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William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour | Big Think

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Everything You Need to Know About Finance and Investing in Under an Hour
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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.
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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.
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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...


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💬 Comments on the video
Author

Billionaire: *creates free educational content*
Comments: *well ACTUALLY*

Author — MrCk1234567890

Author

Who is here after Ackman made $2.6 billion in a month?

Author — Ajay Pasricha

Author

William Ackman, you are a billionaire. You are a busy man. You didn’t have to take time out of your life to make this video, but you did. So thank you.

Author — D Keo

Author

this is so well done especially by someone who is a CEO and took time out to do this, thank you

Author — green miner

Author

I wish people would understand the information that is being shared instead of trying to find faults in the information. This presentation is extremely valuable information and I am sorry for the negative comments certain people are saying. Thank you for the valuable information. Thank you thank you. And to the comments about grey hair and a few dollars off, and pink lipstick...please control you're childish behavior. Some people are trying to learn and you are trying to ruin a good thing.

Author — Randy Thibodeaux

Author

0:12 Bill Ackman
0:23 Lemonade Stand Example

*Starting A Business* (1:03)
1:17 Form A Corporation
• 1, 000 shares of stock, Investor invests for 500 shares

2:18 *The Balance Sheet*
Assets = Liabilities + Stockholders Equity

3:08 Fixed Assets and Inventory

4:19 *The Income Statement* 4:38

5:49 *_Growing The Business_*

8:05 *The Statement of Cash Flows* (SOCF)

9:05 *Evalutating Value*
10:26 Equity Investor took more risk, e.g. Equity Investor made more returns on investment

11:08 Debt and Equity 11:58

13:06 Assessing Risk
13:40 Government Bonds (Low Risk investment)

14:53 Profiting As An Entrepreneur

17:34, 17:50 Valuation: Determining A Company’s Worth

19:33 Selling Shares, Board Of Directors
20:36 Benefit of IPO

21:03

21:39 Investing
22:59 Interest Returns
24:00 The Importance of Not Losing Investment Money (Avoid Losses)

24:53 Keys To Successful Investing

- Don’t Invest In Startups
+ Invest In Public Companies
+ Invest In businesses you understand how they make money
+ Invest at a reasonable price
+ Invest In a company that you can own forever

27:26 A business you can own forever
Coca Cola, McDonalds
28:58
• A product people need
• Unique
• Brand Loyalty
29:48
30:23 High barriers to entry
31:57 Low Reinvestment Cost

*Controlled Company*

33:26 Investing

34:41 The Psychology of Investing
35:45
1. Be Financially Secure
2. Don’t get spooked by short term fluctuation
3. Do your own work
4. Invest at a reasonable price

36:38
• Mutual Fund
38:05
• A Good Money Manager Can Explain What/Why They Invest In
+ Good Reputation
+ Value Approach
+ 5 Year Track Record
+ Consistent Approach
• Hedge Fund

40:25 Recapping

41:20 This is just an Introduction
42:27 Invest In Your Future

Author — Michael Pisciarino

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We live in the greatest information age, I can listen to Ackman teach me finance in the comfort of my home

Author — Nixbuzztv

Author

Who else is getting stressed out over their first year loss in their imaginary lemonade stand?

Author — Kellen Brennan

Author

Intro: Hi, I’m Bill Ackman!

Title: “William Ackman”
Guess they got the wrong clone😂

Author — BLEU

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He's a billionaire investor yet takes time to make this video for the little people to understand ...👍

Author — Alex Jay

Author

this and "How The Economy Machine Works" by Ray Dalio is the reason of how YouTube could be a great platform for educations. Any other video suggestion?

Author — Zidny Wijdan

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Things I learned to do in this video:
Invest in Coca-Cola.

Author — Weston Stephens

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Here After this guy turned $27 million to $2.6 billion.

Author — suman shresth

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Good god I am loosing my mind with these sound effects. Great info though!

Author — Finn Holmquist

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whats really sad is that none of this info is taught to students in high school. we are teaching children nonsense instead of financial independence.

Author — BobRooney

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This video was made 7 years ago and I just came across it for the first time in my life today. We’re so lucky in this age. Loads of information at our disposal which can be accessed anytime from anywhere.
I tell my students if you have a smart phone or a computer you don’t have any excuse to be poor

Author — Aaron Gaudreau

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I watched this several years ago, I thought this guy was some cocky know it all. I ended up going into finance and this guy became someone I really looked up to. Holy crap.

Author — Addison Brown

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2:20 The Balance Sheet
3:09 Fixed Assets And Inventory
4:21 Income Statement
5:57 Growth Assumptions
6:30 Bringing The Business Up To Scale
8:08 Cash Flow
9:08 Evaluation
11:10 Debt and Equity
13:07 Assessing Risk
17:52 Comparing Companies to Determine Value
21:36 Investing

Author — Dragon Fly

Author

This is some really good advice everyone should follow..

Author — Matt C

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Wow a really good video, I appreciate you taking you time to make these. I have just been lectured on how to run a business, currently am a passive investor in the stock market but who said I can own a company eh there are no limitations.

Author — James Pham