Today

• reading
• REview, Duration and Convexity
• Inflation
• Real vs Nominal
• TIPS

Reading

Schwab. Not particularly the best option, this articale is a little better at explainging how this stfuff works

What is special about TIPS? the market decides to buy something, and we recieve a certain amount over inflation, but then we demand a little bit more than that, and that part is real yield.

the breakeven inflation rate (= equivalent maturity treasury yield - TIPS yield) gives the market's forecast for CPI.

why...?

Can real yields be negative? Ever? yes they can?

there was a chart in the article showint real yields all the way since 2006.

in covid, real yields went down to 2%. Interest rates were really worse across the board. So inflation rates were seemed to be ready to become a real problem. if you think inflation was going to go really high, then the demand for inflation protection for so high that investors were ready to accept a negative yield.

How can this be?

• demand for inflation protection was so high that investors were willing to accept to accept a negative real yield.

• investors believed that the alternatives (including traditional treasurie, which had low yields at the time)

the proportional change in price due to a small change in the discount rate or yield. This is essentially the first two terms of a taylor. series. These are the two most generally talked about.

Positive convexity is not always convezit always works int he vendors favor cuz you hegt a higher price.

This goes back to the textboo. So we have ww1. we have the aftermath of the 1929 stock market crash.

They have two mandadets, full emplyoment. and price stability. So they want inflation tbe 2p ercent. The current mandadte is 2%.

Other than 2020 but they tink you should be cooling things down.

We are only in july, and the cpi is only at 3.6 percent,. we mostly quote at YoY. he wasnt to knoe what .

based on that basket of goods fo. It comes out specificalltomorrow for events it is a little smudge from. ur fb.

Inflation is difficult to measure. We have the beureau if leather statistics.

Consumer Price index (CPI)

Core COPI

Producer price intex.

okay. if youre intereted inf the house. This is a weird nmp, lemme ga but. f

In a place like argentina, places like argentia, especially if youre trign to do some nationall business, and you have to set up fo rrir me and try. here tried to fo other currencies, and do business or private transations in yelow. You can ger a

Inflation.

In inflation ever good?

if youre ever in debt, you can make it worth less iwith inflation. the government does less and laess with their submerines, etc. so that they dont hzve to come.

Let dig into that in a little bit. If you are a net borrower and the inflation.

Real Estate, that should be prpetty good. if a coutry

So, gold for esample, many people ill puchase for the god. I had price stabiliry. so lets get il th economic.

There is. a relatoped to have.

we decided to use pi for onflation. its not cex. and there

thats the tight relationshio, its a nit relat.

slight lookines

ig

do yhid id rccsvyly hoe we. We cna easily derive wat the market ewants for inflation.

most people dont actually use that though.

fisher equation

1 + r = (1 + r)(1 - pi)

forward-lookng habits

1 - r()

Key implocations

• reflex real rates, exxpecef inlation plays a crucial roa. TIPS intorduced in 1997

Sh=uoose r

markets dont believe we will have a hunge market issue and then we clean them own in a bit.

What happened hin the chart, is that we have really old cars I tild hin

Im gonna buy these tips.

Stocks

Sotcks represent ownership in a copany nad therefor a claim on its future profits forporate equit is dicide into equal portions called shaeres qeuitey=total comapnay value after subtracting all debts

data take from financial statements gives the book value of equity, and is determined by accounting.

What is much more respected, is what another person things.

The market value of quity is referred to as the total market campticalization

Types of stock 1. Common Stock 1. voting rihgt 2. Is similar to the way we voite fir cignressional o=vecisions. Common sfor.

A comany can decide whether w compsnu can ==s

paying the cash out, preferred stocks

theres traditional preffered stock, and its a very VC iteration.

Long before that. we dont want vaible dividents,

Traditional preferred stock is about hgegetting

you get acquired which is generally a good thing. Do the company deosnt reallt see like this namyore.

companes issue sock can be use a capifal

YOu re gonna have to make this distinction njd uad dto.

Shatw we are tlkin.

in eqxchange for the capital they recieve bed on rhei ndo..

The investor saysing" i would loke to inv. Lets go through a litt. ementa.

Er hsbr hot thid trw=3.'

after that transation offurs.

private companies issue stock in multil rounds.

so what is going to happne. Usually it insist o price, so tey will sam. Could be the next investment comes, a ye.

now its worth 4 million

is ir r

if they cant find a metric in the ti.

igxs kinda he beginnin

the financial worlds innovates,

Zuxkerberg issued conrolooing stock over suckerman he eould b eout cold already.

• initial stock sales to the public occur through an IPO which is par of the primary market, where companies sell newly-ussed shaares directly to investors.

Plublic companies may also issue additiona lashares throug a FLoowow on publix oddweinf (HPPoO

The person who always wins is the bankersk becasue th. Pension funds mutual funds, hedge funds, etc.

If a Co is private, can we wait onit s IPO yet, would the y would borrow again stock. I remember colesaspur addzlgh f

he was worth over 100M and he wa stolf to doersof. yof youre smart about it you can borrow money, and invest it wisely, you can use it only if youre liquid, because it doesnt exist there.

How do companies decide how much stock to issue during an IPO, it depends on what theyre trying to do. A mature campnay, has sapped out

they tendt put out dividents because they cant mge more outta tjis. What they wanna hear how you whave thought you started diluting your own wonership. That is somethin that resires t flplit.

Stocks and trade on the secondary mrket.

Stock Markets.

Sotck market structure.

• publicaly traded stocks: bought and sold on tock exchange, such as the NYSe and Nasdaq. the rockets are hightly liquid and subjsect ot regulartory oversight.
• privatehely held stocks: ownershipo is typically restricted to a limited number of investors

VC's and Private equity firms both deal in privately held stoick hut whty are treade by different categories

there are some companies that operate in the middle.

from mar 2022, if you add usup all of the values of the NYSe and other exchanges, etc.USA, NASDAQ, SIX swiss exchacnge.

The NYSE had 5000 floor traders in 1990. The old systenm is called open-outcry what are they actually saying or yelling.

buyers and sellers are often based on hand signals, Lots of screanubgm abd giw ifv organic the. Global trading si treding toward electronics

the nasdaqu has been ell elctic since 203036.

yous till hear about the Dow Jones, because its sthe stupidest index. only 30 compmanies. The weig

its hightly reperesentative of the market, so id, nobody pays attention to the russell 3,000. hTTs.

if you want exposure in smallr steoie

wilshire 5000, i

The DJIA is argubly the worst index, nevertheless most quoted Nasda

haarr

That obuying oin into.

over a 10 year,. stocks are supposed to do 1--11P

Stocks are doing really well and have ben for a while.

P/E tations, the price = 30-

16 is a good numbe if you wat oii mean. The big tech companies have been rakin hair. All companies tend oto be doing nothing. I think the conern ie that, what creates value.

who is going to labor?

a lot of people are less cone.

Stocks are often characterized by company size. There are no real rules here.

difference between a growth and a value company.

let me try and characterise. It belices ir haas a birgh tfut=fure. t=you are huyigng it be

value stocks have doen bettter than growth, which has perprmed 100,000\

ford was like 6 years old.

so on a

undervalued stocks tradin g on u

Consuper stabl,

in ghe conext of finacne and invesging, a factor is any characterist of a securit that helps explain its risk and return.

momentum stocks. thats fucs

Growth stocks re o

Where is the line between value and growt? The lie si sthere bii I have a girl.

earjijfs growth rate.