1. Brainteaser In this picture, the small rectangle is of dimension 6 x 12. What is a radius of the circle?

2. Brainteaser Sqrt[(x-6)+(x-12)] = 30 or 6, but that is rejected x x - 6 x - 12

3. Intro to Investing and Trading September 9, 2014

4. What is investing?

5. Find a seller, selling at a low price Who will sell you cliff bars at a low price? – Bulk seller – Seller of non-economic reasons Say, you buy Cliff Bars at $1 per bar…

6. Find (or wait) for a buyer Sell for market price of $2 Say, you manage to sell 10 bars a day, every day. What is your profit for the year?

7. The business You now have a business, with $3,650 a year of profits I come up to you to offer to buy this business from you, how much do you sell it for?

8. The approach DCF – 3650 a year discounted back at 10% gives me $36,500. Multiples – 3650 of earnings, at a 10x PE gives me $36,500

9. What do think my offer actually is? Can you sustain your profits? – Can a friend compete with you for market share easily? Can you grow your business? – Is it easy to apply this business to another product, say coffee? Given the nature of the business, should I offer a little or a lot? Is your business really worth that much?

10. Good business bad business Investing in businesses is about finding out the fundamental economics of the business Which is a better business, Dell or Microsoft? What about Apple vs. NYSE?

11. The key point If you are willing to sell me your Cliff Bar business for $10,000 – I can use the business to generate cash OR – I can sell the business to someone else for higher Businesses are worth a multiple of their cash flows in the future!

12. What about new businesses? Not all business produce cash, we price businesses based on what we think they can produce, rather than what they are producing The problem is that we are so bad at guessing, we tend to overvalue growing businesses, and undervalue terminal ones Everything has a price

13. What other things can you invest in? Assets that can act like a business (Real Estate)

14. Trading You are always both a buyer and seller I’m willing to buy from anyone at $1.2 and sell to anyone at $1.7

15. Trading Always willing to buy or sell from someone Hedging another’s position Scenario: – Your bank has been hired to sell an airline’s stock, and thus current has 20% of the airline stock – As the trader, you are told to reduce the risk of that position without selling the stock – You go to the market and buy oil

16. Trading You profit from the “spread” (1.7 - 1.2 = 0.5) The spread you offer can increase or decrease

17. Trading What if you really don’t want to buy from the market? Most traders are not allowed to take views

18. What can you trade? If you can think it, Wall St. will sell it to you Stock, bonds, interest rates, commodities, rice, wheat, orange juice, hogs, and frozen pork bellies

19. What investing and trading is not It is not gambling or taking guessing. It is not chart driven

20. What investing and trading is Facts and data driven – Unfortunately, the market does not care what you think or what your opinion is Clinical avoidance of institutional bias – you own shares in a company and the stock tanks 20% for no good reason, you panic and worry, what do you do? – A company’s shares has been surging up for the past 14 months, your broker tells you the stock is hot and will keep going up due to its momentum, what do you do?

21. What does it look like in the major league? Diligence – Rule of thumb: Read everything with the name of the company on it – Speak to everyone in the know – Judgment call on the quality of the business – What is the market missing that you aren’t?