 Good day, fellow investors. We are always speaking about Wall Street, but crucial for healthy investing is to understand the nature of Wall Street and how it can work against you. We continue with the summary of the margin of safety, Seth Claremont's book and chapter 2 is all about the nature of Wall Street and how it works against you. The topics covered are the following. Upfront fees and commissions. Wall Street's primary conflict of interest. Wall Street favors underwriting over secondary market transactions. Wall Street's short-term focus and financial innovations. Wall Street's bullish bias and investment fats. So what does Wall Street do? Investment banking, trading and of course facilitating the financial environment. What is their profit? Their profit comes from fees and commissions on what they do and not on how effectively they do it. So that's the first thing you have to keep in mind. Wall Street's interest is the commission, the fee they get for doing a service for you. We're taking home cold-heart cash via commission, motherfucker. It's incredible, sir. I can't tell you how excited I am. You should be. Since I put my email on YouTube, I get a lot of emails, I'll get a lot of questions, people sharing their financial worries and this is from one subscriber. He has a $13 million portfolio, a trust fund for a charity and he and his family put that with one investment bank and they are paying a 0.9% yearly management fee to their bank. And what the bank did is they put the money into free funds, a US equity fund, another European fund and a bond fund. As he told them, he cannot take any risks. So this is the segregation. I will make a special video in the details of the fund because there is so much to learn and I can help the charity, the subscriber that contacted me. But is this worth a 0.9% yearly fee or they could have simply told him, yes, buy free ETFs with a 0.04% yearly fee and you will have the same result. So the Wall Street will obviously tell him, no, buy our funds, we will manage the money for you and we will get a 0.9% yearly fee. 0.9% on the $13 million is $117,000 per year. If I would tell him, oh yes, just buy free ETFs with a 0.04% or index funds with a 0.04% fee, I could get $500 for that, compare my one time $500 to $170,000 on a yearly basis for as long as he keeps the money there. So no wonder investment bankers have the money, have the big apartments, have everything because they gain no matter what happens. If this portfolio falls to 10 million, they will still get what, $90,000 per year. So this is investment banking and the only goal is to keep the client in. Further, Seth Klarman says how they are willing to risk even more because they know they eventually over a few years they will lose their client because that's the nature of Wall Street. So they are trying to squeeze the client as much as they can for the fees. Something to keep in mind when you're dealing with Wall Street. So the first lesson is be aware of the interest of the counterparty you are dealing with because Wall Street is all about. Thanks, thanks for that guys. Now, second point, Wall Street is more about underwriting primary market. So selling IPOs, selling stocks, finding financing for bonds, working on mergers and acquisitions, rather than enhancing the secondary market because there is where the fees are made. This is Goldman Sachs saying how Tesla may need 10 billion in funding by 2020. However, just a few months ago, Tesla is no longer rated by Goldman Sachs as bank takes advisory role. So when Tesla was about to go public, Goldman Sachs took a job with that Elon Musk. Consequently, they had to shut down the amount of the analysts that is not so positive on Tesla to get the fee. So as soon as the deal didn't go through with Tesla, they were back at it. So Goldman Sachs resumes Tesla coverage with a sell rating. If so, if Musk wants to shut them up, he can just hire them and then you don't see any more sell ratings about Tesla. However, what's very interesting is that two years ago, Twitter got really angry at Goldman Sachs for upgrading Tesla just before underwriting stock. It was few hours before they announced that Tesla will be issuing 2 billion in stocks and they were the lead underwriter that they upgraded the stock. So that's how Wall Street works and you have to be very, very careful about that. Why is this so important? Because Wall Street gets a big fat fee on the transaction. This is from one of Tesla's offerings. So initial public offering price, it was 226 million. Underwriting discount is a 6.5% fee that goes to, in that case, Goldman or whoever was there. So Wall Street will do whatever it takes to get their fee. That is their lifeblood. So be careful about that when dealing with Wall Street. Simply another example when with Morgan Stanley, they really published the IPO of Snapchat, made a lot, made a lot of money on that IPO. And then a few months later, they simply said, oh, we were wrong. Sorry, see you next time on the next IPO that we will promote actively before it goes public and then forget about it when it goes public. But that's Wall Street. Then Wall Street is really focused on the short term. There is so much money into the business. So if you make, have five good years as an employee at Wall Street, you can probably retire if you're not too greedy that you want to do it for the rest of your life. One example. If you read Nassim Taleb's book Skin in the Game, you can see that Bob Rubin, he was the CEO of Citibank for just a few months before it was bailed out by the government. But for the few months he was working there, he got about 100 to 125 million in fees. He didn't save the company and he didn't have to pay anything back when the company went bust. That's how Wall Street works, short term focus, let me get my fees, let me get my commissions and see you later, alligator. Then on financial innovations, how can we squeeze more money from customers? The number of ETFs has been growing extremely fast. From 100 in 2003, we are now at 1,707 in 2016, we are probably now at 2,000 and more. I recently discussed the Uranium ETF in a video and just the three top holdings are directly related to Uranium. But there is a 0.69 yearly management fee to hold Hyundai, Mitsubishi and all the other engineering companies that are not that much related to Uranium. Another thing for Wall Street, there is the bullish bias. As a broker or a banker, you may make more money when things go good and therefore Wall Street has to be permanently positive. Just look at the ratings for SAP 500 companies in September 2018, when the market was still calm and very expensive. So 94% of the market is expected by analysts to do well. 53% of recommendations are buy, so buy, buy, 53% of the stocks, 42% of the stocks are hold. Albeit, history tells us that just 33% of the market does well and actually outperforms the market over the very long term. So analysts are recommending 94% as hold or buy and just 33% of them are actual holds of buy. So be aware of analyst's recommendation, it's in their job, it's in Wall Street's nature to be bullish. Then we have to differentiate between investing feds and investing trends. Usually a trend develops later, but first we have a Fed when everybody piles in like crazy, we have a bubble that pops and a lot of people lose money, lose interest in the stock market. But in the ups and downs, in the mergers and acquisitions, in the IPOs, Wall Street makes a lot of money. And that's why they like to promote those feds. Marijuana stocks, bitcoins, we had 3D stocks, we had the internet bubble in the 90s and a lot of people lost money there, but not Wall Street. Sometimes a Fed can turn into a trend, but it took 10 years for Amazon to return the stock price to the peak of 1999. And Amazon was a unicorn, one out of a thousand that made it. That's the difficult when it comes to investing in such things, in such feds. Better to wait for it to become a trend and then invest in it, not when it's just a Fed. So the conclusion is simple. To deal with Wall Street you have to understand its nature. This will make things very, very easier and you will know, okay, what's the interest of the person I'm dealing with? If you have a 13-14 million trust fund and you go to a bank, it will be much easier to talk to them if you understand their policy. If you are, I don't know, investing in such some commodities, you will understand when you deal with the CEO, when you listen to the CEO, to the manager, okay, what's their interest? Is it to push a pump and dump scheme just to push the stocks higher, go IPO, go public and something like that? Or there is really the interest of the shareholder. When you can find those investors like Buffett that really have the interest of the shareholder at heart, then you invest there and forget about everything else and have a great life on the side. The investments will take care of themselves. That's what we do on this channel. We look for great businesses. We look how to invest with a margin of safety and not to get screwed by Wall Street. So please subscribe for that. Click that notification bell to get a notification when a video comes out. And if you want to see really what I do in full disclosure, then check my stock market research platform. Check it out, 30-day money back guarantee, so you have really nothing to lose. Thank you for watching. I look forward to seeing you in the next video where we summarize the margin of safety, said Claremants Evergreen on value investing.