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Personal Finance

Personal Finance. Investing: Part I - Expectations. Meet Warren Buffett…. Fortune’s “World’s Richest Man” Estimated worth = $62 BILLION How did he make his money?. Expectations. Expectations. Happiness = Reality / Expectations Happiness = 100 / 10 (10) Happiness = 10 / 100 (.10).

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Personal Finance

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  1. Personal Finance Investing: Part I - Expectations

  2. Meet Warren Buffett… • Fortune’s “World’s Richest Man” • Estimated worth = $62 BILLION • How did he make his money?

  3. Expectations

  4. Expectations • Happiness = Reality / Expectations • Happiness = 100 / 10 • (10) • Happiness = 10 / 100 • (.10)

  5. Expectations – Two investors The Great Depression “Be Greedy When Others are Fearful” – Warren Buffet • 1929 Market Crash • Fearful investors stay away • Huge potential returns, but few took advantage Dow Jones Average 1930 - 2005

  6. Expectations – Two investors The Tech Bubble of Late 1990’s Stocks doubling Internet Millionaires Bubble bursts 70% of NASDAQ value wiped out “Be Fearful When Others are Greedy” – Warren Buffet

  7. Expect: Risk & Return Trade-Off The In-Home Vault The Powerball Ticket

  8. Expect: Risk & Return Trade-Off • Your target – something in middle of a safe in your house and a Powerball ticket in your pocket! • Between 1926 & 1997 • Inflation = 3.1% • Short term government bonds = 3.8% • Stock market = 10.6% return

  9. Expect: Risk

  10. Expect: To own pieces of a company • Share of Abercrombie = ownership in company • Voting rights (Common Stock only) • “Public” Company = shares available on market • Most major companies are publicly traded

  11. Expect: Growth • Your investment in the overall stock market will increase in value • Over the long term • Average return between 9 & 11% • Expect Compounding 

  12. Got Growth??

  13. Got Growth?

  14. Got Growth??

  15. Expect: Waiting • It takes time to see significant results • Long-term thinking is key • Long-term plays = investing • Short-term plays = gambling/speculating

  16. Expect: Volatility • How much does the price go up or down from week to week? • Measured by Beta • > 1, riskier than market average • < 1, less risky than market average • = 1, same risk as market average • Focus on how a business is doing…not their day-to-day stock price

  17. Expect: Volatility

  18. Expect: To lose some money • There are NO guarantees in the stock market…with high return potential comes risk. • The more you know, the fewer losses you will end up having • Minimize risk through diversification

  19. Diversification

  20. Expect: Conflicting Advice

  21. Expect: Work (and Fun) • Investing can be simple • Earning average results is easy • Investing can be complex • But the better than average return you earn will be worth it • Investing can be fun • Think of your hobbies… • Getting paid to do homework

  22. Activity: Looking up stocks • Log onto finance.yahoo.com • Search for a company and find their stock quote • Click on their “Max” Chart which shows the stock’s entire price history • We will share the findings in class

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