earning over, a hundred percent or about a hundred percent return on his investment versus. Only ten percent for the lender so. Who who got the better deal well obviously the, equity investor now, why do the equity investor why do they have the right to earn so much more than the lender the, answer is they took more risk if. The business failed the, lender is entitled to, the first 250 dollars of value that comes from liquidating, the company so the if you sell off the, lemonade stands and you only get 250, dollars the lender gets back all their money they're safe they got their 10% return while the business was going they, got back their $250. But, the equity investor the person who bought the stock is, wiped out because they come after the. Lender. So. What's what's the difference between debt and equity debt. Tends to be a safer, investment because, you have a senior, claim. On the assets of a company and. It comes in lots of different forms you've heard of mortgage debt on a home that's a secured, loan secured by a house but you could have mortgage debt on a building for a company there's. Senior debt there's junior debt there's mezzanine debt there's, convertible, debt bottom, line it's all debt comes. In different orders of priority, and a company and. Your the, rate you charge is in. You know is inversely, related to your security, so the better the security, and, the less risk the lower the interest rate you're entitled to receive the. More junior the loan the higher the interest rate you're entitled to receive but you, don't you can avoid the complexity, all you need to think about is debt comes first, it's a safer, alone but your your, profit opportunity, is limited now. The equity, also. Their varying forms or something called preferred equity or preferred stock there's common, equity or common stock and again stock and equity are basically synonyms. There, are options but really, not worth talking about today the important point is that equity gets everything that's left over after the debts paid off so it's called a residual, claim. Now the good thing about the residual claim is the business grows in value you, don't own your oh your lenders anymore. But all that value goes to the stockholder so the question is why was the lender willing to take only a 10% return when. The equity earned a much higher rate of return and the answer is when the business started there was no way of knowing whether it would be successful, or not in, the lender made a bet that if the business failed well they could sell off a lemonade stand you know cost 300 dollars to make it that would have some lemons and lemonade even. If they sold at a much lower price than the dollar they originally projected the. Lender felt pretty comfortable, that they get their money back whereas.

The Stockholder is really taking a risk they, were betting on the profitability, of the company and they're taking a risk that if it failed they would lose their entire investment so they were entitled, to get a higher return, or. That the potential to have a higher return in the event, the business was, successful. Let's. Talk about risk you, know a lot of people talk about risk in the stock market is the risk of stock prices moving up and down every day we. Don't think that's the risk that you should be focused on the risk you should be focused on is invest in a business what are the chances that you're gonna lose your money there's gonna be a permanent, loss when, you're thinking about investing your own money when, you're thinking about one investment versus another don't worry so much about whether, the price things up and down a lot in the short term what matters is ultimately. When you get your money back will, you earn a return on your investment, how, do you think about risk well, one way to think about risk is to compare, your. Risks to other alternatives so you can buy government, bonds and government bonds are considered today the lowest risk form, of investment, and the US Treasury issues. 10-year. Three-year, five-year debt there's a stated interest rate and today a 10-year, Treasury you earn about a three percent return so, you give your government, thousand, dollars you get thirty dollars in interest at the end of ten years you get your thousand. Dollars back so that's very very safe and that sort of provides a floor now obviously you're gonna make a loan you, can lend money to the government and earn three percent well they're gonna lend money to a lemonade stand you want to earn meaningfully, more so in this case, the. Lender, is charging a 10% rate. Of interest why ten percent because. They, want to earn a nice fat spread over what they can make lending, to the government because the start up lemonade stand business is a higher risk business. Equity. Investors sort of think about things similarly so the, higher the. Valuation. The more, risky, the business. The. Higher the rate of return the equity investor is going to expect and the, lower the risk business the lower the return the equity investor is going to expect and, equity. Investors don't get interest. The, same way a lender does what equity investors get is they get the potential, to receive dividends, over the life of a company. Let's. Talk about raising, capital you started this lemonade business on the point of this was to make money in the first place, business. Is doing very well yet. I as, a as. Having, started the business coming. Up with a name and the concept, hired all the people I've made nothing all, right so the business is grown in value but where's my money I need money to buy a car for examples I want to buy a car for $4,000. What. Are my choices what can I do well. We've, taken all the cash the businesses generated, we reinvested, in the business now the good news is we've, taken all that money we've, been able to use it to buy more lemonade stands and these lemonade stands are more and more productive, and it's grown the value of the business faster and faster and. My alternatives, could include well, instead of growing the business so quickly instead of investing, in more lemonade stands I could simply pay dividends, to myself now. The good news about that is I get money along the way it's. Bad news about that is the business wouldn't grow as quickly you have a business as profitable, as this lemonade stand company and we can earn you, know hundreds of dollars in each and you stand it makes sense to keep investing well, how do I keep my business going and growing taking, advantage of the opportunities, but take some money off the table how do I do that sell, my lemonade stand business, you know I started this one in New York maybe. There's someone in New Jersey who wants to buy me consolidate. My. Lemonade stand company, my problem. With that is once I sell it I can no longer participate in the opportunity, going forward I believe in this business I think it's gonna be very successful. Over, time so that's, one alternative the, other alternatives, other, than selling up a hundred percent of the business is to sell a piece of the business now I can do that privately I, can find an investor who wants to buy a private interest in the company, and.

If The business is working off I can sell them a piece of the business and we can be successful the. Other alternative is I can take the business public an IPO the abbreviation, stands for an initial public offering and its. Initial because it's the first time a company's going public going public means you're selling stock to the broad, general public, as opposed to finding one investor by an interest in the company and it's, an offering because you're offering people the opportunity, to participate what's. Interesting as an IPO doesn't make someone rich all it really does is it takes a business that they already own and it. Sells a piece of it to the public and it, gets listed on an exchange when, you decide you want to take your business public you're gonna have to reveal a lot of information to the public in order to attract, investors, to participate and the Securities and Exchange. They're gonna study, this perspectives, very carefully you're gonna make sure that you disclose all the various risks associated with investing in the company and, you're also going to have an opportunity to talk about the business that's kind of an exciting time for you because when you sell shares to the public that's really in most, cases the way to get the optimally, high price for the company but, you don't have to sell a hundred percent of the business to the public in fact typically. You only sell a small percentage you get to keep the rest you get to keep control of the company but, you get to raise money in the offering and you can use that money to buy the car that, we were talking about before. Now. Before you decide to go public or even to sell it at all probably. A good idea to figure out what the business is worth so let's talk about valuation. Or how to value. Business. One. Way to think about the value of your business is to compare it to other similar businesses now. The stock market is actually a pretty interesting place to look the stock market is a list. Of companies, that have sold shares to the public and you can look in The New. York Times or The Wall Street Journal or online on Yahoo Finance or, Google or other sites, and look, at stock prices, for Coke for McDonald's, and what, the stock prices tell you is what the value of the company is and how do you figure out the value of the company well you look at where the stock price is you, count how many shares are outstanding shares. Outstanding will be listed in various, filings with the SEC you multiply the shares outstanding times, the stock price that, tells us the price you're paying for the equity of the company so if you go back to our example of our little. Lemonade. Stand we have, fifteen hundred shares of stock outstanding we sold them for a dollar, initially, a one. Third of them to a investor. And the business initially had a. Value. Of fifteen hundred dollars so, what is the business worth today well. One. Way to look at it let's look at other lemonade, stand companies let's assume another other lemonade stand companies, have sold either, in the private market the public market or a price, of 10 times earnings or 10 times profits, that will give you a sense of value so let's assume another lemonade stand company is trading at 20 times earnings in the stock market, well, we earned $1 per share in year 5 we, put 20, multiple, on that dollar, the, business is worth according, to the comparable about $20 per share we've, got 1,500, shares outstanding. Multiplied 1500, times 20 now our businesses worth $30,000. Its we had a company that started that fifteen hundred five years later it's worth thirty thousand dollars that's, actually quite good well, how do we raise four.

Thousand Dollars if that's the appropriate value, for our business well. If we sold, 200. Of our shares to, under, our shares that are today now worth twenty, dollars a share we could raise the four thousand dollars that we are talking, about now. What. What would that do what would happen if we sold two of our share two hundred of our shares in the market well our interest, in the business would go down because we write, today we own 66. And two-thirds percent or two thirds of the company a third is owned by our private investors, well, if we sold stock in the market if. We sold 200, of the shares that we would own our. Share our ownership would go from sixty-seven, percent to 53 percent so the good news there is we still have control of the business because in most public companies owning a majority allows. You to control, the business going forward but, because the company's now owned by, public. Shareholders you have to make sure their interests are properly represented so you have to have a board of directors a group, of individuals, who represent the interests of the shareholders who, have a duty to, make sure that their shareholders are treated properly, and. You wouldn't have the same degree of flexibility, you had when you were a private company because, you have other constituencies. That you need to think about, now. The benefit of the IPO is the stock would now be liquid, there'll be a market, where it would trade in the public markets and then over time if I wanted to sell more stock I could do, so or new. Investors wanted to come in they could buy stock and our stock would now be liquid make. Me feel better about this business in terms of my ability to at. Some point exit or if I wanted to raise more money I could sell stock fairly easily in the market because each day you could look up the price, either. On the web on. New. York Times or otherwise and you can figure out what your business is worth. Okay. Now how. Does this matter to. You now, the purpose of the example of our lemonade stand is just going to give you a primer on, what companies, are what. They do how. They earn profits, what the various reports they provide to investors who investors, can figure out what they're worth and. The. Purpose of this lecture is to give you a sense of some, of the things you need to think about when you're thinking about investing perhaps, some of your own money whether you want to invest in a lemonade stand whether. You want invest in a cup, the market. Let's. Assume at, 22 you got a pretty good job instead, of spending your money on you. Know gadgets. Or fancy. Apartment, or not so fancy apartment, or going out and drinking, a fair amount you put some money inside you start investing money let's. Say you could save $10,000. At 22 and, you can earn a 10%, return on that money between. Now and then time you retire what. Would you have in 43. Years the answer is you put aside $10,000, you don't save another penny and. You invested it in your 10%, of your money each year you'd. Have six hundred thousand dollars in. Your 43 and the reason for that is well, in year one your $10,000. Would become 11 your two year $11,000. Would grow by 10 percent and so you'll be earning interest not, just on your original principle, but, you'd earn interest on the interest you.

During The previous year and that compounding. Effect allows, money to grow in an almost exponential. Fashion now, obviously if ever more than 10%, you. Can earn even higher returns no that's. If you put $10,000. Inside in 22 you, have $600,000. In 43 years that's pretty good what, if you had to wait not until you were 32 the problem there is a year, 33 you'd only have two hundred and thirty two thousand dollars maybe that's not enough to retire so a key thing here is if, you're going to be an investor it's, really one of the most valuable assets you have today as someone who's 18 or 19 years old is your youth you, want to start early that your money can grow over time. And. What if you get her and 15% give me a better sense of how powerful compounding. Is remember at 10% for 43 years you'd have $600,000. That's pretty good but, if you're in 15%. You'd have over 4 million now you're in a pretty good position. In and so, obviously making. Smart decisions about, where you put your money has. A huge difference in what your retirement assets are now obviously you put aside more than $10,000, we could put aside $10,000. Each year then, your your your wealth would be you know quite enormous. Now. Just for fun if you were one of the world's great investors, Warren. Buffett being a good example if you could earn 20% per year for, 43 years you'd have 25, million dollars again the original $10,000. Investment would. Increase by twenty-five hundred times over that period of time just. By earning a 20% return, Albert. Einstein said the most powerful force in the universe is, compound, interest. So. Key is start early earn. An attractive, return and avoid losing money and you're going to have a very nice retirement. Okay. Now, let's talk about the risk of losing money now let's assume that in order to try to get a 20% return you took a lot of risk and it, turns out that every, you. Know every 12 years you, lost half your money because you hit a bad patch and the market you made dumb decisions where. You're twenty five million dollars at. 20%, would, now only be worth a million eight in. 43 years so a key success factor, here is not, just shooting, for the fences try to get the highest return it's. Avoiding, significant.

Losses Over the over the period, okay. So. As Warren Buffett says rule, number one in investing, is never lose money rule. Number two is never forget rule number one so if you can avoid losses. And earn. An attractive, return over time you're gonna have a lot of money in many if you can stick. At it for a long period of time. Okay. So how do you be a successful investor. Now, I'm assuming that you're not gonna go into the business of investing assuming, that you're gonna be a doctor or a lawyer you're gonna pursue your passion, but, you're gonna have some money they're gonna save over time and. I'm. Gonna give you my advice on the topic it's not necessarily definitive vice but it's what the advice I would give my sister my. Grandmother on what she should do if you were in the same position I think. That's probably the right way to think about it so. Number one how do you avoid losing money what are good places to invest well my first piece of advice is despite the story about the lemonade stand I'd, avoid investing in lemonade stands I'd avoid investing in start-up businesses. Where. The prospects, are not, very. Well known because again you don't need to make a hundred percent a year to have a fortune you, just need to invest at, an attractive return ten fifteen percent over, a long period of time your money grows very significantly, so, how do you avoid the. Riskiest investments, I would my advice would be to invest in public, security invest in listed. Companies companies that trade in the stock market why, because those businesses, are tend, to be more established, they have to meet certain hurdles before they go public the. Stocks are liquid, so you can change your mind if you want to sell if you invest in a private lemonade stand it's hard to find someone to, take you out of that investment unless, that business becomes fabulously. Profitable, that's, a piece of advice number one invest, in public companies number. Two. You want to invest in businesses that you can understand what I mean by that is there, are lots of businesses that you come in that you deal with in the course of your day, and your personal life whether it's a retail store that you know because you like shopping there or it's a product. Your, your your iPad or that, you know you, think it's a great product but, you know you understand, you have to understand how the company makes money the. Business is just too complicated you don't understand how they make money even if they've had a great track record I would, avoid it a lot of people thought Enron, was an incredible business. Because it appeared to have a good track record but very, few people understood, how they made money it, was good to avoid it. Another. Very important criteria is you want to invest at a reasonable price it, could be a fabulous, business that's done very well over a long period of time but, if you pay too much for it you're not gonna earn a very good return the. Last bit is that you want to invest in a business that you could theoretically own, forever the stock market were too close for ten years you wouldn't be unhappy, what, do I mean by that now again if you're going to compound your money if at, a 10 or 15 percent return, over a forty three year period of time you, really want to business it you can own forever you don't want to constantly have to be shifting, from one business to the next and, what, of what are businesses that you can own forever well the very few that.

Sort Of meet that standard. May. Be a good example is coca-cola all right what's good about coca-cola, is, it's relatively easy business to understand you understand how coke makes. Money right they sell a formula. Syrup. We. Two bottlers, and two retail, establishments, and they make a profit every time they serve a coca-cola people going to drunk, a lot of coca-cola for a very long period of time the, world's population is growing they, sell in almost every country in the world and, each year people drink a little bit more coca-cola so it's a pretty easy business to understand and it's, also a business that I think it's unlikely to be. Competed. Away as. A result of technology, or some other new product right it's been around long enough people. Have grown used to the taste you. Know, they make, parents. Give it to their children and, you can expect that'll be around a long period of time I think that's one good example another good example might be at McDonald's you, may not love McDonald's hamburgers but it's a business that it's been around for 50 years you. Understand how they make money they open up these little build these little boxes they. Rent them to the franchisees, they charge them royalties, in exchange for, the name and they sell hamburgers and french fries and you know what people have to eat it's, relatively low-cost food the quality is pretty good and they're great and they continue to grow every year so I think the consistent. Message here is try to find a business that you can understand, that's. Not particularly complicated that, has a successful, long term track record that. Makes an, attractive profit, and. Can, grow over, time so what, are the key things to look for in a business as I, say that lasts forever we. Want a business. That sells a product or a service. That, people need and that. Is somewhat. Unique and. They. Have a oil. T2 this particular, brand, or, product. And the people are willing to pay a premium for that and a good example it. Might be a candy, business while. People are willing to buy generic versions, of many kind of food products flour, or sugar they, don't need to have the branded, product, when, it comes to candy people don't tend to like the Walmart version of the Kmart version they want the you, know the Hershey chocolate, bar or the Cadbury, chocolate bar or the See's candy, they want the the, brand and they're, willing to pay a premium for that and so. That's I think a key thing you want the product to be unique you don't want it to be a commodity that everyone else can sell because when you sell a commodity, anyone. Can sell it and they can sell it at a at, a better price and it's very hard to make a profit, doing that if you're investing for the long term you want to invest in businesses that have very little debt in. Our little example before we talked about our lemonade stand you, know there's $250, worth of debt I didn't, put too much pressure on the lemonade stand company, but if it had been a thousand dollars we, hit a rough patch the. Business could have got on a business for failure to pay its debts the, shareholders could have been wiped out so if you can find a company that can earn an attractive, profits it, doesn't have a lot of debt they generate vastly, more profits, than, they need to pay the interest on their debt that's a safe place to put your money over a long period of time you. Want businesses that have what. People call barriers, to entry you want a business where, hard. For someone tomorrow to. Set up a new company to compete with you and put you out of business I mean going back to the coca-cola example, Coca Cola has such a strong, market presence you know people have come to expect when they go to a restaurant they can ask, for a Coke and get a coke it's, very hard for someone else to break in and of course there's Pepsi and there are other soda. Brands. Perhaps she's been around a long time coca-cola, and Pepsi have continued, to exist.

Side-by-side Over long periods of time so when you're thinking about choosing. A company make sure that they sell a product or a service that's. It's hard for someone else to make a better one that you'll switch to tomorrow, you, also want businesses, that are not particularly sensitive to outside factors, so-called extrinsic, factors that, you can't control so, if a business will. Be affected dramatically if the price of particular. Commodity goes up or, if interest rates move up and down or, if, currency. Prices change you want a company that's fairly immune, to what's going on in the world and I'll use my coca-cola example, I mean if you think about coca-cola it's a product that's been around probably 120. Years over. That period of time there's been multiple world wars the development, of nuclear weapons all, kinds, of unfortunate. Events, and tragedies, and so on and so forth but each, year the company pretty much makes a little bit more money. To made it before and they're gonna be around and you can be confident, based on the history that, this is a business that's going to be around almost regardless of, whether interest rates are at 14% when. The US dollar is, you. Know not worth very much or the price of Gold's up or down those are the kind of companies you want to invest in a long term businesses, that are extremely. Immune. To, the events that are going on in, the world another, criteria, if you think back to our lemonade stand company as, we grew we had to buy more and more lemonade stands those lemonade stands only cost $300, each but, imagine a business where every time you grew you had to build a new factory to. Produce, more and more product and those factories, were really expensive. Well, that company might generate a lot of cash from the business but in order to grow you're gonna have to just reinvest, more and more cash into the business the best businesses, are the ones where it doesn't they don't require a lot of capital, to be reinvested in the company they, generated lots of cash that you can use to pay dividends, to your shareholders or, you can invest in new high, return, attractive. Projects I guess, the last point I would make is, there you invest in public companies it's. Probably safest to invest in businesses that are not controlled, controlled. Companies, kind of like our lemonade stand business that we took public the. Problem with a controlled company unless. The controlling shareholder is someone you completely trusts unless. There's someone that has a great. Track, record for taking care of so-called minority, investors than non controlling, shareholders, you can risk with proposition to invest in that business because you're at the whim of the controlling shareholder and, even if the controlling shareholder today, is some of that you feel comfortable with there's no assurance that in the future they, might sell control to someone else it's not going to be as. Supportive. Of the shareholders. The business so it's not that you just you. Can simply. Have a profitable, business and a business that has. Has done well you have to make sure that the management and the people that control the business think. About you as an owner and I can protect your interests so these are some of the key criteria, to.

Think About. Now. When, are you ready to start investing money my. Guess is you're a student you probably have student loans perhaps. You even have some credit card debt you're gonna graduate you're gonna get a job so. You don't want to jump right in and, while. You have a lot of debt outstanding start, investing the stock market stock, market is a place to invest, when you've got a good you have money you can put away and you won't need for five years or maybe ten years so. If you're paying relatively. High interest rates on your credit cards you definitely want to pay off your credit cards first before, you think about investing in, the stock market, your student loans are probably lower cost and your credit cards but again here my, best advice would be you know once. You if your student, loans are costing you six or seven percent well. If you pay them off as if you earned a guaranteed, six or seven percent return and. You're just better off getting rid of your credit. Card debt and even your student loan debt before you commit a lot of material. Amount of money to the to. The stock market even. Once, you you paid off your credit card debt or perhaps you're paid down your student loans you want to have enough money in the bank so that even if you were to lose you lose, your job tomorrow you've got a good six. Months maybe even 12 months of money, set aside. Let's. Talk a little bit about the. Psychology, of investing so. We've talked about some of the technical factors how to think about what a business is worth want, to buy a business at a reasonable price you want to buy a business that's going to exist forever that, has barriers, to entry where it's going to be difficult for people to compete. With you, but, all. Those things are important, and a lot of investors follow those principles. The, problem is that when they put them into practice, and there's, a panic in the world and the stock market is heading down every day and they're watching the value of their IRA. Or their, investment. Account decline, the. Natural tendency is sort of to do the opposite of what makes sense to be a successful investor you have to be able, to avoid some. Natural human tendencies, to follow the herd the, stock market's going down every day your natural tendency used to want to sell when, the stock market's actually going up every day your natural tendencies want to buy so.

In Bubbles, you probably should be a seller in busts. You should probably be a buyer and. You have to have that kind of a discipline. You have to have a stomach, to withstand the volatility, of the stock market. Key. Way to have a stomach, to withstand the volatility, stock market is to be secure yourself you've. Got to feel comfortable, that you've got enough money in the bank that you don't need what you have invested, unless. For. Many years that's a key factor number, two you have to recognize that the. Stock market the short term is what we call a voting machine it really represents, the whims of people. In the short term stock. Prices are affected by many things my events going, on in the world that really have nothing to do with the value of certain, companies that your investments, you've got to just, accept the, fact that what you own can go down meaning clean value after, you buy it that doesn't actually mean you've made an investment mistake just, the nature of the volatility of the stock market how, do you get comfortable don't, just buy a stock because you like the name of the company you, do your own research you get a good understanding the business to make sure it's a business that you understand, make. Sure the price you're paying is reasonable, relative, to the earnings of the company. Let's. Say this is just not for you I don't want to invest by. Individual, stocks that just seems too risky I don't have the time to do my own research what. Are your alternatives well, your alternatives, are to outsource, your. Investing. To, others you can hire a money manager or you can hire a group of money managers there are a couple of different alternatives, for, a start-up investor. The. Most common, alternative, are mutual. Fund companies so what's a mutual fund a mutual fund is a I. Guess, technically, it's a corporation, but, where you buy stock, in this corporation, and the and the manager, selects. A portfolio, of stocks so what they do is they pull together capital. Money from a large group of investors, let's, say they raise a billion dollars and they take that money and they invest in a diversified, collection, of securities now. The benefit of this approach is that with a tiny amount of money you know you can even less than a thousand dollars you can buy into a diversified, portfolio, managed. By a professional manager. Who's compensated. To, do. A good job for you investing in the market so mutual, funds are a good, potential area for investment the, problem is they're probably seven, eight thousand maybe ten thousand different mutual funds and, some are fantastic, and some are not particularly good you need to do research to find a good mutual fund manager in the same way that, you need to find. Individual, stocks so it's not just the easy thing of just, invested neutral funds. So. Here are a few key. Success. Factors in identifying a, mutual, fund or, or a money manager of any kind. To. Select number. One you want someone who has an investment strategy that makes sense to you you, understand, what they do and how they do it they're. Not appealing, to your insecurities, by using complicated, words and expressions, that you don't understand if, they can't explain to you in two minutes what, they do and how they do it and why it makes sense then it's a strategy you shouldn't invest in number. Two this is not necessary this order this is probably should be number one as you want someone, with a reputation for integrity if, again if you're starting out you probably want to invest in some of a mutual, fund that's sponsored, by some of the larger. Mutual. Fund complexes, as opposed to a tiny, little mutual fund that's privately, but, by a mutual. Fund company that you've never heard of there's some Dennis in, the. Larger. Institutions you, can be more confident, that they're not going to steal your money you, want someone an, approach where the investor invest money on the basis of value, I know it sounds kind of kind, of obvious but you know value investing, is has, a very long-term track record and now there are other kinds of investing, including, technical investing, where people are betting on stocks. Based on price movements, but, I highly recommend. Against those kind of approaches so you want someone who's making investments, where they're buying companies, based, on their belief that the prospects, of the business will be good and that the price paid relative, to, what the business is worth represents. A significant, discount. You. Want to invest with someone that as a long-term track rep long, term track record and I would say five years is the absolute minimum and, ideally you want someone who's got 10, 15, 20 years of experience investing.

In The markets because there's a lot that you can learn being. A long term investor, in, the market you, want someone who has a consistent, approach where, they haven't changed what they do materially. Year by year that they have a stated strategy, that they've kept too thick and thin that's, enabled them to earn an attractive, return over. Their. Lifetime. As an investor what we. See in some ways most importantly, you want someone who's investing, the substantial, majority, of their own money alongside. Yours, you want someone whose, interests, are aligned with yours if it's a mutual fund you want them to have a lot of money in their own mutual fund if, it's a hedge fund which is a privately. Sold. Fun. For investors who have higher. Net worth you, wants a manager who's investing alongside you as well. We. Started with a little lemonade stand company and the purpose of that was to give you some of the basics and how to think about a business you know where the profits come from what revenues are what expenses, are what a balance sheet is what, an income statement is how, to think about what a business is worth how, to think about what. The difference between a good business is versus, a bad business, how, dead I offer, is, generally lower risk but, lower return how equity investors. Or investors who buy the stock, or the ownership of a business have, the potential to earn more or lose, more we, use that as a back just as the basics, to get some of the vocabulary, to, think about investing and, we talked about. Investing, in the stock market we talked about ways. To think about how to select investments, how to deal with some of the psychological, issues, of investing we covered a fair amount of ground in a relatively short period of time. Now. I entitled the lecture everything. You need to know about finance, and investing in less, than an hour well it really isn't everything you need to know it's really just an introduction and hopefully I didn't. Mislead you and induce, you watch, this for an hour but, there's a lot more that can be learned and there's some wonderful books that can teach, you on the topic I think what's interesting about investing, whether. You choose this as a full-time career. Or not if, you're gonna be successful in. Your career you're gonna make some money and how you invest. That money doesn't make a big difference in the quality of life that you have and perhaps that your children have or the kind. Of house you're able to buy or the retirement. That you're gonna be. Able to enjoy and we talked about the difference between a 10%, return and a 15 and 20% return over a very long lifetime what, impact that has in terms of how much wealth you create over the period so. Investing is gonna be important to you whether you like it or not and learning. More about investing is gonna have a big impact on your.

Your, Your. Quality, of life if, money is something that you need in order to meet. Some of your goals I. Got. Interested. When. I was probably, 22, or 23, I started, interested. In being an investor and I read a book I read, book. Called the intelligent, investor was written by Ben Graham and Ben. Grimm is a famous value investor and, it's kind of like reading jean-paul. Sartre Zechs essays, and existentialism, you read it and it's either is an epiphany and it affects the way you live your life where, it's of no interest to you and this was the, equivalent but in investing, I found it fascinating and, what. I'd like to about investing is something, very accessible, even to someone who's 22 or 23, what's kept me intrigued. Is that. One, of the it's one of the few jobs where. Every. Day you can study. Something new you're constantly learning about new businesses, new situations, new management teams new issues, so. It's infinitely challenging, and. The. In the stock market are obviously, very dynamic, places so the challenges, continue. These same concepts, while they're useful in deciding, how to invest your portfolio, they're also very useful to you in thinking about decisions. Like buying a home making. Decisions in your line of work whether to hire, additional people you know this these kinds, of calculations and, thought processes, are are, helpful and they're helpful in life and I recommend that you learn. More thank, you for paying. Attention and I. Wish. You well.

2019-03-18 01:11

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He needs skinny trousers otherwise

bunch of garbage. just trying to make people pay their student loans and give money to coke and mcdonalds.

Please someone explain me how is the Pretax earning $15 when $25 has been given in debt from $10.

it's -$15 ... () means -

Index funds index funds index funds index funds

*I'm impressed at how simply this was explained. Us investment channels have a lot to learn from this one!*

I already knew all of this and the knowledge is pretty basic but I found the presentation so good that I watched it too the end ,this video just became my go too introduction to investment for people who have no idea how it works

I have started a channel to explain the subjets in easy words. Please subscribe me and have a look

Bill ackman needs to watch this video

invest in cryptocurrency www.unity.money

Hi, where are you buying a brand new car for $4,000 ? I believe I might be able to make money from this.

Hello guys! You may also check out my book about Money Management for free. Thanks. Here's the link: @t

I knew all of this already. Guess I’m ready to go long after researching 10q reports.

Thank you from a CPA in Canada. I will share with my clients.

If you want a billionaire to reply to your comment watch Ray Dalio's videos

Did you notice how labour is asuumed to be constant. Only spiked at year 5, that's how entrepreneurs think of you if they can keep you in for 5years at the same cost good for them but screw you if you don't demand more. That's why every end of the year demand more or leave and ask for more elsewhere since your experience grows, you age and inflation and cost of leaving goes up its only fair that the long term value you bring to the business (that actually outlived you) is rewarded. Stay awaken.

If Iv learned anything from beng watching shark tank for the past few year it's that no one makes it to year 5 unless your already to big to fail or you have a millionaire investor with a heart of gold backing you I guess you could hope to trend and make some money then jump out, maybe this is why we have almost an entire Generation desperately trying to earn passive income through youtube videos

Who else rewatches this often?

Tan olive, rather than stark white.. that might work. ... this guy, gets it - https://www.youtube.com/watch?v=PHe0bXAIuk0 - as does the Financial Times of London - their newspaper is pink... less eyestrain that way.

A lot of calculation i did just doesnt add up with his presentation. Some numbers are off and makes it very difficult for me to learn. I have more questions rather than answers.


Thank you so much . Informative presentation in a simple and systematic approach .

Hey there nice video Guyes you can visit here to know more Benefits of making payments in auto mode https://www.nsefinwiz.com/article/benefits-making-payments-auto-mode

When you find out that McDonald's primary revenue generating activity is selling franchises instead of that Big Mac. #I'mLovingIt ---- I really enjoyed the point made regarding investing in companies that have single shareholder control.

Wowwwwwww I love this video

Are you related to Mikasa Ackerman?

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We received a grant of $150,000 for our business.

Lol “everything you need to know about finance” more like 1/10 of what you should know about finance

Very useful insights and thanks for sharing.

Man, these billionaires are better at teaching finance than my Uni teachers!!

That moment when you need to summarize the whole video for your financial lit class

Why in 2:40 the initial $1000 is the Goodwill? Shouldn't It be in the cash line? What the Goodwill mean in this case?

Should at the 1st year income statement the net income is ($20) not ($10)? Because of tax cost $5, and tax should cost you right? Anybody can help confirming this? I'm learning and kinda confused

It like tax agency paying him

Seems like a lot people here are not finance majors, let alone business majors and think they know more than this guy. I'm a finance major and theres obviously more to this, but so what? Were you really thinking he was going to teach you how to trade ETFs and invest in Chinese markets in a matter of 45 minutes? Man go shove your arrogant brain up your ass you fucking twat.

Wonderful video

Thank you so much for sharing this information!!!! Great video!!! I watched till the end and I am so thankful for the knowledge provided. I wish you well and a happy life.

I just watched my 4 years in college :(

Lutherangrants ;com saved me from bankruptcy .They got me a business grant of $28,000 yesterday

For anyone wanting even more knowledge on investing check out some of the investing books I've done summaries for on the channel!

Thank you for the video! Great intro, insight, and tips to keep in mind.


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After 18:00 the subtitles are out of time...can you fix it?

Future Millionaires

I got a business grant of $30,000 credited to my bank account all thanks to lutherangrants com

there is a mistake on the slide in at the time: 07:17. Year 1 EBIT is 60$ and not 10$.

I am a stock broker... and to be honest everything he has said I agree with him... if you dont understand it then dont invest... my friend asked me about investing in stock market... you know although I have made alot of people lot of money, still i told her to go for mutual fund cz she wouldnt be able to understand it and stock brokers can easily manipulate her (she doesnt know even what finance means).... and one more thing, dont just trust your broker blindly, try to do your own research, so called trading signals will make you end up loosing all of your money...!! Chills!!!

thank you for your time educating us .. you take it from top to bottom with in 43 min really appreciated ..

Perfectly Explained. Thanks @Big Think (William)

Ichan disliked this..... then tried to raid it

These presentations are fantastic. What software or application is being used to make these presentations because they look so professional and neat. Can anyone tell me?


Big Think made a big mistake...net income for year 1 should be ($20) not ($10)

I understand that future investors/entrepreneurs are watching, but what the hell is up with these comments...

Hands down best advise for investing ever

Question regarding growing the business. You said assuming we take all the cash that business generates, but It do not make money the first year it lost. Where did you get the money from to open stand number 2?

Does anyone know what kind of software is used to make a video like this?

Lol he hopes he didn’t mislead us with the title.. that’s rich valient boy

At 8:33, shouldn't the growth from Year 2 to Year 5 be positive? The value per share is increasing.

See you guys in the millionaire club

It's called "IF YOU'RE SO SMART, WHY AREN'T YOU RICH?" for a reason.

such a great video. thank you for taking time to do this

"Everything you need to know about Finance & Investing"...well, this is not everything you need to know. I hope I didn't mislead you. - This is exactly the definition of misleading. He does it so smoothly, he gives the impression he's very comfortable with lying to your face. Great video, tho.

titl sucks

He is so hot!!

Ackman, your presentation is assuming that you’re speaking only to men, not women. You should be SO much more aware and conscientious about your audience and gender representation. Why lock women out? Every bit of “imagined scenario” representation in this is male (owners, investors, lenders) and supports sexist ideas of male success (ie, old man Warren Buffet surrounded by pretty, young female cheerleaders.)

I'm sure that most of you have heard of Wisebanc. No? Let me try something else. OptionsXO? WMOption? PrimeCFDs? Do these ring any bells? Of course they do. You should at least know about the OptionsXO scam, that has been out in the public since last year ( moneyahoy.com/10m-lawsuit-filed-israeli-binary-options-com…/ , drive.google.com/file/d/0B2lxPNq2sETrOGhMUXlnVEdwSFE/view ). By the way, it is said all over the internet that Birman Law is also a scam, working together with those fraud israeli firms, so don't start dreaming that they would be any help if you've been scammed. But let's talk more about our friend, Wisebanc (aka OptionsXO aka WMOptions aka PrimeCFDs). Beginnings: It all started somewhere in 2014-2015 in Israel, Herzliya, to be more precise. The name of the company was Toro Media, having as their owner and CEO Tomer Levi, operated by Omni Capital. Once more and more israeli scams were discovered, authorities started to do their jobs, banning all binary options scammers from Israel, so they had to find somewhere else to operate from. Where did OptionsXO (at the time) move to? Romania, the land of opportunities when it comes to binary scams. Where are they located? They only have 2 offices left, after their attempt to work under a Cysec regulated platform as well (Wise Trader in 2017, located in Bucharest at first, and later on in Cyprus). Since 2016, they have the main offices in Bucharest, Romania (retention office: Calea Floreasca 169, 2nd floor, 'Toro Telemarketing', and conversion office also in Bucharest, under the same name), but they are also located in Kiev, with one office, operation both conversion and retention. Their bank accounts are obviously in the Marshall Islands, Belize, Bulgaria, Romania. How they operate: The employees use fake 'stage' names, Oscar White, Robb Daniels, Ethan Stark, Mark Spencer, Roger Banks, Liam Brown, Andrew Novak, Jay Smith, Adam Louis, Warren Roberts, Simon Green and so on...they use american names it sounds more credible...everyone of them has a criminal and fake background story, lie about the place they are located in (at first, they used to say the office was in the UK, in Liverpool, later on they started saying they were in Bulgaria, right next to Romania, when, in fact, they were in Romania). There are two main departments in the office: - conversion: account managers: their jobs is to call clients who just registered, lurking them into making a deposit; they are not allowed to talk to the employees from the other department about customers (they are working in separate offices as well), as they are not allowed to know much about the business, other than they have to convince clients to deposit and the so-called senior account manager is going to take it over from there; -retention: senior account managers: this is the real boiler room, where the real scammers do their jobs, calling clients who deposited and tricking them into depositing larger amounts of money, so they can profit faster, opening 'successful' trades for them, so it look real; the real magic is how they use Team Viewer so they can see how much money a client has in his bank account, or how they steal money from their account without approval, passing all bank security layers. If a customer dares to say he doesn't want to put more money into the account, they push and push and eventually, they tell him he's on his own then, starting trading the initial deposit without customers being aware of it (therefore, the customers lose even the initial deposit). How do they get customers? Through scam adds, such as The Bitcoin Code, The Bitcoin Revolution, The Crypto Code or by buying data from other companies. Why Wisebanc aka OptionsXO aka WMOptions aka PrimeCFDs? The reason they change the platform's name so often is because: 1. too many bad reviews online, so it's hard to trick people; 2. being blacklisted by the banks, so transactions won't work (unless they are using China made terminals); 3. good way of erasing customers from their database and stealing their money. WISEBANC IS A SCAM! Once you're in, you will never get out. Biggest scam company operating on the market, stealing customers money (not only money they invest, but also make transactions without customers approval, never allowing withdraws , very aggressive, using a fake platform (claiming it's regulated by Cysec), getting warnings and fines from different authorities). If you happen to have invested with these scammers, go to a bank with all you have against them (screenshots of the conversations, recordings, bank statements, emails) and start a dispute against them (Chargeback).

Thank you!

Isn't this the guy who fucked it up greatly with Valeant? Well...

how did you get the cash to buy another lemonade stand after the first year??

Please help me. https://www.gofundme.com/6pi8ly0?pc=ot_co_dashboard_a&rcid=e63b3bf9e3884e458a69a9b05e0d2906

kayo smiffin I got u

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This is Excellent, Thank you

Good explanation. Basic, Very simple and understandable

If the logo of the channel is FU than you know somethings up

What does goodwill refer to in this case? In the balance sheet at 2:34?


What kinda investment gives you 10% annual return every single year?

I like it!

where is the cost of the stands

The lemonade stand is a fixed asset. These are normally used for long-term use and depreciate (or lose their value) over time. These are basically part of the Land, Plant, and Property which are used in production processes, or in this video, used to produce the lemonade. With this said, the cost per lemonade stand is $300 per brand new stand (look at 3:07 in the video so you can see where this information comes from).

I am going to be the worlds first nrillionaire.

I am going to be the worlds first niggallionaire

Does anyone want to partner up on a lemonade stand?


Or another type of business

William Ackman, thanks a million!!

Let’s call it “Billemonade”

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he's so attractive, I mean omg

Wow I can honestly say this was probably the most valuable YouTube video I have watched in my lifetime (and I am a big user of YouTube).

The best video ever on youtube. Others just induce people to click on the video, but this video taught me a lot. Such a valuable work done by the producer and the expert who delivered the presentation in such an understandable way

Bill should watch his own video and stop losing money

This was a great video but god the sound effects were super distracting to me. I put this on while I was doing other things and the little noises distracted me from the main points.

Evil phyco human.

Is this Faze Attach's Dad?

Thanks for the video but can someone explain how he calculated goodwill.I am a electrical engineer and I am starting a company.I want to know all finance and accounting things.Any recommendations of course that I can take to better understand all concepts will be helpful as well.Thanks so much again Mr William

how was the taxes of 5 dollars calculated?

I just don't understand what's wrong in this video, this 44 minute investment is worth it.

This was posted 2012 why people talk about Valeant and Herbalife lol

Bill Ackman is 191cm (6’3) tall. He looks short here lol

He's just a pointguard in basketball

Thoughts on Herbalife?

Watched the full video. totally agreed the need to do value investing to beat inflation and grow our wealth. More sharing of value investing at https://valueinvestingsingapore.sg

This will be better if you put each subtopics its start time, example, valuation: determining a company's worth 17:37

Great lecturing

a great video. i need to listen to this several times,.thanks


Great information, thank you!

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+tigere01 do you think logan paul is smart ?

+Lopsang Lama No, however one to be wealthy without inheritance or charity, one must be smart.

so wealthy=smart ??

Thanks for sharing this valuable information with us

You forgot the cost of a Pro-Lemonade lobbyist, a publicist to kill anti-lemonade stories in the news, and a indipendant lab to report findings that lemonade is good for you. However you can off-set the cost by purchasing blood lemons from conflict regions in Africa and routing it through a third party lemon holding firm in Switzerland.

+Lopsang Lama Yes.


Excellent, thank you very much

too many dramatic sounds but i'm loving it :)

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wow Bill Ackman is here, this is great, thanks a lot

Having more lemon stands without borrowing more money? Also the salary keeps the same? In the second year, after buying the second lemonade stand there in not enough money left to buy the inventory. There are 65 dollars missing. Also there is no money left to pay the staff.

You'll noticre that he didn't pay interest to his creditor. Also, it is possible to get more inventory and even fixed assets depending on the payment terms of your supplier. Also, those statements happened in a year, it can be possible that with the $10 left, he bought some more inventory, sold some, took out a loan for the stands, got more supplies on credit (payable next month or what), sold some lemonades, paid the supplier, sold some more, paid for the stands, and ended up with a $164 at the end of year 2.

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Im confused tho, he is ($15) short in year 1 (pre tax). Then he got a $5 tax which, after computing, gave him a net loss of ($10). Does that mean the government gave him $5?

Valuable Info...A complete college education in under an hour. Thanks Will.

i liked your simplicity in the approach, easy for all to understand

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This information is priceless. So much incredible information on youtube, and it's free..

here is another interesting video https://www.youtube.com/watch?v=_8qINEZbH-8

I will become a Billionaire

didn't this guy lose a shit ton of money with that pharma company?

Thank you for this video. I learned a lot.

So happy I found this.

Good lessons, here is another good video that explains few financial jargons too: https://youtu.be/tGAEtGQcpKQ

if you believe cocacola is here to stay hit a like

+Max D no doubt, was just checking if it was him haha

he is still a billionaire though

one of the best lectures on finance 101

They are few men who are expert in trading i count Mr George as one because of his unique trading strategy

Guess i'm ready to trade with George jorkins how can i contact him?

Extraordinary George with an amazing trading strategy

Mr George jorkins has the best strategy out there, I make $4,500 every ten days with him as my trader

George keep helping lives with his amazing trading strategy

Since i started trading i haven't seen a manager who impresses me like Mr George jorkins

Lutherangrants/org helped me financially for my business funding .All thanks to them i received a grant of $38,000 yesterday .

kind of optimistic to value a lemonade stand at $1000 with no previous sales (jokes)

+horse drum You can send him a mail at Georgejorkins07@gmail. com

Good video! Nice sound effects!

Bill, if you're reading these comments, invest in a good tailor. You look like you're drowning in that shirt.

Very nice presentation.. Thanks for explaining the basics, in a way, a beginner can understand.

Sharing your experience like this is often beneficial to an audience of hopeful investors.

I'm going to go out on a limb here and say this guy probably owns a lot of coca-cola stock because he's plugging the sh*t out of it... nevertheless great advice

For the straight line depreciation where did the 300 come from @5.07 1/5 * $300 = $60

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Worth every minute of your time!

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This is at least a full year of college course information in less than 45 minutes

I love this guy's hair.

Excellent information....thank you.

Wow absolutely fantastic! Thanks Big Think and Bill for taking the time to give us these invaluable lessons!

what an incredible video from one of the BEST OF FINANCE!!!!!!!

Thank you very much for video w/ now I understand the basic of the investment!

Thanks Mr Ackman.

How did you get $850 in revenue in the first yr by selling 800 cups at $1 per cup? And on the cash flow statement why did the capex increase by 300% in yr 5 when yrs 1 thru 4 were all flat at $300 per yr?

Big fan of Bill, but I found it hilarious when he preached in investing in businesses you understand and even used Enron as an example as an "incredible business" that nobody understood how they made money. The reason I bring that up is that he clearly does not remember his time with Valeant Pharmaceuticals, another "incredible business" where he invested Billions of dollars into a fraudulent company where he clearly DID NOT understand the business. Still, love Ackman though, he is only human and even he can slip up.

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so... why took 43mins to reach mutual fund strategy ;)

A very informative and useful presentation. A nicer title matching my taste would be "Some important issues in finance." Also some of the recommended investments should be titled low risk investments. Thank you very much.

Really like Bill Ackman, no nonsense

The Monk Way I like how you advertised your channel. Smart investment

As an art student, I think I got it in the beginning but lost my way in the middle. I can't believe myself, my heart tells me this is simple, but my brain can't process it.

It's impressive how well he rolled his sleeves up.

This isn't even a joke. I'm a graduate from 10 years ago and I flippin hate how slow they teached us and all the unnecessary fat we learned. With YouTube you can get gems like these all day. Even Mr. Ackman has said that investing is so easy to learn these days because of YouTube and books available. It's straight up your own fault if you live in this world and can't amass knowledge needed to change your financial/career path.

great video, simple graphics and definitions are really helpful


so smart how you brought a man with white hair to teach us dummies about investment. it makes it so much credible

what? I don't understand. in year one he is paying tax from debt? his EBT is -15 dollars

All the freaking sound effects in this amazing content of info are really killing my ability to pay attention to the CONTENT. Beautiful visuals though.

i'm opening my lemonade stand right now

How is the amount of share outstanding amount determine ?

Who is this guy? Smart and cute. I think I’m in love.

amazing. partly hard to follow since it is quite fast and needs more time to explain simpler steps. But overall thank you for this great overview.

I wish you well.

Great information from the guy that actually makes some money using the info.

We people needs lectures like as u see in money week channel,that means every aspect of all stock market,not like a single video?did u commit it?if u group those videos,it wd be real helpful?

6:54 how is the revenue $850 when the number of cups sold are 800 and the price is a dollar?

This video has got mad value! Mad perspectives on how businesses work and accounts. William Ackerman, you're a legend! I never really understood the importance of being an auditor until watching this video.

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Wonderful ! Thank you !

With all said and done... the 9 points he stated. For normal investors this is almost impossible to do all the steps as compare to an activist investor who buys and control the company.

Teachers in the first lesson of finance would be like: So what is an asset?

Second time watching this but I have to drop this comment. In 2016, this same gentleman lost about $4 billion investing in Valeant, a drug producing company. Check out dirty money on Netflix episode 3.

I wish I discovered this video 10 years ago

I want to really thank you so much for giving this lecture. I am a lawyer by profession and know very little about accounting or business calcultions, this has been a very enriching lecture.

From what I remember, Goodwill is supposed to be an amount that doesn't actually exist except in the books of accounts. It's supposed to be the monetary value of the reputation that a company's name or a business owner adds to the overall value of a company. If that's the case, then why did Bill call the amount that he (owner) invested into the business as "Goodwill" at 2:45 Can someone help me understand?

Great video!!

Just one thing you forgot to say use more than one business

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@horse drum You can send him a mail at Georgejorkins07@gmail. com

@Max D no doubt, was just checking if it was him haha

Ackman conveniently skips index funds, which outperform mutual funds 90% annually and almost all the time over several years. He's a billionaire and I'm just a lowly thousandaire, but he made his money as a hedge fund manager so of course he's gonna funnel people his way. Meanwhile Warren Buffet's annual report last year was mostly about index funds

You really want to learn? Audible : Money Master the Game. by Anthony Robbins. This guy is conveniently leaving a lot of indispensable info out, giving us just enough to feel comfortable, of course he is softly selling something, perhaps you can see it as well? Index with low management fees (0.14% for example) beat the performance of 96% of mutual funds and active management type of investments, over time. Assets allocation, diversification, fees and taxes things that will dramatically hurt your growth over time, no thanks to those glorified financial advisors that are trying to sell me something they don't buy themselves, I rather to have a diversified portion of the entire upward mobility of capitalism's, thanks God for the cration of index and now they exist in almost every industry and the low cost of acquiring them way under 1% no mor 3-4-5% management's fees. The power of compounding works in your favor but also against you, if not look no further than you mortgage stamets for the duration of the loan, your fees and taxes as well will be compounding, and fees are not perfomance base even if they lost money managing my portfolio they still collect 3-4% of the balance, don't think's so. Knowledge is potential power. And is so easy to obtain knowledge, thanks to technology. A lot harder to find the will to action.

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I was thinking the same thing :)


Doesn't add up. After your first year you are broke. From where do you get the money (New debts and/or shareholders) to start the second year and even expand.

I was wondering the same thing, just saw a comment saying this  @Samuel Hamilton "People keep getting confused on how he got the money to start the 2nd lemonade stand. Here is the twist: he is the only staff member who manned the 1st stand. Instead of having an income, he reinvest it. So 530 + the left over of 250 give him enough money to buy the 2nd stand. How would he pay the 2nd staff member? By using his own income in year 2, so again he himself is not making any money."

Progressing in Life the problem with finance is the people who really know finance don’t teach it. You can damn near scratch everything he said in this video unless you want to struggle and fail. If you want to learn business. You need to know accounting, tax law, contract law and banking. All of these are easy as hell to learn.

An entire finance class summerized in 50 minute's

Shouldn't the total capital employed be $1,500+$250 ?

Why is the $1,000 termed as goodwill?

did you actually finish the video?

wow... thank you so much for this!

Thanks Will I do the opposite of everything you say and made a lot of money on Shopify stocks

15:56 lmao someone snuck the FF7 menu pointer sound in there



If the company doesn't make profit in the first year how can the owner buy a lemonade stand

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I learnt the hard truth after almost loosing everything buy now I make 180% profit through the help of Harvey Weinstein. My advice to beginners on stock trading is to get a broker.

Am lucky to be among those trading with Weinstein.

He charges 20% commission of your trade profit. You don't have to pay him initially to execute trades for you.

Please what are his charges

I was shocked when I received 8500euros from a 1800euro stock investment from Weinstein. I can verge for him.

That's a popular broker in Oslo, Norway. I trade with him. His portfolio is the best.

Always hitting the point lol.

This video is brilliant to give a clear understanding to beginners or even financial illiterate. A great first step to dig deep. Thank you!

What $1/share (7:50)? What is a share here?

(9:18) the value of the company was set at $1500. The net profit was $1502, about 1:1 or $1/share.

At 05:42 how come there is a tax of $5 if the EBIT value is negative? And since the value is negative and somehow you are even paying taxes, the net income should be negative $20, shouldn't it?

I want to suck his white dick

He charges 20% commission of your trade profit. You don't have to pay him initially to execute trades for you. Talking to him directly will be good if you like ((((...weinsteintrade @Gmail ....com)))))

It's a mistake. You will find a lot of them throughout the video.

Ive got no idea why but I like this guy for some reason. Easy going demeanour idk haha




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Thank you very much for this video. Tons of value for someone like me who is new to investing

Lutherangrants/org just credited my bank account with a grant of $60,000 i requested for .

I need investors to invest in a ground breaking medical project in the middle east I can assure 200% profit bring your lawyer let's do business.

Bill great video.... you deserve another $1 Million as a contribution to your fund. I'm going to borrow the money...I'll be right back.

Amazing information aggregated into one video. Thank you so much! [btw there's a typo at 37:54 with "chose"; should be "choose"!]

thanks for the presentation!! I learned a lot. where can I find these 10% or 20% compound interest return Companies? Are those the dependable stocks he mentioned? I dont think they're that high returns....

Do you have a pdf or ppt version of your presentation??

At 2:45 where did $750 cash come from?? It should be ( 1000 + 500 cash) - (250 debt )

raj kumar I’m not sure what your referring to. What’s the time stamp?

@Jesse Owens thanks where can I find these 10% or 20% compound interest returns? Is it those dependable stocks he mentioned? I dont think they're that high returns....

The $1000 is Goodwill. It’s not actual money. The only liquid money is the $250 from the investor & the $500 raised from selling stock. He has no money ergo the need for outside investors.

Amazing video!! Very informative!! Thanks a lot

I've only just come across this video and even though I'm just starting out in the world of trading stocks this video is very VERY valuable! Thank you William for providing this content

Basic stuff like toliet paper or toothpaste are good to invest in everyone has to wipe and everyone brushes teeth (unless you dirty). Clothes are more different to invest in fashion changes constantly no guaranteed returns. Bill has made some good investments like proctor and gamble but then bad investments as well like Valeant.

Good job, Bill

I came with no foundation. I left with a lot of knowledge for free!

Student loans @6-7%. Expected returns from stock market @8-10%. Then why wait for student loans to end to start investing?

The best investment for retirement is MULTIFAMILY REAL ESTATE!!!

I am so grateful to lutherangrants/org .They helped me with a grant of $57,000 to finance my business.

Informative. Well organized. Thank you.

Can anyone explain that $1000 at the start? Thanks.

never trust a jew....

I mostly liked this, but market index funds seemed like a glaring omission. Maybe it's because he runs a hedge fund? I find it hard to believe you would tell your grandmother to choose individual stocks over buying the market through a total market index fund from a trusted, low-fee fund brokerage like Vanguard, Fidelity, or Schwab. If you don't want to do a ton of research and upkeep, the general advice is index funds, not finding an actively managed fund. The fees of those actively managed funds typically outweigh any benefits. I don't mean to be overly critical, but index funds might be the most important thing for someone without a lot of investing knowledge to learn about. Also, I think they're psychologically the easiest to hold during bad times in the market. You're not worrying if you screwed up and picked the next Radioshack, causing you to panic sell at the bottom.

@roy4922 Thank you

The 6-7% is guaranteed and immediate, 8-10% is averaged out and based on historical statistics (i.e. no guarantee), and you may be facing the downturn while your student loans pile up, so you could potentially do better by paying the student loans and getting in later when it's more of a buyer's market.


How can you tell whether a company is controlled? I’ve been looking around on Bloomberg terminals and investing.com and I can’t figure it out for public companies

Very good lecture .

I imagine the people who disliked this video are all broke.

Hi, could somebody explain to me 7:42 under the income statement Growth 1027% how did we calculate that ? thank you!

Yana Kosiakova the EBT was 10 on year one and year two it was 164 that’s 1027% growth

Yana Kosiakova the income started at 10$ a 1.5% return and as the debt was used it turned into a 28.50% return

What is the deal with the really annoying/distracting sound effects? I found the robotic ghost tapping after every point to be especially irritating.

Excellent, thank you.


then you got scammed

can you explain why goodwill has $1000 ?

This is great content, but isn't this the same Bill Ackman that lost a shi*ton of money on that pharmaceutical fraud of a company from a few years back?


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Dont listen to this Prick... He has lost so much of his investors money its unbelievable... Just google him and Chipotle (CMG) so much so that he had to get bailed out by BNY Mellon....

28:37- “...the quality is pretty good...” (referring to Mc Donald’s) he doesn’t even want to risk defamation with that area of investment XD.

Great video and info thanks a lot!!!

Goodwill - Owner's money ($1000) , Cash =$750 (Debt = $250 + Investor's Money = $500) Total: $1750

i love you

I need to rewatch this.... like for a million more times... thanks!

Now if the presenter is the famous bil ackman then who the hell is william ackman ?

Good Presentation. He talked about (Accounting) terms I learned years ago. So,this was a good review. I also got a good review about Investing goals and just using good sense while Investing, over time.


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Coming into this video from a perspective of a person that already understands all the terms said in this video, I love it. Even though I already knew about the concepts he was explaining, the way he connected the dots between how the different concepts work really gave me a new perspective. Thanks!

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Wow very powerful stuff here! To the nitpicking airheaded twits y'all can go pound sand!

Routhchild being talking for 1 century, Bill Gates more then 20 over years, now my turn to talk !!!

In balance sheet 1, why is cash not 1750$? The company had just started, how is the goodwill 1000$?

Fantastic video.

What if we don't care so much about selling lemonade but instead sell people the dream of being their own lemonade entrepreneurs? We could just sell them some supplies and then they have to recruit more people to join and become their own business and recruitment machine and so on and so forth until we have so many recruiters recruiting we could build a pyramid.

Probably I am missing something. How can I buy 2nd stand if my profit is 0?

Thanks Bill!

year 1 the earning was minus, with that assumption, how could year 2 they open 1 more lemonade stand? because at the beginning, there was only like $750 cash which all those cash has spent to open the first lemonade stand, which means no more cash left, plus, the year 1 earning was minus, how could year 2 they open 1 more lemonade stand? if they get the cash by loan, means the interest should have been more than $25.

Year 1 the EBT was $15 and then minus by the taxes $5 which means the net income should be ($20) right? got me thinking how did it get $10 on the video

You need to tell Mikasa this

Thank you

In this example the founder didn't invest any money. He just valued his initial idea, reputation, effort and initiative at $1000 and in exchange he received 2/3 ownership. They call goodwill anything that adds value but isn't tangible or easily quantifiable.

Best video I've seen on how money works. Excellent work, Bill!

I too want to have "rich guy, had in one pocket for 45 mins but still look cool" type of money lmao

This is fascinating great vid

this and "How The Economy Machine Works" by Ray Dalio is the reason of how YouTube could be a great platform for educations. Any other video suggestion?

roy4922 the problem with broad market investment vehicles like index funds is while they are very secure, one reason for their small returns overall is that the poor performers in the index fund bring down its value. You would be better off just buying those blue chips themselves than buying Vanguard S&P 500. Remember, there are crap companies in the S&P 500 and eventually they will fall off, but not before your wallet gets smaller for it.

I’m trying to self teach myself about stocks and bonds , investing etc.. without schooling and I know I have a long road but can someone explain to me how they calculated the per share value. And how did they get 1.3% margin

First time I watch ur video I thought at end u gonna sell something but it was good information right till the end .I didn't even know who u are until 2 days ago I say honestly u are my idol to going in market.

Looking at other companies and valuing is not valuing but pricing - Mr Ackerman. Such a big mistake. Overall good for some basic info but fails on multiple details.

Who else is a Jew?

Thanks Bill.

This guy's a fucking legend!

This really is a crash course. So much I didn’t know before. Might have to watch this one 3 or 4 times to get it to stick.

I’ll never have money I don’t need for 5 to 10 years... lol

I'm confused from 6:30 how do you get the extra stands with a -15 profit

0:12 Bill Ackman 0:23 Lemonade Stand Example *Starting A Business* (1:03) 1:17 Form A Corporation • 1,000 shares of stock, Investor invests for 500 shares 2:18 *The Balance Sheet* Assets = Liabilities + Stockholders Equity 3:08 Fixed Assets and Inventory 4:19 *The Income Statement* 4:38 5:49 *_Growing The Business_* 8:05 *The Statement of Cash Flows* (SOCF) 9:05 *Evalutating Value* 10:26 Equity Investor took more risk, e.g. Equity Investor made more returns on investment 11:08 Debt and Equity 11:58 13:06 Assessing Risk 13:40 Government Bonds (Low Risk investment) 14:53 Profiting As An Entrepreneur 17:34, 17:50 Valuation: Determining A Company’s Worth 19:33 Selling Shares, Board Of Directors 20:36 Benefit of IPO 21:03 21:39 Investing 22:59 Interest Returns 24:00 The Importance of Not Losing Investment Money (Avoid Losses) 24:53 Keys To Successful Investing - Don’t Invest In Startups + Invest In Public Companies + Invest In businesses you understand how they make money + Invest at a reasonable price + Invest In a company that you can own forever 27:26 A business you can own forever Coca Cola, McDonalds 28:58 • A product people need • Unique • Brand Loyalty 29:48 30:23 High barriers to entry 31:57 Low Reinvestment Cost *Controlled Company* 33:26 Investing 34:41 The Psychology of Investing 35:45 1. Be Financially Secure 2. Don’t get spooked by short term fluctuation 3. Do your own work 4. Invest at a reasonable price 36:38 • Mutual Fund 38:05 • A Good Money Manager Can Explain What/Why They Invest In + Good Reputation + Value Approach + 5 Year Track Record + Consistent Approach • Hedge Fund 40:25 Recapping 41:20 This is just an Introduction 42:27 Invest In Your Future

it's referring to personal profit. You can't have cashflow go to the proprietor (owner) and go to investments at the same time. Profit is a fixed amount.

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All the cartoon people are male. Sexism.

Your head lists to one side. You should look into that.

Index funds are the way to invest for the vast majority of people, especially doctors, teachers and engineers that Bill mentioned in this video. Over the long run index funds will outperform most actively managed funds. Jack Boggle is the father of index funds and he has written several outstanding books on the subject. But besides omitting index funds it was a great video, thumbs up!!


​@H. Tal Their returns aren't really small though, many hedge funds do not beat them over the long run. Sure, it's possible as an individual investor, but it requires a ton of research and monitoring, and even then, many people fail. And if you don't, your returns may be only nominally better. To act as if it's a good idea to prescribe individual stock purchases to the average grandma is just nonsense.

this guys talking like 10% a year is easy to make investing...

What are you investing in I'm so confused??? Don't investments pay in dividens??? Not with interest??? Please help.

21:38 investing!

Man you deserve a medal!

How can they expand the business (using the cash as mentioned in 6:08) if they operating at a loss and not getting more loans or giving out more shares? lol. Good video so far nonetheless

I wish you were my father LOL.

Any kids here? Oh just me


At 8:20 you can see the cash flow statement. The company is still cash flow positive. They took a loss in year 1 largely due to depreciation which is a non-cash income statement item.

Nothing is free. You traded your time.

Amazing guy ,he is a billionaire and yet so humble and down to earth.Thank you very much for your useful piece of advice.

@Trigger At my hourly rate it's negligible haha

How is the depreciation calculated?

The sound effects are SO ANNOYING!! Great info though :)

I can confirm that the majority of the information in this video are the key focal points to beginners college courses such as Business 101 & Accounting 101. If you're going to college to learn & educate yourself, I'd recommend re-evaluating whether it's worth it or not with the plethora of online resources. If you are however going to college specifically to obtain a degree for future employment & reliable income, I'd say continue going down your current path. Disclaimer: I am a financially stable college drop out, so my views may be biased.

Great content and delivery - thank you. Grateful, when one of the most successful investors takes the time to explain it in easy to understand terms. Inspired!

Compound interest 8th wonder of world

Brijendra Sahye Lmao you obviously googled that

He is just incredible

Fantastic video. Many thanks for this excellent compilation

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and i'm jack bogle's bastard child of index funds. i can also teach u a thing or 2.

Whats your return for the time you invested in your comment, dude? Lol Thanks btw!

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