Everything You Need to Know About Finance and Investing in Under an Hour
Watch the newest video from Big Think:
Join Big Think Edge for exclusive videos:
———————————————————————————-
Bill Ackman is one of the top investors in the world, and he’s said that he’s aiming to have “one of the greatest investment track records of all time.” As the CEO of Pershing Square Capital Management, the hedge fund he founded, he oversees $19 billion in assets.
But before he became one of the elite, he learned the basics of investing in his early 20s.
This Big Think video is aimed at young professionals just starting out, as well as those who are more experienced but lack a financial background.
Ackman takes viewers through the founding of a lemonade stand to teach the basics, explaining how investors pay for equity, a word interchangeable with “stock.” In the example, the owner starts with $750, with $250 of that coming from a loan.
———————————————————————————-
WILLIAM ACKMAN:
William Ackman is founder and CEO of Pershing Square Capital Management. Formed in 2003, the hedge-fund has acquired significant shares in companies such as JC Penney, General Growth Properties, Fortune Bands and Kraft Foods. Ackman advocates strategies of “activist investing,” the practice of using stock shares in publicly-traded companies to influence management practices in a way that benefits shareholder interests.
———————————————————————————-
TRANSCRIPT:
Hi, I’m Bill Ackman. I’m the CEO of Pershing Square Capital Management and I’m here today to talk to you about everything you need to know about finance and investing and I’m going to get it done in an hour and you’ll be ready to go.
How to Start and Grow a Business
So let’s begin. We’re going to go into business together. We’re going to start a company and we’re going to start a lemonade stand and now I don’t have any money today, so I’m going to have to raise money from investors to launch the business. So how am I going to do that? Well I’m going to form a corporation. That is a little filing that you make with the State and you come up with a name for a business. We’ll call it Bill’s Lemonade Stand and we’re going to raise money from outside investors. We need a little money to get started, so we’re going to start our business with 1,000 shares of stock. We just made up that number and we’re going to sell 500 shares more for a $1 each to an investor. The investor is going to put up $500. We’re going to put up the name and the idea. We’re going to have 1,000 shares. He is going to have 500 shares. He is going to own a third of the business for his $500.
So what is our business worth at the start? Well it’s worth $1,500. We have $500 in the bank plus $1,000 because I came up with the idea for the company. Now I’m going to need a little more than $500, so what am I going to do? I’m going to borrow some money. I’m going to borrow from a friend and he’s going to lend me $250 and we’re going to pay him 10% interest a year for that loan.
Now why do we borrow money instead of just selling more stock? Well by borrowing money we keep more of the stock for ourselves, so if the business is successful we’re going to end up with a bigger percentage of the profits.
So now we’re going to take a look at what the business looks like on a piece of paper. We’re going to look at something called a balance sheet and a balance sheet tells you where the company stands, what your assets are, what your liabilities are and what your net worth or shareholder equity is. If you take your assets, in this case we’ve raised $500. We also have what is called goodwill because we’ve said the business—in exchange for the $500 the person who put up the money only got a third of the business. The other two-thirds is owned by us for starting the company. That is $1,000 of goodwill for the business. We borrowed $250. We’re going to owe $250. That is a liability. So we have $500 in cash from selling stock, $250 from raising debt and we owe a $250 loan and we have a corporation that has, and you’ll see on the chart, shareholders’ equity of $1,500, so that’s our starting point.
Now let’s keep moving. What do we need to do to start our company? We need a lemonade stand. That’s going to cost us about $300. That is called a fixed asset. Unlike lemon or sugar or water this is something like a building that you buy and you build it. It wears out over time, but it’s a fixed asset. And then you need some inventory. What do you need to make lemonade? You need sugar. You need water. You need lemons…
Read the full transcript at
source
Want to get Smarter, Faster™?
Subscribe for DAILY videos: https://bigth.ink/SmarterFaster
Being in the discord and starting trading is literally changing my life. I started with a small $3,000 account but I have got up to $19,500 in one week! Not a lot of money but that's a big growth for me.
The editor was paid per sound effect added 😂
Whoever edited this did you use a nether portal sound effect and or other minecraft sound effects? Cause it's somehow helping keep me engaged……
I think the Coca-Cola example excellently highlights why the corporate form is inherently evil. If everyone on earth is getting progressively more obese and diabetic while polluting the planet more and more each year, is your example of a great investment? Clearly, we need to move beyond corporate capitalism.
Thank you, Mr. Ackman ❤❤
Thanks to Big Think and Mr Ackman. Great content. One question, if anybody can help me understand (even if it may sound naïve). I am confused with goodwill. It is said is a made-up number (1k shares at 1$ per share), but it is shown in the balance-sheet… so, it looks to me the only capital raised was 750$ (500$ via equity and 250$ via debt), so the business is kicked off with on additional capital?? and the goodwill??
McDonald's is relatively low cost food…
that's how you can tell that the video is 10 years old )
This gave me chills… in the best way
❤❤
yes working doing on it start lending money
He created $1000 by writing 1000 shares out of thin air.
As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?
Now think about this. The first year you go red. You’re basically out for money and can’t do anything. You make a business plan and go to a bank. You tell them your plan to open 7 lemonade stand that will produce 30% margin in 5 years.
They will tell you to fuck off because you were going bankrupt with the first one already.
End of the story.
🙏
👏👏
🎉
🎉🎉
Bill Ackman's initial setup with the lemonade stand analogy is a highly effective way to simplify the foundational concepts of raising capital, equity issuance, and the debt vs. equity decision for new investors.
While the video makes a good point about using debt to retain a larger ownership stake, it's equally crucial to consider the inherent trade-offs. Borrowing introduces financial leverage, which can significantly amplify returns if the business thrives, but critically, it also magnifies losses and increases the risk of financial distress or even bankruptcy if the business struggles to meet its fixed interest obligations. Understanding this delicate balance between growth potential and financial stability through an optimal capital structure is a sophisticated challenge that goes beyond just 'keeping more stock'.
Exploring the strategic implications of capital structure decisions and their impact on a company's risk profile and long-term viability is a core theme I often delve into in my content.
Bill Ackman is a big ‘ol asshole, a mediocre tennis player at best, and says absolutely nothing meaningful in this video.
Never mind
Great video so far. Only problem I have is the emphasis on income earnings. They already fudged numbers on U.S. numbers a few months ago and pumped tesla after bad earnings. It seems as if numbers is an illusion
that corrupt rat ? I will never pay to watch that douche.
Very Valuable Info, thank you
Key Categories and Timestamps (Powered by Sniplet):
Starting and Growing a Business
[1:15] Form a corporation to raise funds from investors.
[1:30] Issue shares to investors to raise initial capital.
[1:58] Consider borrowing money to maintain ownership percentage and maximize profits.
Financial Statements Overview
• Balance Sheet: Shows assets, liabilities, and shareholder equity.
[2:23] Assets include cash, goodwill, fixed assets, and inventory.
[2:48] Liabilities include loans and debts.
• Income Statement: Details profitability, revenues, expenses, and net income.
[4:41] Understand key terms like Cost of Goods Sold (COGS) and Earnings Before Interest and Taxes (EBIT).
• Cash Flow Statement: Tracks cash movement in and out of the business.
Evaluating Business Performance
[5:18] Assess profitability through margins and net income.
[6:01] Consider growth projections and reinvestment strategies for future expansion.
[9:11] Analyze return on capital and growth rates to determine business viability.
Understanding Good vs. Bad Businesses
[9:26] Good businesses show high returns on investment and consistent growth.
[10:25] Compare equity returns to debt returns to evaluate risk and reward.
[11:14] Recognize the difference between debt (safer, lower returns) and equity (higher risk, higher potential returns).
Risk Assessment
[13:19] Focus on the risk of permanent loss rather than short-term price fluctuations.
[13:41] Compare investment risks to safer alternatives like government bonds.
[14:20] Understand that higher potential returns come with higher risks.
Investment Strategies
[25:02] Start investing early to take advantage of compound interest.
[25:12] Aim for a reasonable return (10-15%) over the long term.
[29:06] Avoid high-risk investments and focus on established public companies.
Key Criteria for Successful Investing
[29:40] Invest in businesses you understand and that have a strong track record.
[33:17] Look for companies with low debt and high barriers to entry.
[34:47] Choose businesses that are not sensitive to external economic factors.
Psychology of Investing
[41:25] Be prepared for market volatility and avoid herd mentality.
[41:46] Maintain financial security to withstand market fluctuations.
[42:06] Conduct thorough research before making investment decisions.
Mutual Funds and Outsourcing Investments
[44:14] Consider mutual funds for diversified investment with professional management.
[44:32] Evaluate fund managers based on strategy, integrity, and performance history.
[45:01] Ensure alignment of interests between fund managers and investors.
Preparing for Investment
[40:34] Pay off high-interest debts before investing.
[40:50] Build an emergency fund to cover living expenses for several months.
[44:06] Educate yourself through books and resources on investing.
Valuation of Businesses
[20:34] Compare your business to similar companies to determine its market value.
[22:12] Use earnings multiples to estimate potential selling price.
[20:07] Understand the implications of going public and the responsibilities that come with it.
Thank you for this content.
Anybody else here after Ackman’s brain exploded from the NYC mayoral primary?
17:00
You ever read something that feels like it was never meant to be in your hands? That’s exactly how The Obscured Principles book felt. Ancient wisdom, modern exposure, and a terrifying amount of truth packed into one single source.
I’ve spent years chasing answers in documentaries, podcasts, even ancient texts—and none of it hit me the way The Obscured Principles book did. It’s like it was written for the few who are ready to break the illusion and remember who they really are.
While everyone argues over politics and news, The Obscured Principles book quietly explains how the real game is played. The moment I read it, everything around me looked different. It’s like it gave me the decoder ring for reality.
They bury this kind of knowledge for a reason. The Obscured Principles book doesn’t just talk about truth—it bleeds with it. I couldn’t sleep the night I finished it. Not because I was scared… but because I finally understood why we’re kept distracted.
I thought I understood how the world works—until I read The Obscured Principles book. It felt like someone ripped the blindfold off my eyes and showed me the architecture of control that’s been here for centuries. This isn’t just a book. It’s forbidden awareness in printed form.