[0:03]Okay, it's part three of the S complete SIE kind of like the content outline, just a way quick, too quick rundown of the content outline. So let's get into it. So now we've talked about the Act of 33, the 34, all the beginning shit. Now we're going to get into what you can actually trade, some of the products. So let's start with common stock. This is like a vanilla flavored equity security. Ordinary shares that give you a stake in the company. You are actually an owner. So if you want to buy into a company, you buy shares, like if somebody wanted to buy part of my company, I would issue them shares, so they'd be an owner. So let's talk about the so literally you buy this, why? You buy this for growth because you're hoping to buy at a 30 and it goes to a million. Or, um, you're looking for some income like in the form of a dividend, or possibly, you're looking for inflation protection, which is wonderful. So the question is, what happens when you buy common stock? That's the point, that's the key, that's the key. What happens when you buy common stock? What do you get? I mean, why the f*** would you buy it? I don't know. Let's find out. Okay, let's get into it. First of all, you have voting rights, which isn't that big a deal, right? I mean, yes, I mean, I own a million, I own 400,000 shares or something. Yeah, I got a lot of votes, but I still don't have as much as the funds. But we do have voting rights. Now what does that mean? That means you can vote for things like Board of Directors, mergers, um, that's pretty much it. Those are the main two. Now, there's two types of voting. There's statutory and cumulative, right? So statutory, you get one vote for every share you own times the director seat. Now the thing is, let's say there's three board seats open and you have 100 shares. That means you get 100 shares per board seat. So it's really 300 shares, but it's 100 for per board seat. So you have, you know, you pick Stacy for seat number one, John for two and Mary for three, okay? They have other people running for it, but that's what you do. If you decide you don't like John and you're like, f*** him, I don't want to deal with, I don't want to vote for him, you lose the votes. If you don't want to vote for anyone, you'll lose the votes. That's the thing about statutory, that's better for bigger investors. Cumulative, you get to pull them, baby. You get to pull your votes for one director seat if you want. This actually helps us smaller shareholders get a little bit more power, not more votes, but more power. So the way that works is say there's three board seats, you have 100 shares, same 300 votes, but you can put all of them on John. Say you like John. Mary and whatever Elizabeth, whatever the other one running, don't care, don't want him, so we take all of our votes and slap them on John and give us more power. We don't have more votes, we have more power. Okay? Now, that's one, so that's one of the things. The other one you have is growth potential. That's not a right, but you want to buy it for growth. If the company does well, your share price can go up. The problem is, the flip side, if it goes bad, the shares can become toilet paper, just worthless. Like, um, Kodak was one of the biggest companies in the 90s, Hewlett Packard, they just screwed up. They didn't follow along with everything else, and they just died. AOL, great company, died. Well, let's talk about other things. You have the, you have what they call a preemptive right. The right to maintain your percentage ownership. And that you think, wait, why would that be a problem? I own the stock. Well, if a company issues more shares, okay? If a company issues more shares, then what's going to happen is, say you own, you know, 100,000 shares, there's a million share company, you're a 10% owner, right? Well, what happens if they issue another million shares and you don't get any? Well, you're now a 5% owner because it's you're owning 100,000 shares of two million. So what they do is they give you as a current shareholder the ability to buy new shares. And I'll talk about it more. You have the ability to buy new shares at a discount. We give you a discount rate to keep your percentage ownership. So, if we, if you had 100,000 shares and we issued another million, they, we let you buy another 100,000 shares. That's called a preemptive right. They're very short term. We'll get into them later. Now, the other thing you can get is dividends, right? So dividends are awesome, right? So dividends are when the company pays cash or stock to you. They can be in the form of cash, you get a cash dividend every quarter or stock where you get more stock. Now, ever, remember, it's not like your ownership goes up if they have more stock. Your ownership doesn't go up. It stays the same because everyone's getting the more stock. So if they do like a 10% stock dividend, you own 100 shares, you'll now own 110 shares, and the price will be 10% lower. Because remember, it's always more shares worth less, because it's a zero sum game, baby. So if you get 100 shares at 50, say, and they announce a, you know, a, let's see if I can do it on this one. Say you own 100 shares at 50. Not zero, that'd be great. 50. And let's say they say, you know what, we're going to issue a 10% stock dividend. That means everyone gets 10% more. So I just do this. You can do this. You can say, oh, you just add 10% to that and then drop this, but it's not exact. Remember, this is 100 shares at 50, so that's really worth 5 grand. Nothing changes your total value doesn't change. It's still 5 grand. So now if we have a 10% stock dividend, we go, okay, 1.1, that means we're going to add 10% to everything we do and divide. So we're going to do, if this was 15%, you 1.15, 3%, 1.03, 20%, 1.2, 25%, well it's 5 for 4, it's a stock dividend. But here we go. 110 times it times that. You now I'm going to have 110 shares, and then you So you multiply 100 times 1.10. 1.10, that sounds weird, right? And then you do 50 divided by 1.1. And if I remember right, that's 45.45. And if you actually multiply this by this, you should get pretty much 5 grand. Maybe 49.99, but it's because it probably repeats. But it's going to be pretty much the same number. So the other way to do it is, once you get the shares, if you divide 5,000 by 110, you should get the same 45.45. Since we're here, we'll talk about another type of stock dividend called a stock split, like a three for one. That means you're going to get three shares for every one you own. These are all marketing tools. They don't really mean anything. They're just marketing tools, or maybe a five for four split. So this is an even split, this is an odd split. I have videos on this. So, you're going to, so a split is literally just a marketing tool to make it more attractive. So this crap, this out of here, so we don't get confused. Still worth 5 grand. So we have a three for one. That means for every one share you own, you're now going to have three. So I'm going to do, I'm just going to do 3 divided by 1, that gives me three. I'm going to multiply 100 times three, that gives me 300. And you have a choice. Either divide 5,000 by 300, or or, do 50 divided by three. I do this one all the time because I think it's easier, but it doesn't matter, whatever resonates with you. So there we go. So if we have a three for one split, we now have more shares worth less. And in reality, a lot of times on the test, they'll only give you one thing. They only have one thing that does that. So that will be more shares worth less. A lot of times they knock that out. So that's a three for one, that's pretty straightforward. I have tons of videos on that. Find my SIE math explosion. Now, five for four, it's a little different, okay? It's an uneven split, an odd split. So it's a little different, but we do it the same way. 5 divided by 4, that's going to give me 1.25. Then I just do this. I do 100 times 1.25. Right? You know what I mean by that? Boom, 1.25. That's going to give me 125 shares. Then I'm going to do 50 divided by 1.25. Actually, I have to do this one because I don't 50 divided by 1.25 is 40. So now after the split, I will now have 125 shares at 40. See, more shares, worth less. So in a regular split or a stock dividend, you're going to have more shares worth less. It has both this has to go up and this has to go down. You can't have one go up and not go up or both go up. They have to go one up, goes the other one down, okay? Good stuff. Okay. So now, also, the dividends, they could pay cash dividends, which means like you say a 30 cent dividend or a 20 cent dividend per quarter. They usually announce it per quarter. To the board of directors has to announce announce a dividend. You do not get to vote on that. Remember, the board of directors do. You can indirectly do it by only voting for Board of Directors that like dividends, okay? Now remember the dividends are not guaranteed. No dividend is guaranteed, even preferred stock, not guaranteed, it's up to the board of directors if they have the money. But if they pay, it's it's a big deal for a company to pay dividends and then stop doing it, so everyone's watching them. Now, they're going to give you cash. So you're going to get cash, and there are four dates they worry about. I guess I got to. The four dates, and now it used to be different, but D, E R P. Those are the four dates we worry about. So now, D is a declaration date. That's the date they announced the dividend. Then they say you must own the dividend by say May 25th. That's the record date. That's the, the R. And then the payable date is either at the check, okay? So declaration date is the day they announce. Record date is a day that they say you must own it by, so let's say Thursday, May 25th. I don't even have that right date. And then payable, you know, June 5th, whatever. Now, so let's talk about a couple of things. Let's see. So when settlement is when you buy stock and then you settle up, and that's when you become the owner. Now it used to be T plus 2, now it's T plus 1. So if you see old videos or old books, and they say T plus 2, give it some grace, we're all moving forward. Now, so you have dates. So let's say we got Monday, Tuesday, Wednesday, Thursday, Friday, okay? So those are the four dates. Now we decided Thursday, May 25th, was a record date. So that's this. I'm going to put a big, big lovey star there. So we must be an owner of record by that Thursday. So I imagine, this is the way I picture it. I imagine the transfer agent, who's just a person who handles the shares going in and out from people's accounts, they just make sure that when people buy and sell shares, their name goes on or comes off, and they make sure people get paid. So, if I buy the stock on Monday, it settles Tuesday, I get the dividend because I'm on record before Thursday. If I buy it on Tuesday, I settle Wednesday, because T plus 1. Boom, I'm good. Now if I buy it on Wednesday, it settles on Thursday, so I still get it. Because remember the trans rate agent is looking at the list of names at the end of the day, and if your name is on the list, you get the dividend. If it's not on the list, you don't get the dividend. So if I buy it on Wednesday, I settle on Thursday, I get the dividend. However, if I buy it on Thursday, I settle on Friday, too f***ing late. So that's called the X date. X dividend, ex-boyfriend, ex-girlfriend, ex-husband, ex-wife, ex-dividend. It means without.
[11:24]So, like I'm ex-money. Okay, so now, so if I buy it on Wednesday, that's called the cum date. I'm not writing that out. Um, you'll settle in time and you get the dividend. If you buy it on Thursday, you settle the next day. Your name does not go on the list until Friday, but they looked at the list on Thursday. So that's the X date. And now on the X date, just you know this. I don't think they'll make you do the math until the 7th, even then. They drop the price of the stock by the dividend. So if you have a 50 cent dividend, they will drop the price by the amount of that dividend. So if the stock's trading at 50 and they announce a 50 cent dividend, on Thursday the X date, the stock will drop to 49.50. Now remember something, if the buyer gets the dividend and the seller doesn't. So the buyer gets it, the seller doesn't. So the buyer gets it, the seller doesn't. The buyer gets it, the seller doesn't. The buyer doesn't get it, so the seller does. So meaning, that if you sell the, if you sell the stock on Thursday, your name is still on the list until Friday, so they give you the dividend. Okay. Now, so remember this. Common stock has big upside, but also big risk. There's no guarantee dividend, and no guarantee liquidation. Which that's a good question. So liquidation is when the company pays any of their income or they go out of business, they have to pay in an order. And always remember, it's secured, unsecured, preferred, common. That's the rule. Secured, unsecured, preferred, common. Secured, unsecured, preferred, common. Like sub C. So they pay secured bonds first, then the unsecured. And even if you see another type of like subordinated debenture, they're all still ahead of common. Then you have preferred, then we have common. Again, common stock is the last thing paid. Secured, unsecured, preferred, common. So, oh, preferred, we didn't talk about it yet. So preferred stock, literally the only reason it's better than common is because it gets paid first. It doesn't have any of the other things. It doesn't have rights, it can't gets, it doesn't have, um, the right to vote, no stock splits, no stock dividend, none of that shit. The only thing it gets is a fixed dividend. So remember, this is the difference about a preferred stock, it is a fixed dividend. It's like a mix of a bond and common stock in a way. I mean, they're, it's not very volatile. It moves like a bond. But remember, no guaranteed dividend. Even on a preferred stock, that only pays dividends, it's still not guaranteed. So, but it gets the reason it's called preferred is because it gets paid before common. So the payout is it's a preferred situation over common. But it's usually a fixed dividend. So it does not trade a lot. Trades like a bond. So when interest rates go up, preferreds go down because they're less attractive. And interest rates go down, preferreds go up because they're more attractive. So remember, if the company's given out dividends, preferred gets paid first before common. Now, there's different types of preferreds, which they will ask. So, now remember, so cumulative. There's a there's regular preferred, and if they miss a dividend, you're out of luck, okay? But they make other ones called like cumulative. Cumulative means if the company skips a dividend, they accumulate in arrears, and the company must pay all the missed dividends to preferred shareholders before the common gets a dime. So if I miss five years worth of preferred dividends and it's cumulative, I have to pay all those five years before I can pay the common. Now, anytime I add a feature to a preferred or any kind of security, it lowers the yield because I'm paying you, right? So the whole point is that the more, the more I do for the investor, the less I have to pay you. It's a risk reward. So that's cumulative. Then we have participating. That means if the company has a good year, they bump your dividend.
[14:51]So you can get extra dividends if the company's doing well. So if I buy a 4% preferred, it's paying 4% now. Most of the time if they don't say anything, assume preferred has a $100 par, but it could be 25 or 50 or anything. Usually 25 or 50 if they mention it. My, so if I do participating, that means if I have a good year, even though I'm a 4% preferred, they'll pay me 5 or 6% because the company had a good year. So participating means you're sort of get to participate in the upward earnings of the company. Okay? Now, another one is callable. The company can buy them back at any time at a price. Usually, this happens when rates drop, or they just want to restructure. So callable preferreds mean that if the rates go down, the company would usually issue a bond at a lower rate, they'd issue a preferred at a lower rate, and take that money and buy back the older higher ones. So it's like refinancing on a, um, like a mortgage. If you have a mortgage, and you're paying 7%, rates go to 4, you're going to refinance. That's literally what a call is. Remember, callable is always good for the investor issuer, not the investor because investors getting screwed over. And calls happen when rates drop.
[16:13]That's what they will do. So, if the rates drop, you don't want them to call it because you make less money, because if you're going to get paid off, you're going to reinvest, and the only thing available is a lower rate. So callable is bad for you, higher rate. That would be a higher rate. So if I made it cumulative or participating, that would lower the rate I have to pay you. If I made it callable, I would have to raise the rate because it's riskier for you. Now, another one is callable. A convertible. A convertible, just just know this. A convertible means you can turn it into common stock anytime you want. Now, remember, this is a high level. There's a lot of videos that go deeper into this. I'm not trying to go too deep. I'm trying to have a one long, well, eventually it'll be a long video covering everything that's on the content outline. That's what I'm trying to do, just follow an order and make it less f***ing confusing. So convertibles, you can swap your preferred shares into common stock. Remember, anything that turns into something else, pretty much turns into common. Calls, rights, warrants, convertibles, they turn into common. Since it turns into common, it's going to move with the common. It moves along with it because it can always convert into it. It will trade with. So if they're, if common stock goes up, the preferred, convertible preferred will go up. Now, the regular preferred won't move. The regular preferreds are basically interest rate sensitive, they're based on interest rates only. So for if prices of bonds stocks go up or down, they don't care. They only care about interest rates. But since convertible turns into common, it will trade with the common stock. Now, this is I'll repeat this in a way. They have interest rate sensitivity. That means the preferred trade like a bond. If interest rates rise, the preferred drops. And if their interest rates drop, the preferred goes up because it's much. So think about if rates go down, if you have a 5% preferred and rates go to three, you're super happy, you're still getting five. And so is everyone else, so they'll be willing to pay a little bit of a premium for that. So I talked about this a little bit. Rights, these are preemptive rights or subscription rights. This is I saying, hey, they tell the shareholder, we're issuing new shares, so you get first dibs on the stock at a discount. And now the thing is, if they're short term, they're only be 30 to 45 days long, you got to act fast. They have a price advantage. They let you buy shares at a price below the market. That's pretty cool. That means you have what they call intrinsic value, there's value. It lets you avoid dilution, because if they issue more shares and you don't buy any more, you're going to get diluted, like putting ice in in Scotch. And, um, and then you're tradeable. If you don't want them, you can just get rid of them. So when you get a right, they're not long, they're issued with intrinsic, you get them for free. You can exercise them, which means get more stock. You can trade them, which means you just get the money, you sell them for whatever they're worth. You can let them expire, that's more ironic, but you can. I mean, it's dumb, but you can do that. It's maybe you didn't recognize it. So again, rights are short-term opportunity to buy newly issued shares at a discount and maintain your ownership. Not to increase, to maintain. Also, you can give them as a gift. That's not a problem. Okay, now, warrants, this is like a lottery ticket in a way. Because they're long-term calls, they're long-term options to buy stock, like up to could be 7, 10, even perpetual. Basically, they are attached to another security. So companies often issue warrants as a sweetener alongside a bond or preferred. Like, hey, buy our bond and I'll throw in a chance to buy our stock later. That's literally what it is. They're saying, hey, I'm going to issue a bond at like 9%. That's too high for me. But if I give you the the the possible investor, the ability to buy stock at a later date, like shares, serious shares, maybe I can lower the coupon, make it less risky. And that's why they do it. They do warrants to lower their interest rate expense. Because if you had a warrant to it, it's more attractive, and you could probably get more people to buy it at a lower rate. Okay? The exercise price is usually above where it's trading because they don't want you to do it right away. But that's why they give you 7, 10, 20 years to do it. So say the stock's trading at 35, they may set it, um, they may set it at like 42. Making up numbers. So if it goes to 42, that means as long as the stock's below 42, you're not going to exercise it. But their idea is over the next couple years, the stock could go over 42, and then you get to buy it at a discount. So if the stock goes to 50, you'd be super happy. So again, warrants are attached to other stock. Their exercise price or strike price, the what they call the price you can buy stock at is usually higher than the less sale. They're much longer. Because they're up to, you know, 5, 10, 15, 20 years, maybe unlimited like perpetual. And they're speculative because if you buy, if the stock goes up crazy, you get to buy it become really super valuable. But it never reaches the straight price, the warrants become useless, right? So if I, stock's trading at 35, I tell you to buy my bond, you get my warrant. They'll let you buy it at 42. What if I never get to 42? You're just going to let the stupid thing expire, and you don't lose any money, you just don't gain any. So again, warrants are long-term option, it's a long-term option to buy stock, typically used as a kicker or a sweetener to buy other stocks or preferreds. There's big upside potential if the stock goes up. Now, what if I want to diversify my ass a little bit? So, I can invest outside the country. Obviously, bonds, we're not going to talk about that in the next episode, but. What if I want to do outside the country? So these are ADRs. These are, this is a way to own foreign shares without the headache of currency conversions and foreign exchanges. You don't know, you still have currency risk, but you don't have to do the math yourself. Because you're going to buy these shares of foreign companies in the US in US dollars. Okay, so this is how they work. A US bank buys shares of a foreign company, bundles them up, and then issues ADRs in the US that represent the shares of the foreign company. You trade them in dollars, you get dividends in dollars, all that stuff. So again, a US bank has a branch in London, they buy British Petroleum, they package it up, and they sell it in the US. So you can buy shares of British Petroleum in the US with US dollars, and your currency is, the dividend's in US dollars. Now, now remember, here's the problem. They are, um, in another, they're, they're companies in another country. So they get paid in pounds, and then your bank converts them. So you still have currency risk, you just don't have to do the math. So they're sponsored and unsponsored. If the foreign company works with the bank, it's sponsored, and it trades on an exchange. Unsponsored, they might not be directly involved in it, probably trades over the counter. So again, if it's sponsored, British Petroleum works with Bank of America to get the shares into a into like a trust, and then they issue that on the stock exchanges. If it's unsponsored, Bank of America just buys the shares in the open market, packages them, and then throws them on over the counter or on an exchange. So remember, if you have ADR, you still have currency risk. Even though you're paying in dollars, the underlying shares are still in the foreign company's local currency. So if that currency drops, your dividend or investment value might be affected. Now, tax treatment, dividends from the foreign company are still coming from the foreign company. They will come to you in cash, but they're issued in the foreign country. So the foreign company might be taxed overseas first, then you get the dividend, then you get the dividend. But what happens is, whatever you pay for that in the foreign country, you will most likely get a tax credit or tax deduction here in the US for whatever you paid. So if you got a $2,000 dividend and they taxed you $150 on it, whatever, you will get a credit here for $150 bucks. So again, ADRs are an easy way to invest in foreign companies on a US exchange. Convenient, but still carry that extra foreign risk. So they have all the same risks. Market risk, systematic risk, they have non-systematic risk, plus they have currency risk and political risk. Political risk is whenever you invest in a foreign country, there might be upheavel or something like that. So, okay. Now, common and preferred, common is for growth, voting rights, inflation protection, preferred is more for stable dividends and income. Rights are short term, typically at a discount to avoid dilution. Warrants are long-term sweeteners with an exercise price that is above the current market value. ADRs are you US-friendly way to own foreign shares, but watch out for currency fluctuations and foreign tax holdings, and political risk. Okay, let's finish strong, baby. Okay. So now, liquidation, remember, subsea, baby, when, when the company goes bankrupt or they're paying out, it's secured, like secured, like secured debt, unsecured, preferred, common. Secured, unsecured, preferred, common. When you own common stock, or any of these things, you have limited liability. You can only lose what you put in. So as a shareholder, the most you're going to lose is what you invested. If you buy $1,000 worth of stock, and the company goes away of Kodak, you don't owe any more than the original 1,000. You're not on the hook for the company's debts. There's no, hey, this company owes a million, we're coming after your bank account. None of that. You can only lose what you put in. That's great. Voting rights. Again, you have statutory and cumulative. Preferreds do not have voting. I guess there's some provision they can do, but let's go with on this test that they're not. You buy common stock for growth, inflation protection, and it's some income. You buy preferreds for income. Convertibles, they, they turn into common stock. So again, convertible bonds or convertible preferred, they can be swapped for a set number of common shares at some point. Why do people like them? You get potential steady interest, dividend or interest, plus the chance to convert if the common stock jumps. So you get to let, they let you participate in the upside. So if the common goes up, your bond will go up too, and you get some value there. Why companies issue them? They can offer lower interest rates. Remember, every, every time you add something for the investor, you lower the rate. The risk reward. You might get a lower yield on a non, on a, you might get a lower yield than a non-convertible, but you're getting a big upside, maybe. Okay. If you're a control person, if you're an insider, the PODS, partners, officers, directors, and big ass shareholders, you have to follow 144 rules, which means you can't sell, you insiders can't dump their shares whenever they want. They have to follow the 144. Remember, 144. You can sell the greater of 1% of the outstanding, or the four weeks trading volume, four times what we, for times a year, which is every 90 days. They have to file a 144, and then they can sell 1% of that standing or the four weeks trading volume, four times a year. So, 144 does two things, restricted securities, which means that if you buy on a regular, reg D private placement, which is an exempt transaction, you have to hold it fully paid for six months.
[26:43]If it's just a pod, a partner, officer, director, you have no holding period, but you have to follow the volume restrictions. And if you're a control person, you must file a form 144 every time you sell the shares. Okay? Again, there's an exception to that. I don't think it's on the test, but the dribble rule, if you sell under 5,000 shares, less than 50, $50,000, then you don't even have to fill a form because your idea is that who cares about 5,000 shares.
[27:27]Ownership, common stock ownership, limited liability, but less than the line of bankruptcy. This is common. Voting rights, mostly common, preferred, not really. Convertibles, they're like a hybrid. Steady income plus stock upside. And my rule is if you can't pick an answer and convertibles there, take it. Control securities and and restricted securities. Rule 144 applies to them. Insiders have special selling rules to keep its markets fair and orderly. And if you buy restricted shares, you can't sell them right away because you're accredited and it's risky, so you can't do it. I think that works. I think we'll stop with common. I don't think I'll do debt on this one. I think I'll do debt on the next one. How did this microphone work out? I'm trying a new one.
