BU283 Lecture Notes - Lecture 7: Warren Buffett, Preferred Stock, Value Investing
Document Summary
Definition of a stock: a contract between the firm and an investor that gives the investor a proportion of ownership of the firm"s assets in exchange for a current payment. Shareholders control the firm by electing board of directors. Directors choose whether to pay common dividends. Shareholder have a residual claim to firm"s assets. Stocks vs. bonds: bonds: fixed income securities; specially government bonds, stocks: company might go bankrupt (more risk, but higher return) Intrinsic value (iv: subjective value, variety of models. Market price (mp: consensus value of all potential traders. Trading signal: iv > mp buy, iv < mp sell or short sell, iv = mp hold or fairly priced. For the calculation of the true value: we"re going to compare market price with intrinsic value. Watched a video on intrinsic value by warren buffett. If the market value of a stock is greater than the intrinsic value, then you should _____________: buy, sell, hold.
