Introduction to Investing by BuffettsBooks.com

Video Lectures

Displaying all 37 video lectures.
I. An Introduction to Value Investing
Lecture 1
What is Value Investing?
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What is Value Investing?
In this lesson, students learn what value investing is. The three course objectives are: 1) The difference between value trading and value investing 2) The difference between an asset and a liability 3) Who created and uses value investing.
Lecture 2
Value a Small Business like Warren Buffett
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Value a Small Business like Warren Buffett
In this lesson, students learn about Net Income, Total Revenue, Cost of Revenue, and very basic valuation techniques.
Lecture 3
What is a Balance Sheet and Margin of Safety
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What is a Balance Sheet and Margin of Safety
In lesson three, we explored the importance of a Balance Sheet. We learned that current assets and liabilities are income streams and obligations, respectively, that a company will receive or pay during the next 12 months. We also learned that the equity of a business was equal to the total assets minus the total liabilities. After determining a company's equity, we can use that important number to determine the margin of safety that's associated with buying a business.
Lecture 4
What is a Share
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What is a Share
In lesson four, we learned that a share of a business is one unit of the overall business. For example, if an ice cream stand business was worth $100,000 dollars and the owner divided the company into 10,000 shares, each share would be worth $10. In this scenario, the 10,000 shares that the company would be divided into would be called the shares outstanding.

Just like a business, that becomes more or less valuable, 1 share of a business will do the same. Although we have only learned basic valuation techniques during the three previous lessons, we know that the earnings per share (EPS) -or just earnings- is one of the most important term to understand. The earnings per share (EPS) essentially tells us the profit that 1 share has made in a 1 year period.

Also, we learned that the book value (or equity per share) is a very important term because it provides the value of 1 share if the business stopped operations. A comparison of the book value and trading price (or market price) determines our margin of safety on each investment

During the video, we learned that it is important to look at 1 share as if it were a mini-business, because itís easy to proportionally look at the value of the entire business that way. We also learned that owning 1 share is no different than owning the entire business.
Lecture 5
(PE). Finding Basic Stock Terms
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(PE). Finding Basic Stock Terms
This video is a practical exercise that shows students of the BuffettsBooks.com website how to find the terms they've been learning about in the first 4 lessons of Course 1, Unit 1.
Lecture 6
Warren Buffett Stock Basics
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Warren Buffett Stock Basics
In lesson five, we learned that Warren Buffett has four rules that he uses for investing in stocks. All the rules must be met in order for him to purchase shares of a company. Those four rules are the following:
Rule 1: A stock must be stable and understandable
Rule 2: A Stock must have long term prospects
Rule 3: A Stock must be managed by vigilant leaders
Rule 4: A Stock must be undervalued
We also learned a very basic valuation technique that Warren Buffett used when he worked for Benjamin Graham. The technique multiplies the P/E ratio by the P/BV ratio and the result needs to be lower than 22.5.
A key fundamental of Warren Buffett stock basics is the idea that the stock market is nothing more than a location where he can buy or sell his shares. The market only provides a platform for him to purchase undervalued companies. He always buys on the assumption that they stock market could close tomorrow and not open for five years ñ and it would have no impact on his decision to buy a particular company.
Finally, we learned that Warren Buffett possess great patience. He never tries to make enormous gains, but instead consistent gains at reasonable levels. He always thinks for himself and always determines the value of a stock based on what HE thinks a company is worth - not the market.
Lecture 7
What is a Bond
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What is a Bond
In this lesson, we first learned that a bond is nothing more than a loan. There are many forms of bonds that a person can invest in, but the four primary forms are corporate bonds, Municipal Bonds, State Bonds, and Federal Bonds. We know there are inherent risks associated with purchasing a bond, but many of them can be mitigated by treating the investment as if you were a bank lender.

We learned that Bonds can be a very lucrative investment as long as you purchase the security (or bond) at a strong yield and minimal risk. If you're purchasing a bond as a long term investment, we know that it's market price will be more volatile during the first 15 years as interest rates change. Intelligent investors can take advantage of these price fluctuations is they know how to properly value the bonds.
Lecture 8
What are the components of a bond
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What are the components of a bond
In this lesson, we first learned about the primary components of a bond. We learned that the par value or face value is the price the bond was originally issued for. It's also the price that will be repaid to holder of the bond when it matures.
The next component we learned about was the coupon. The coupon is the amount of money that the bond holder will receive from the issuing company for what every rate the bond specifies. For example, if a $1,000 par bond pays a $25 coupon biannually. The investor (or bond holder) can expect a 5% return on their money. This would be determined by summing the two coupon payments for the year and then dividing the annual coupons by the par value.
The last component we learned about was the term of the bond. Just like a standard loan, borrowed money has a term in which the loan will be repaid. This duration is called the term.
After a bond is issued, the owner of the security (or bond) has the ability to sell the bond on a market. When the owner attempts to sell the bond, the price at which they offer to sell the investment is called the market price. Since the value of a bond is inversely proportional to current interest rates, the market price of a bond will increase as interest rates decrease, and vice versa. More information on basic valuation techniques are taught in the following lesson.
Lecture 9
Value a Bond and Calculate Yield to Maturity (YTM)
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Value a Bond and Calculate Yield to Maturity (YTM)
In this lesson, we began to understand the important terms that truly value a bond. Since most investors will never hold a bond throughout the entire term, understanding how to value the asset becomes very important. As we get into the second course of this website, a thorough understanding of these terms is needed. So, be sure to learn it now and not jump ahead.

We learned that there are two ways to look at the value of a bond, simple interest and compound interest. As an intelligent investor, you'll really want to focus on understanding compound interest. The term that was really important to understand in this lesson was yield to maturity. This term was really important because it accounted for almost every variable we could consider when determining the true value (or intrinsic value) of the bond. Yield to Maturity estimates the total amount of money you will earn over the entire life of the bond, but it actually accounts for all coupons, interest-on-interest, and gains or losses you'll sustain from the difference between the price you pay and the par value.
Lecture 10
What is the Stock Market
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What is the Stock Market
In Unit 3, Lesson 1, we learned what a stock market is. Although many people might not view a stock market the same way as a food market, they're actually more related than you might think. Like any market, in order for a trade to occur, there always needs to be a buyer and a seller. When sellers outnumber the buyers, the market is considered a buyer's market. This means that the buyers are the ones that are moving the market price of the stock. But when the buyers outnumber the sellers, the market is considered a seller's market. This means that the sellers are the ones moving the market price of a stock.

The selling and buying of 1 share, leads to the methods investors use to conduct trades. We first learned about a stop order. Here's information for the securities exchange commission on the proper understanding of a Stop Order:

A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own. Before using a stop order, investors should consider the following:


Short-term market fluctuations in a stock's price can activate a stop order, so a stop price should be selected carefully. The stop price is not the guaranteed execution price for a stop order. The stop price is a trigger that causes the stop order to become a market order. The execution price an investor receives for this market order can deviate significantly from the stop price in a fast-moving market where prices change rapidly. An investor can avoid the risk of a stop order executing at an unexpected price by placing a stop-limit order, but the limit price may prevent the order from being executed. Some brokerage firms have different standards for determining whether a stop price has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a stop order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rules that will apply to stop orders.

The next type of order is a limit. Here is the definition and example from the securities commission:

A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute. A limit order can only be filled if the stock's market price reaches the limit price. While limit orders do not guarantee execution, they help ensure that an investor does not pay more than a pre-determined price for a stock.

Example: An investor wants to purchase shares of ABC stock for no more than $10. The investor could place a limit order for this amount that will only execute if the price of ABC stock is $10 or lower.

As buyers and sellers move the market price of a stock through the use of these orders, the market will offer great deals or very expensive prices. This idea is represented by Benjamin Graham's Mr. Market. Graham used the idea of Mr. Market to represent a stubborn business partner that sometimes offers great deals or horrible prices. Your job as an intelligent investor is to determine which deals are of great value. Don't worry, if you stick with the lesson plan here at Buffett's Books, you'll learn the methods of Warren Buffett and Benjamin Graham.
Lecture 11
Stock Market Crash and Market Bubbles
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Stock Market Crash and Market Bubbles
In Unit 3, Lesson 2, we learned about psychology of the stock market and how most traders rely on instincts opposed to value in order to conduct trading. We learned a very important quote from Benjamin Graham that states, ìThe stock Market behaves like a voting machine, but in the long term it acts like a weighing machine.î This idea is important for value investors to understand as they remain confident in their valuation of any asset during emotional times.

During this lesson, we provided a demonstration of an emotional trader and a value trader. As you could see in the video, the value trader almost always had the opposite opinion of the emotional trader. This is important to remember as you move into the second course of this website. Determining the intrinsic value of a stock will help provide a peace of mind and ability to make clear decisions.
Lecture 12
What is the Fed
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What is the Fed
The FED is short for the U.S. Federal Reserve. The mission of the FED is to care for the U.S. economy. They do this through four different objectives. First they try to ensure maximum employment through price stabilization. Second, they supervise and regulate banks. Third, they maintain stability of the financial system by adjusting interest rates. Fourth, they service the debt obligations for the federal government.

In this lesson, we really focused on the third objective: Maintaining stability of the financial system. In order for the FED to stabilize the economy, they have to constantly adjust the interest rate at which banks can lend money to citizens and businesses. By doing this, the FED is ultimately controlling the spending habits of the U.S. economy. When the FED controls interest rates, it provides predictable investment opportunities for value based investors because they are able to capitalize on the changing market prices of stocks and bonds.

We learned that when interest rates are high, we'll want to focus our efforts on finding quality bonds. By taking this strategy, a value investor can collect high paying coupons and also prepare themselves for a profitable venture when interest rates decrease. Since the value of a bond increases when interest rates decrease, the market value will undoubtedly increase on a long term bond when market crashes force the FED to drop interest rates.

We also learned that when interest rates are low, it's probably a good time to find undervalued stocks. The most lucrative time to buy stocks is during a recession because scared investors are selling their shares at a discount price. Smart investors need to ensure that they always avoid buying companies with marginal levels of debt. In course two, this site conducts a thorough review of all the information you need to properly assess the intrinsic value of stocks and bonds. The key point to take away is that when interest rates are low, you want to ensure that you're buying stocks.

In the end, we learned that the FED actually provides great clues as to the position of Mr. Market. We know that when interest rates are high, the stock market is experiencing a greed cycle. Likewise, when interest rates are low, the stock market is experiencing a fear cycle. This information proves very valuable as value investors capitalize on market movements and opportunities.
Lecture 13
What is Financial Risk
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What is Financial Risk
In this lesson, we briefly talked about the difference between risks and rewards. We learned that the 10 year Federal Note is a risk free investment that provides a marginal return. We know that in follow on lessons, we're going to use the 10 year note as our baseline value to relatively compare the value of other investments.
When we assess the amount of risk that's associated with an investment, we learned about three factors that make an investment risky.
1. Debt. We learned that as a company increases the amount of debt (or leverage) they use, it typically results in diminishing returns. By avoiding investments that carry a lot of debt, you'll mitigate the risks associated with any investment.
2. Price. Although investors might have the opportunity to purchase a really great business, we learned that the price at which they purchase the asset can actually result in a poor investment. We know that the price is what we pay and that value is what we get. This idea is at the heart of a value based investing approach.
3. Knowledge. One of the hardest things for an investor to do is to admit that they don't know all the facts. Although this may prove challenging, the faster an investor can identify they lack of knowledge or ability to properly account for all the variables, the less risk they'll assume in any investment.
Lecture 14
What is Inflation
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What is Inflation
In this lesson, students learned about the impacts of inflation. By understanding what causes inflation, we can then understand how it destroys the yield of a loan and maintains the value of corporate ownership.

We learned that inflation is generally caused when the government increases the supply of money in the financial system. When this occurs, members of the system have more money to spend and the price of goods and services go up.

This increase in price can drastically destroy a long term investment if the investor doesn't account for the compounding inflation rate.

The most important thing you can learn from this lesson are the two following points:

1. Bonds are completely affected by inflation.
2. Stocks are not necessarily affected by inflation.
Lecture 15
What is the S&P Rating
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What is the S&P Rating
In this lesson, we learned about the three different credit organizations that rate a company's debt. Those three organizations are Standard and Poors, Fitch, and Moody's.

Although each of these organization do the same thing, we learned that the scoring techniques and accuracy is different.

It's very important to understand the risks associated with each credit rating, and that's why we compared the chance of default to the letter score.

Understanding the chance of default provides an investor actual data to determine their appetite for risk.

When assessing the risk between a corporate bond and a municipal bond, we know that the letter rating system is flawed because the historical percentages are drastically different. This is something every investor should think about before investing in a AAA municipal bond.

In the end, we learned that each investor needs to determine their own risk and make judgments for themselves. Remember the greatest risk is not knowing what you're doing. So do your research and think about what credit scores actually mean.
Lecture 16
What is a Yield Curve
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What is a Yield Curve
In this lesson, students learned how to read a yield curve. When looking at the yield curve, it has two major components - yield and term. The yield is found on the y axis and it represents the amount of interest that we'll be paid for owning a particular bond. The term is found on the x axis and it represents the duration we would hold the bond at the specified yield.

Although reading a yield curve is fairly straight forward, many people fail to recognize its importance in determining the direction of the economy. As you saw in the video, the yield curve is flat or slightly inverted when a financial market is at its peak. Slightly before and after a market collapses, you would find the yield curve slope in a positive direction.

When we move into Course 2, Unit 3, it'll be important to continue looking at the yield curve as we determine a metric for our "zero risk" investment - the 10 year federal note.
Lecture 17
How to use a Bond Calculator
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How to use a Bond Calculator
In this lesson, students learned how to apply the BuffettsBooks.com bond calculator. We learned that as interest rates increase, the value of a bond decreases. Similarly, when interest rates decrease, the value of a bond decreases.

When using the bond calculator, it becomes evident that the term of the security changes as it approaches the maturity. Since a premium or discount paid for a bond cannot be recuperated through coupon payments, short term bonds are less affected by changes in interest rates compared to long term bonds. This idea of changing interest rates can be taken advantage of by intelligent investors if they purchase high yielding long term bonds. In order to find a high yielding, long term bond, an investor can implement the ideas learned in lesson 3 of this unit.
Lecture 18
Warren Buffett's Four Rules to Investing
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Warren Buffett's Four Rules to Investing
In this very short lesson, we re-address Warren Buffett's Four Rules to Investing. In the follow on lessons, we cover the details of each rule described.
Lecture 19
Warren Buffett's 1st Rule - What is the Current Ratio and the Debt to Equity Ratio
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Warren Buffett's 1st Rule - What is the Current Ratio and the Debt to Equity Ratio
In this lesson, students learned the importance of investing in vigilant leaders. A vigilant leader is a manager that won't put your business in dangerous situations. Business are just like people you know. You probably have friends that take enormous financial risks and as a result find themselves in a lot of debt. Business are no different.

Right now, there a businesses around the world that manage their debt very poorly. The best way to identify these types of businesses is through the two tools you learned in this lesson; the Debt to Equity Ratio and the Current Ratio.

The Debt to Equity ratio is found on the balance sheet. To calculate the number, simply divided the total debt by the equity and it will give you the ratio. This ratio is very important because it shows a potential owner (or shareholder) how much leverage a company has on it's business. The lower the ratio is, the better for you as an owner. When Warren Buffett invests in stocks, he typically likes to find debt to equity ratios that are lower than (0.50). Depending on the specific sector, his tolerance for debt to equity may increase, but generally speaking this is the ratio he uses.

The Current ratio is also found on the balance sheet. To calculate the number, simply divided the current assets by the current liabilities. The Current assets are the cash or other assets the company will likely convert to cash during the next 12 months. Likewise, the current liabilities are the debts that the company must pay in the next 12 months. By comparing these two figures, a potential owner gets a great idea if the company will need to incur debt within the next 12 months. If the current ratio is a 1.0, that means the company's current assets and liabilities are equal. A number lower than 1.0 is bad and it means the company will most likely incur debt within the next 12 months. A number above 1.0 means the company's assets will exceed the liabilities. This is a good thing and what you want to find in a business.

When Warren Buffett looks for a company to buy, he always tries to find a company with a current ratio above 1.5.
Lecture 20
Warren Buffett's 2nd Rule - Understanding Capital Gains Tax
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Warren Buffett's 2nd Rule - Understanding Capital Gains Tax
In this lesson, students learned the importance of buying an asset that they can hold for ever. Buy purchasing a company that has long term prospects, the owner (or stock holder) doesn't have to continually pay capital gains tax. When comparing the capital gains tax of a person that trades in the short term, it becomes very obvious that it's not advantageous.

By purchasing a company with long term prospects, you're not only minimizing your capital gains tax, but you also enjoy the sustained earnings through time.
Lecture 21
Warren Buffett's 3rd rule - A stock must be stable and understandable
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Warren Buffett's 3rd rule - A stock must be stable and understandable
In this lesson, students learned the importance of stability. The most important reason why we must pick a stable stock is because we're unable to accurately predict the growth of the earnings without stability. If a company has an unstable past, it is possible that their future will become stable - it's just less likely than a company that's already demonstrated those attributes. I like to think that companies perform and act like individual people you might know. Some people are very conservative and grow their assets at a nice and controlled pace. Others do not. As you look at that example, it becomes obvious that the person that manages their finances conservatively will be easier to predict future performance. This is very important as we move to the next lesson and learn to calculate the intrinsic value of a stock.
Lecture 22
Warren Buffett Intrinsic Value Calculation - Rule 4
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Warren Buffett Intrinsic Value Calculation - Rule 4
Use the intrinsic Value Calculator at:
http://www.buffettsbooks.com/intelligent-investor/stocks/int...

In this lesson, students learned that the intrinsic value can be defined as the discounted value of the cash that can be taken out of a business during it's remaining life. For us, we've defined the life as the next ten years. This way, we can discount that cash by the 10 year federal note. The Cash that we are taking out of the business is simply the dividends and the book value growth during the next 10 years. Since these numbers need to be estimated, it's very important to ensure that Warren Buffett's third rule (a stock must be stable and understandable) is met.

When a company doesn't have a history of linear growth, estimating the cash that they will produce for the next ten years becomes more speculative. When we look at the root of the intrinsic value calculator, it operates off of the same principals as a bond calculator. Instead of using coupons, we substitute dividends. And instead of using par value (or value at maturity) we estimate the book value of the business in 10 years. The value that we use to discount the summation of the cash is simply the 10 year federal note.

Although the previous paragraph might sound confusing to some, it's application is fairly straight forward. The reason Buffett says, "Two people looking at the same set of facts, will almost inevitably come up with at least slightly different intrinsic value figures," is due to a difference in opinion of the future cash flows. Since some investors are more conservative than others, their estimates of book value growth or dividend payments may be lower. This will immediately change the intrinsic value. Your job as an intelligent investor is to determine your own tolerance for risk and conservative estimates on how much money you will receive while owning the stock for a 10 year period.

If you ever have difficulty understanding the material, simply click on the link for the forum above. Be sure to sign-up for an account and ask any questions you might have. Just because you didn't understand something in this lesson, doesn't mean you have to simply give up on the process.

If you would like to learn more about how this calculator works, be sure to read this article published by Preston: It is here: http://ezinearticles.com/?How-to-Calculate-the-Intrinsic-Val...
Lecture 23
What is Preferred Stock
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What is Preferred Stock
In this lesson, Students learned about the fundamental aspects of preferred stock. Although Preferred shares are a proportional ownership of equity in a company, the security performs more like a bond. Although all preferred shares operate differently, we can general agree that the value of a preferred share is solely based on the financial health of the company issuing the stock and the dividend rate. Unlike common shares, when a company has increased earnings and growth, the preferred stock won't change in market price. The price of redemption for a preferred share is the face value, not a premium or discount from the book value.

Before purchasing a preferred share, we learned it's very important to review the certificate of designation. This document provides the investor the with all the specific information about how the preferred share operates. Some key things to consider are the following:

Cumulative preferred Vs. Non-Cumulative Preferred
Perpetual term Vs. a designated term
The Calculability of the preferred stock
the Adjustability of the interest rate
Lecture 24
Calculate Yield to Call and How to buy Preferred Stock
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Calculate Yield to Call and How to buy Preferred Stock
In this lesson, we learned about the www.quantumonline.com website. This website is the best online preferred stock resource. It's free to belong to and it provides the most organized results for finding a potential company to buy. (Disclaimer: BuffettsBooks.com has no affiliation with this website).

It is the recommendation of BuffettsBooks.com that investors focus on the following types of preferred shares:

Cumulative preferred Vs. Non-Cumulative Preferred
Designated term Vs. a Perpetual term
The Calculability of the preferred stock
The Adjustability of the interest rate

1. Look for Cumulative Preferred Stock: Cumulative shares will assure that the stock holder will eventually receive the dividend declared in the prospectus.

2. Call Date: Look for a Preferred Stock that has a Call Date that meets your expectations. If you simply want a short term holding location for your capital, then find a preferred share that has a call date within the time frame you'd like to liquidate the security. Although many preferred shares are not repurchased on their call date, others are.

3. Maturity Date: Many investors avoid preferred shares with no maturity date (especially when the economy is in a position with low interest rates). When a Preferred Share has no maturity date, the market price of the stock could continue to plummet if interest rates remain higher than the time the stock was purchased.

4. Assess the Company's ability to make the payments: A really quick method for determining a company's ability to make dividend payments is to look at the Moody's or S&P rating. A more advanced method would involve looking at the common shares on the company and assessing its current debt loads and future earnings.

5. Read the Prospectus: Always, Always, Always read this document before you buy any Preferred Stock.

6. Assess the YTC: Once you find a company that meets all the criteria listed above, then you'll want to take a look at the Yield you might receive from now until it's callable. This is called the Yield to Call. As you can see, we've provided a calculator below that helps you determine this percent.

The important thing to remember when you're calculating the YTC is that it doesn't mean you'll absolutely make that return. This is only going to give you an idea of what you would make on the investment if the issuer actually called the security on the call date and paid on the dividends by that date.
Lecture 25
Calculate Book Value with Preferred Stock
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Calculate Book Value with Preferred Stock
In this lesson, students learned the importance of Common Shareholder's equity and Preferred Shareholder's par value. In order to properly assess the value of a common shareholder's equity we must always remember to subtract the par value of the preferred stock. Although this might be a painful process for new investors, it's importance is paramount. If an individual is interested in investing in such a company, you would need to assess this "correct book value" for previous periods in order to reasonably assess the common share holder's equity growth in a business.
Lecture 26
What is Income Investing
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What is Income Investing
In this lesson, students learned the importance of Income Investing. By employing the techniques of income investing, one can prepare themselves properly for retirement. Since income investing is the process of picking stable stocks and bonds that pay decent dividends and coupons, the investor can benefit from the cash flow that's produced by these securities.

The first way income investing provides benefits to the investor is through liquidity. Since the investor will continually receive dividends or coupons, they then have the opportunity to reinvest that cash flow into the most undervalued asset each month. This compounding cash flow is truly the essence of investing like Warren Buffett. With an ever increasing cash flow, investors can take advantage of market conditions during spikes and valleys.

The second way income investing provides benefits to the investor is during retirement. Since most retirees may need to sell their investments in order to pay their monthly lifestyle expenses, income investing offers an alternative approach. Since the retiree will receive quarterly and semi annual payments from these types of investments, they will continue to have a steady cash flow to meet their lifestyle expenses. Although some retirees may need to pull from the principal, income investing will minimize that withdrawal.

In the end, Income Investing creates more cash flow for the individual employing the technique. It's Warren Buffett's opinion that purchasing dividend paying stocks is a very wise decision because of the continued and consistent cash flow that provides liquidity to reinvest your earnings.
Lecture 27
What is a Cash Flow Statement
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What is a Cash Flow Statement
In this lesson, students learned the importance of the Cash Flow Statement. This important document is used to help determine how money flows through a business. Prior to 1987, investors could only examine the health of a company from the income statement and balance sheet. Due to stricter regulations, publically traded companies are now required to also disclose the cash flow statement.

The cash flow statement is broken down into three categories. 1. Operating Activities: This is probably the most important section of the statement because it shows the money that's flowing into the business from the product or service that the company produces. Positive revenues listed on the cash flow statement from other activities are not sustainable in the long term, so that's why this section is so important. 2. Investing Activities: A negative number listed in this section would mean that the company is investing money. A positive number in this section would mean that the company sold an asset in order to generate money. Obviously its better to see a negative number show-up under this section because it implies that the company is continuing to invest the revernues that it produces. 3. Financing Activities: In this section, an investor can identify whether the business is try to raise money or pay off debts. A positive number in this section means the company is incuring debt or dilute the value of their shares. A negative number means the company is paying off debt or increasing the value of their shares (through a share buy back). Generally speaking its good to see a negative number under this section because it means the company is removing their leverage and creating a stronger position for their shareholders.

The Cash flow is a great document to help look at trends and how money flows through a business. Although the balance sheet and income statement are very useful documents for determining the intrinsic value of a stable company, the cash flow statement gives potential investors a glimps into the current conditions of the company and how they manage their resources.
Lecture 28
How to read a cash flow statement
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How to read a cash flow statement
In this lesson, we evaluated the cash flow statement of Walmart, Sears, Intel, and Kodak. The lesson provides good and bad cash flow statements so students could see the difference between risky and healthy companies. One of the key factors learned in this lesson was the importance of the operating activity and the operating activities section of the statement. Since the investing and financing activity are dependent upon the operating activity, it became obvious this section is the lifeblood of any business.
Lecture 29
When to sell stock like Warren Buffett
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When to sell stock like Warren Buffett
Access free tools and notes to these lessons at: http://www.BuffettsBooks.com









In this lesson, we learned the importance of always understanding the consequences of our actions. Buying and selling stock can have an enormous impact on our success as an investor. The most important thing to learn from this lesson is the emotional decisions when selling stock can often lead to very poor results.

We learned that there are two major rules for knowing when to sell stock:

1. We sell stock when we can trade the capital into an investment that will produce a larger return after accounting for the capital gains tax paid (state and federal). In addition, you'll want to ensure the risk assumed is comparable for the return received.
2. We sell stock when the business changes its fundamentals. This could mean the way they manage debt. The future outlook for earnings is decreasing...etc

Although the process of accounting for a change in assets is laborious, its purpose often results in enormous financial decisions. Mastering the techniques taught in this video will undoubtedly lead to your success as an intelligent investor.
Lecture 30
What is Return On Equity - Warren Buffett's Favorite Number
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What is Return On Equity - Warren Buffett's Favorite Number
In this lesson, we learned the importance of buying a company that has a strong return on equity. Since the market price of the stocks you buy is dependent on the dividends and the growth of the book value, we can quickly learn that a company that grows it's book value at a faster pace is more valuable.

When we assessed two different companies in the video, we created a situation where both companies had the exact same earnings. The difference between the companies was the size of their equity (or book value). When a company with a large amount of book value is compared to a company with less book value, the percent change in their growth will be much more difficult if earnings are similar.

When a company consistently has a strong Return on Equity, we know as investors that the management of the company is properly reinvesting the earnings of the business into assets that will continue to grow the capital earned. This is very important since most of the earnings produced by a company are retained and not paid as a dividend. When a disciplined investor purchases companies with a sustained high ROE, their investments compound at a much higher rate than other assets. The great thing with purchasing companies with high ROEs is that it helps alleviate capital gains tax if the security is held for a long period of time.
Lecture 31
(PE) Return on Equity Practical Exercise
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(PE) Return on Equity Practical Exercise
Lecture 32
What is Stock Volume
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What is Stock Volume
In this lesson, we learned the importance of stock volume. Although volume won't help intelligent investors learn the intrinsic value of a company, it can be used as a tool to help predict market behavior.

Many times investors can be fooled into believing that the market price of a stock is determined by all the shareholders. This idea is false. When we look at the volume of a company on an given day, we can quickly get a sense of how many traders are actually determine the price of a stock when we compare this number to the shares outstanding. This ratio, volume/shares outstanding, provides a good idea how many traders are moving away from the company and how many are coming into the company. When the company trades at a very low volume, we can generally say that the shareholder agree with the market price. Likewise, if the volume is very high, we can generally say that shareholders disagree with the market price.

In the video, we demonstrated this principal with Wells Fargo (WFC). When we looked at the historical market price for WFC, we learned that on the day where the volume was the highest in ten years, the market price was at an all time low. This idea of shareholders disagreeing with the market price when volume is relatively high is an important point that stock traders can use to their advantage. Always remember, volume can mean that the stock is over priced or underpriced. The peak or valley is for you to discern.
Lecture 33
How to calculate stock terms
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How to calculate stock terms
Lecture 34
How to use a stock screener
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How to use a stock screener
In this lesson students learn how to use the google stock screener.
Lecture 35
What is Goodwill on a Balance Sheet
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What is Goodwill on a Balance Sheet
Lecture 36
Warren Bufett's Owner's Earnings Calculation
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Warren Bufett's Owner's Earnings Calculation
In this lesson, students learn the difference between accounting earnings and Warren Buffett's Owner's Earnings.
When an Investor looks at the bottom line figure on the Income Statement, they find the Net Income. This is the profit the company has produced for the given time frame. Although many use the net income to value a business, Warren Buffett takes a different approach, and calculates what he calls the Owner's Earnings.
In order to understand the concept of Owner's Earnings, one must understand the two paths that the Net Income takes after it's produced. The first path is a potential dividend payment. Any funds that take this path are immediately valued as Owner's Earnings. The remain amount of net income after the dividend payment is then used to invest back into the business. This money also has two paths. This money can be used to reinvest into the maintenance and care of the already existing equipment, or it can be spent expanding the assets of the company. If the funds flow in the first direction, called Capital Expenditures, little to no growth in the company's book value will occur. If the funds flow in the second direction, the money will add new streams of income to the business and the asset will be added to the current equity of the business. This second amount is added to the dividend and the total is referred to as the Owner's Earnings.
If a person would be interested in calculating the owner's Earnings, they could simply take the funds from the Operating Activities section on the Cash Flow Statement, and subtract it from the Capital Expenditures -- also found on the Cash Flow Statement.
Remember the true Owner's Earnings is nothing more than the book value growth and the dividends combined.
Lecture 37
Warren Buffett DCF Intrinsic Value Calculator
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Warren Buffett DCF Intrinsic Value Calculator
Use the intrinsic Value Calculator at:
http://www.buffettsbooks.com/security-analysis/intrinsic-val...

Value stocks with the Discount Cash Flow Intrinsic Value Calculator