[MUSIC] Hi everyone. In this set of two videos we're going to have a look at buying and selling. Starting and exiting an investment. We're going to see that often we make mistakes in doing both buying and selling, because we rely too much on past performance. So at the end of these two videos you will find out what often triggers our decision to buy and to sell. And know also very importantly why we refrain from selling loss making investments. In French there's a way of saying that, you say [FOREIGN]. We'll see what that means, not selling, not losing. And, finally, I will show you how we can, how we should look at a security we have in our portfolio, and decide whether we want to keep it, whether maybe we want to add more to that investment, or whether we should be selling it all together. Okay, so now we're going to have a look at this company, by 1998 you see here, the world leader in mobile phones. This is a very interesting story of this company, which was founded back in 1865. At that time, there were obviously no mobile phone, and the company was active in pulp. It was producing papers in the 60s. It became a conglomerate active in rubber, in forestry, in cables, and power generation. And in 1991, it decided to make mobile phones its core business. We're talking about here Finnish company Nokia. So by 1998 you see this staggering performance of the stock. Can you believe it? Look at this chart. There's a famous investor back in the 90s who was running the largest investment fund in the world, this was Magellan. The fund was called Magellan from the firm Fidelity. And this, the name of the guy is Peter Lynch. And he was, he had the reputation of being the best stock speaker in the world. Anyhow, he had this expression that when a stock is multiplied the performance is multiplied by 10. You make a 10-bagger. Okay, so you buy a stock at, I don't know, at $10 and you sell it at $100, so you made a 10-bagger. Okay, and we see with this chart here the details of the performance, because here we put the scale in logarithm. You can see that in 1991 the stock was worth 16 cents. Let's make an assumption for clarity and simplification that they were euros. Okay, 16 cents of a euro, and you see that by the end of 1998, the stock was worth 14 euros. So, quiz to you, what was the annual return of this stock? Okay, so now you figure out the annual return you've generated with this company, the share price, and you see that it's very, very high. And so maybe 1998, so possibly even a bit earlier than that. I remember when I had my first Nokia phone in the mid 90s, I was very tempted, and I actually did buy some of the stock. But as we will see in a minute, I sold way too early, my position. Anyhow, let's assume that you by the end of 1998, you seen the staggering result. You see that Nokia is actually the world leader of the mobile. It's actually a stock that everyone has to own, especially what we call the index trackers. Because it was the largest stock in the index in the benchmark of the European equity markets. So all the fund managers who are tracking the index need to own Nokia. Okay, so you start looking at this company and you find it interesting. Okay, and you put it on your radar screen, and here is the price evolution for the next two years in 1999 and in 2000. And you see I put it in log but the stock prices goes through the roof. I put the title here as the sky the limit. So at 30 euros you enter, you decide to buy the stock, okay? And you're very happy because just a couple of months later, maybe one year later, the stock hits 60's, so you double your investment. You could have made obviously much more had you entered previously, but it's still a very good return, okay? So what I want to illustrate here is that how we're going to enter into a position? What is going to trigger our decision to buy? We're going to have a look at, by the end of the 90s, everyone had a Nokia cellphone, so it was very popular. So you know it's the company leader, so you like the company, the strategy. They dominate the market, and you look at the performance of the stock, and you find it very attractive. So we know we should not pay too much attention to past returns to enter into a position, but that's the theory. In practice we are biased, and we will see in this second.course with a series of lectures by my colleague Kirsten Preshov, that we have emotional bias that may impact our decisions to either buy or sell a security. So we see in the conclusion of this first video that our incentives to enter into a position to buy a given security is often driven by the story, the investment case. We look at Nokia. Everyone has a cell phone, so it becomes an incredible buzz. What, you don't have your Nokia cell phone? What's wrong with you, [LAUGH] kind of thing. And, okay, so you enter into a position because it's very popular, because the company's a company leader, it looks incredibly robust, the number one in the world. So and they have these fantastic strategies for strengthening their position, and you may be biased into buying because you look at the past returns and you say, wow. Okay, so this is how we may enter into a position. Let's have a look in the second video, what to do when we want to sell an investment. [SOUND]
