May 3, 2021 • 45 mins
When we talk about debt, we usually understand it as a loan to someone like a car loan. But what else can it mean? How can you utilize it as an investment for yourself? What is ownership and how does it play a role in things like the stock market? We touch on these and discuss the different angles of how it affects investing and why it matters to you.
Let’s be honest though. It’s mostly just Chris being confused.
Also there are bad dad jokes. But they don't have to be good to be a dad joke right?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Sean Cooper (00:00):
Ready should we actually get on this?
Maybe start talking someinvesting?
Chris Holling (00:05):
No, because I haven't told you I went to a
fancy dress party dressed as analarm clock but I left early in
a bad mood. People are therewinding me up all night.
Okay, let's say I the thepessimist sees the tunnel, the
(00:28):
optimist a light at the end ofthe tunnel. The realist sees a
train. The train engineer seesthree idiots on the railroad
tracks. Okay, I like that.
That's, that's good. That'sThat's good. Okay, Sean. Should
we start stuff?
Sean Cooper (00:50):
Indeed.
Chris Holling (00:51):
Okay, Indeed, indeed. 1
Sean Cooper (00:55):
2
Chris Holling (00:56):
3
Sean Cooper (00:57):
4
Chris Holling (01:00):
5.
(01:26):
Welcome, everyone, again toanother episode of truth about
investing back to basics. Myname is Chris Holling.
Sean Cooper (01:35):
And I'm Sean Cooper,
Chris Holling (01:36):
and we want to talk about debt versus
ownership. Today,
Sean Cooper (01:42):
stocks versus bonds.
Chris Holling (01:43):
What No, I even told you
Sean Cooper (01:45):
debt versus equity borrowing versus selling.
Lending versus buying.
Chris Holling (01:51):
So you're it's not it's not that
Sean Cooper (01:54):
it's all the same stuff
Chris Holling (01:55):
I read you the wrong thing on our episode plan
list and you're going rogue onme it's it's that you're
describing what we're going totalk about and and
Sean Cooper (02:03):
that's right.
Chris Holling (02:03):
I had No idea.
Well, good.
Sean Cooper (02:10):
I wasn't disagreeing with you.
Chris Holling (02:11):
I you know, it sure felt like it. I could feel
the animosity through yourresponse, which is Oh, as
Sean Cooper (02:18):
Feeling a little defensive over there,
Chris Holling (02:19):
as I'm told. As my wife likes to tell me tone
matters. You said it was such atone that I just I felt I felt
immediately defensive and Iokay, well, here's the deal I my
my preparation for today was melooking at the thing that says
(02:43):
debt versus ownership
Sean Cooper (02:48):
Good job.
Chris Holling (02:50):
Thank you
Sean Cooper (02:50):
Way to be a go getter.
Chris Holling (02:53):
Did you like the emphasis on the on the sipping?
I thought that was it's muchmore of a visual
Sean Cooper (02:59):
it didn't quite come through for me,
Chris Holling (03:01):
sir. Oh, yeah, that was uncomfortable. I'm
sorry. Okay, well, yeah, let'sOkay, let's let's, what why what
what is, okay, we'll do whatwe've been doing this season, I
think I'm going to say what Iunderstand debt versus ownership
to be. And then you either tellme, I'm an idiot, or you go
(03:21):
You're right, but you forgotthese things. And then we'll
we'll go from there.
Sean Cooper (03:25):
Okay, perfect,
Chris Holling (03:26):
cool. So, ownership
Sean Cooper (03:28):
Fun for everybody
Chris Holling (03:30):
ownership is the actual owning of said item of
some sort, which is usuallyinvolving in my head say a car
will go with a car today theowning outright of the vehicle
and there is not a lien on thatvehicle at all, because it is
yours through and throughbecause it is bought and paid
(03:53):
for entirely and you do not oweanybody any money anywhere.
Whereas if you have a lien andan agreement where it is a
partial ownership to you and theperson that you have the loan
agreement with, then you are inthat person's debt and well
person but you know that thatentities debt and therefore
(04:18):
share ownership at that point,and alluding to your mentioned
earlier than you might besharing ownership within stocks.
That makes sense since I'msaying it out loud. And and you
(04:39):
also need to own the way thatyou act in a day to day manner.
So that society doesn't lookdown upon you.
Sean Cooper (04:52):
They often do that anyway.
Chris Holling (04:55):
Stop talking about me. There's there's
There's my, my Crash Course, wasthat I cover everything. Are we
going to have one single episodewhere I go? This is what I think
it is. And you Yeah, man, let'swrap it up. As I'm thinking No,
but
Sean Cooper (05:15):
today is not that day
Chris Holling (05:16):
Tomorrow is not Looking good either. Yeah. But
yeah, that's that's what Iunderstand it to be Sean.
Sean Cooper (05:26):
So, so I nothing you said is wrong
Chris Holling (05:30):
I know much, much like how a day to day is for me
anyway. Yeah,
Sean Cooper (05:36):
yeah. Can we get Katie on here to discuss that
Chris Holling (05:39):
I don't want to talk about that Nope, No
Sean Cooper (05:44):
No, it's a lot like last time I mean just looking at
it through different lenses orfrom, you know discussing it
from a different goal, ifyou will. So in talking about
debt Yes, you're you're talkingabout debt that the consumer
typically sees, you know, all ofus see on a day to day basis
debt in the form of borrowing topurchase something, you know, a
(06:06):
car or a house or even using acredit card to buy your your day
to day groceries taking outtemporary debt in that that
form. From an investorstandpoint, the debt is
reversed, if you will. So when acompany is looking to get
started looking to grow, orexpand something along those
(06:29):
lines, and they need additionalfunds more than they can raise
on their own, or more than theycan borrow from a bank. More
than they can generate byselling their product or
service, they have a couple ofdifferent options. Number one,
they can borrow from investors.
(06:51):
So they actually become theborrower and you you the
investor becomes the lender. Sothat is what that is basically
what a bond is, a bond is theirpromise to repay you plus
interest, repay you being theinvestor. So it's debt reversed,
(07:12):
if you will, instead of youbeing the borrower, you are the
lender, you're the one gettingpaid the interest. And like you
were talking about, the otheroption is for them to actually
sell part of the company. Sothey're actually selling
ownership in the company. Andthat's what you are buying. When
you buy a stock, you are buyingownership, a very, very small
(07:33):
percentage of ownershiptypically, unless we're talking,
you know, venture capital, andyou're actually, you know,
buying 30 40% of the company,something like that.
Chris Holling (07:42):
Shout out to previous episodes,
Sean Cooper (07:45):
Thats right
Chris Holling (07:45):
venture capital.
Sean Cooper (07:46):
That's right,
Chris Holling (07:46):
That's right.
Sean Cooper (07:48):
So but most of the time, we're talking about
individual share purchases, inwhich case, we're talking about
tiny, tiny pieces of the theoverall company, unless you're
buying lots and lots of shares.
Chris Holling (08:01):
And then, like, when you're setting up a bond,
and not so much a purchase intothe ownership venture capitalism
side as a whole, that I wouldassume is a How do I put this,
like a, like, agreed upon thingahead of time, I guess is the
(08:22):
best way to put it. So like thethe option comes up as a, we are
selling bonds into this company,and then you purchase it and
then your money's returned downthe road, because you're the
lender? Or does that kind ofhappen? No, I guess that's the
only way that makes sense.
Because then if you're involvingan actual ownership of the
company, then it's just theoption to purchase that owner
(08:43):
back out down the road, but it'snot a guarantee that that person
getting paid back per se. Right.
Sean Cooper (08:53):
Right. So you're getting a number of
different things. So first off,in regards to the bond, yes, it
is stated upfront, it is statedin the form of a coupon that
would be your your interestrate. So bonds are sold at a
how, how did I lose the name ofit? par value is normally like
1000 bucks for a bond.
Chris Holling (09:18):
Okay
Sean Cooper (09:19):
Okay, so that that's the value of the bond,
that's what you're going to getpaid back at the end of the term
what, you know, five years, 10years, whatever the term is for
the bond, you're going to get$1,000 back, they have a set
coupon rate that they're paying.
So say it's 5%. So on that$1,000 bond, you're going to get
paid $50 annually. Okay. Whatyou pay for that bond varies
(09:45):
depending on where interestrates are. So for example, if
interest rates currently are 3%,and they're paying 5%, then
you're going to pay more than$1,000 for that bond in order to
buy it
Chris Holling (10:05):
at the initial purchase,
Sean Cooper (10:08):
correct,
Chris Holling (10:08):
okay.
Sean Cooper (10:10):
So you're gonna pay, basically whatever excess
amount brings that 5% coupondown to an annualized yield of
roughly 3%. Whereas if it's acoupon of 3%, they're paying 3%.
And interest rates are currently5%, you're going to pay less for
that bond. So you're going tobuy it at a discount, rather
(10:32):
than a premium. And that's sothat you annualize closer to
that 5%. Because if you buy itfor, say, $950, then you're
getting that 3% coupon plusyou're realizing a gain at the
end of the $50 differencebetween the 950 you purchase it
for and the $100. par value,
Chris Holling (10:54):
I believe it's pronounced coupon. Okay, so I,
unfortunately, and I, I'm surethis is my problem, and
everybody else listening islike, this guy is slow. But I
was, I was I think that was toomany numbers for me to retain,
to be completely honest. So when
Sean Cooper (11:12):
the numbers aren't really that critical in this
regard, because they weren'texact.
Chris Holling (11:16):
Okay,
Sean Cooper (11:16):
the point is, it is laid out upfront, if the coupon
that's being quoted is
Chris Holling (11:23):
coupon
Sean Cooper (11:23):
higher, yeah, sure.
Higher than current interestrates, you're going to pay a
premium for that bond. If thecoupon being quoted is lower
than current interest rates,you're going to buy it at a
discount,
Chris Holling (11:35):
okay. But when from when you're looking at the
the interest rates is thathigher interest rates than the
normal or where it was when thecompany was founded? Or what
what's the baseline for thisinterest rate?
Sean Cooper (11:49):
baseline for the interest rate is whatever
current current going rates are,relative to the credit quality
of the company. So if othercompanies, so if in general
terms, we're talking about ahigh credit company, so a
company that's very likely tostay in business, very likely to
(12:10):
pay their their coupon and beable to purchase, pay their
bonds back in the end, if thegoing rate is X percent, that's
kind of your baseline, and thenwhat they decide to pay as a
company for their coupon is therelative where it be that
(12:32):
relativity comes into play.
Chris Holling (12:34):
Okay, and
Sean Cooper (12:35):
so it's just the market rate, whatever
the market rate is, at that timewhen the bond is issued, or when
you're purchasing the bond,because even though the Bond
could be, let's say, the goingrate is 5%. And they issue a
bond at 5%. Okay, so that bondis going to be purchased at par.
Chris Holling (12:56):
So just for easy,
Sean Cooper (12:57):
but interest rates are going to go ahead,
Chris Holling (12:59):
I'm sorry, just for easy numbers on this. So
like, we'll do $100, right forwhatever the base is on this
just so that like 5% is fivebucks kind of thing. So your
your bond is that $100 and youryour 5%, that you're looking at
your 5% interest rate exists,and I get that. So what where
(13:20):
does that come into play?
Sean Cooper (13:23):
The current 5% or the 5% of the company's paying?
Chris Holling (13:26):
I guess that's what I don't understand. That's
my fault.
Sean Cooper (13:30):
No, that's okay. So the current 5% is really derived
from market participants marketdemand, supply and demand and
the appetite for risk. So forexample, if there's lots of
things that are going to comeinto play here, number one would
be what we talked aboutpreviously looking at prime or
(13:52):
labor, which is the Londoninterbank offer rate. So those
those baseline rates that arereally kind of derived from
governments,
Chris Holling (14:00):
okay?
Sean Cooper (14:01):
So the Federal Reserve, so that's going to
typically be a factor. Otherfactors are going to be the
risk, not only in the market atthe time. So if there's lots of
volatility in the market, that'sgoing to create more of a risk
premium people are going todemand a higher interest rate
(14:25):
than they might otherwise would.
And then the risk of theindividual company, so you know,
you look at companies, theirtheir credit rating, there's
number of different companiesthat actually do credit ratings
on corporations. And so triple Bwould typically be like the
cutoff between your high yieldand your more standard more
(14:50):
higher credit quality companies.
So anything in the a range isgoing to be a higher credit
rating and therefore going to,they're not going to have to pay
as high interest rate to getpeople to invest in them because
they're less likely to gobankrupt and not be able to pay
their debt back. So it's therisk of the company the risk
(15:12):
that the company will not beable to pay back. That is part
of where that interest rate thatthe demand side interest rate is
derived from.
Chris Holling (15:23):
Okay. I think that makes sense. Just the
there's there's differentcompanies that that get
involved, or, depending on thecompany that you're looking at
may affect different portions ofit, depending on what level
they're at, you know, theirtheir volatility and stuff that
you're you're talking about. AndI guess I'm referring to that
(15:46):
first stage, the the initialpart of like, I get that
different variables create thedifferent interest rates now,
I'm, I'm getting that. And Iguess I'm talking about now that
we're talking about theinvesting process. This season,
I I decided that I want to startlooking at purchasing bonds, and
you own a company that is goingto sell bonds, and let's do
(16:10):
business, you and I right? Andso since we've established the
market rate is that 5% amountbecause of these variables that
we were just talking about.
Sean Cooper (16:20):
Okay,
Chris Holling (16:21):
I say I want to buy this bond from you, that is
valued at $100. And I know the5% market rate exists. Does that
cost me $105? To purchase?
Sean Cooper (16:34):
No.
Chris Holling (16:34):
Okay, how much?
Sean Cooper (16:36):
Well, I mean, it depends on what the
coupon is that the bond is goingto be paying.
Chris Holling (16:40):
Coupon Okay, sure. I that's what I'm
trying to understand. I I'mlearning about bonds, I know
that there's variables anddepends on the company. And
because you're reliable, andI've looked at the variables, I
know that it's gonna sit at 5%with you, and I say I want to
buy a bond worth $100. Andthere's a 5% rate in there. What
do I owe you? And you say,blank,
Sean Cooper (17:07):
I say, what's the coupon that the company is
paying?
Chris Holling (17:11):
I don't know. I have no idea.
Sean Cooper (17:13):
Well, that that determines the price.
Chris Holling (17:14):
Okay. So
Sean Cooper (17:16):
without knowing the coop, okay, you got you got to
know the going interest rate,you got to know the coupon, then
you can determine price.
Chris Holling (17:23):
Okay.
Sean Cooper (17:24):
So what you also have to know the the term of the
bond how long it's, it is, but
Chris Holling (17:32):
I don't know, give me an example, then give me
give me like a, an examplecoupon. So that I'm tracking
here.
Sean Cooper (17:41):
Well the coupon is an interest rate. If it's a
brand new bond, oftentimes, it'sgoing to be issued at the
current going rate for thatparticular company's risk level,
Chris Holling (17:51):
which is the 5%.
Right, that we're talking about?
Sean Cooper (17:53):
Correct.
Chris Holling (17:54):
Okay, so we know that it's $100 bond, and it's a
5% coupon interest rate thingthat we're looking at. So do I,
do I pay you 100? Do I pay you105? Do I pay you 95? What
Sean Cooper (18:10):
if Okay, so, first off your $100 is killing me
because they're all they'realways in increments of 1000.
But
Chris Holling (18:18):
do what? Okay, let's take that out. see if 1000
1000.
Sean Cooper (18:25):
Thanks.
Chris Holling (18:25):
All right. You're welcome. You're very well.
Sean Cooper (18:28):
So the assuming the going rate for my company's risk
rating is 5%.
Chris Holling (18:37):
Yes.
Sean Cooper (18:38):
If I'm paying a coupon that is also 5%. Then you
would pay par value. So if it's$1,000 bond, you'd pay $1,000.
Chris Holling (18:49):
Okay, at a 5% interest rate that's established
when you buy the bond, then
Sean Cooper (18:56):
correct.
Chris Holling (18:56):
Okay.
Sean Cooper (18:57):
Yes.
Chris Holling (18:58):
And then with the bond established at that 5%,
that we were talked the 5%coupon that we have
Sean Cooper (19:08):
right
Chris Holling (19:09):
established here, then when you pay me back as the
owner, then I will get my 1000plus 50 bucks, because that's
the 5% that was established.
Sean Cooper (19:21):
Right? And you would have received $50 every
single year as well.
Chris Holling (19:24):
Okay. Okay, because it holds that 5% that
was established annually. Andthen when you pay me back, it's
the original 1000 and the final5% or whatever, but the
Sean Cooper (19:39):
exactly,
Chris Holling (19:40):
okay. Okay. Now I'm tracking here. So when does
that change to the 950? Whendoes it become like a discount
at that point, so to speak.
Sean Cooper (19:51):
Okay, so I'll touch on that here in a sec. I should
also mention that there areother types of bonds, some of
them that actually retain all ofit. Till the very end, some of
them that will pay back a pieceover time. Typically speaking,
though, you're looking at thatcoupon that we've been talking
about, and then the finalpayment, all in one lump sum.
(20:12):
But anyway, just touching onthat
Chris Holling (20:14):
akay,
Sean Cooper (20:15):
where you are going to look at typically that change
in the price of the bond is thesecondary market. So after the
initial issue, so in thisscenario, you bought the bond
from me, the company, in thisexample, for 1000 bucks. Now, if
interest rates were to fall, acouple years into this
(20:35):
agreement, so say it's a 10 yearbond, you've had it for two
years, I've paid you two yearsof the $50. And interest rates
dropped to say 3%.
Chris Holling (20:49):
Okay.
Sean Cooper (20:51):
And you decide to sell the bond to someone else.
Chris Holling (20:57):
Okay,
Sean Cooper (20:57):
okay, I have nothing to do with it that
except for the fact that I'm nowpaying someone else, but that
someone else had to buy the bondfrom you. Now, because interest
rate, the current interest ratemarket is only 3%. And this bond
is paying 5%. It's worth more tosomeone than anything else in
the general market.
Chris Holling (21:19):
Okay,
Sean Cooper (21:20):
does that make sense? Because if they were to
go out and buy a brand new bond,it would probably be paying them
3%. But this one's paying five.
So they would have to pay apremium in order to get that
bond from you. Otherwise, you'dbe really silly.
Chris Holling (21:31):
Sure. Yeah.
Sean Cooper (21:33):
So that's where they'd be paying over the
$1,000. Mark.
Chris Holling (21:37):
Okay.
Sean Cooper (21:39):
Okay. Whereas if interest rates had gone up from
that five baseline, so they wentup to 7%.
Chris Holling (21:45):
Right,
Sean Cooper (21:46):
then he, that person who's buying the
bond from you could have gone tothe market and bought a bond
that was paying them seven, butthey're buying a bond, that's
only paying them five from you,which means in order for them to
net the same, they're going topay you less than the $1,000
they're going to buy it at adiscount.
Chris Holling (22:05):
Okay. Okay, that makes sense. And then that, is
that done? from person toperson? Like, could I could I
call you later today and buy abond from you if you have them?
Or is that done through arepresentative of some sort?
Sean Cooper (22:18):
Typically, you're going to be looking at an
intermediary for the most part,
Chris Holling (22:23):
like a company representative or like,
I'm sorry, a broker or some sort
Sean Cooper (22:27):
a broker dealer.
Yeah.
Chris Holling (22:29):
Okay.
Sean Cooper (22:30):
Yeah. Some of the large exchanges? Well, for
example, in the stock market,you have the stock exchanges,
like the NASDAQ, or the New YorkStock Exchange, okay, there's a
market for bonds as well.
Typically, you have, mostcompanies have their own fixed
income department. So where youcan you can buy and sell bonds.
Chris Holling (22:51):
Okay.
Okay, that makes sense. I'm gladwe cleared that up. I was really
confused there for a minute.
Sean Cooper (23:00):
Okay, no, I'm glad.
But the other aspect of thisthat we need to touch on before
we jump over to the stocks andthe ownership is there's a
couple of reasons why someonemight buy a bond, as opposed to,
you know, might lend a companymoney as opposed to actually
giving them money in exchangefor ownership.
Chris Holling (23:22):
Okay,
Sean Cooper (23:22):
as we've already talked about, that coupon is a
set amount, you know, whatyou're going to get. So having a
fixed payment, hence, fixedincome from the borrower or the
lender standpoint, can be verynice for planning purposes. On
the other aspect of it is, ifsomething were to happen to the
company, they were to declarebankruptcy, they were going to
(23:46):
cease to exist. Those lendersare going to be one of the first
people paid back.
Chris Holling (23:52):
Okay.
Sean Cooper (23:54):
So if a company has bonds outstanding, as well as
stock outstanding, and they gobankrupt, the bondholders get
paid back before thestockholders.
Chris Holling (24:05):
Okay, that makes sense. Is it is it common
practice? Kind of like when wewere when we were talking about
the GameStop exchange stuff thatwas that was going on at the
time and in in also a previousepisode, that when there's
expectation that companies aregoing to possibly go out of
(24:29):
business and you you put a puton them, right?
Sean Cooper (24:33):
You would buy a put
Chris Holling (24:35):
Buy a put put, I like put a put, it's kind of
like it's kind of like put put,but you, you would buy a put
because you you believe it'sgoing to be worth less than than
it is at the time. Is it alsocommon for people to
simultaneously purchase bondswithin those companies while
(24:55):
they're thinking about it, or.
Im just trying
Sean Cooper (24:59):
not Tipically Well, I mean, it depends on your how
high a risk we're talking aboutif I'm actually going bankrupt.
So So I mean, you're you'redelving into derivatives with
your your put, which is anoption
Chris Holling (25:12):
in a future episode. Pineapple juice.
Sean Cooper (25:14):
But yeah, we don't want to get too deep into that
Chris Holling (25:15):
From a bond one, the bond, yes, the bond is
going to be more secure than anyequity that you might take out
in the company might buy in thecompany. But if we're talking
about a company that we'rereally worried about going
bankrupt, there's still thechance that you will not get all
of your money back.
Sean Cooper (25:33):
That's why, right, and that's why the bond in order
for that company to sell bonds,in that case, they're going to
be a high credit risk, they'regoing to have to pay a much
higher interest rate in order toattract investors.
Chris Holling (25:46):
Okay, that makes a lot more sense. That's why I
wanted to ask that. Okay.
Sean Cooper (25:50):
Yep. So that's where we get the high yield
bonds, higher risk higher. Andby higher risk, I mean, higher
risk that the company is goingto go bankrupt, but also higher
yield, and that yield is the thecoupon higher interest rate,
Chris Holling (26:03):
okay. Yep, that makes sense. Okay, well, then
then talk to me about stocks inownership, then.
Sean Cooper (26:10):
So that would just be the other side of the coin,
where, as opposed to lendingmoney and expecting a set
payment, in return, you areactually buying a piece of the
company with the expectation ofparticipating in the growth of
that company. Or the if not thegrowth, at least the earnings of
(26:31):
that company, because there aretwo ways that you're, you can
recognize appreciation as astock owner. And neither of them
are set in stone, when you buyit the way it was with the bond,
like there's no set coupon, whenyou buy a stock. Now the
(26:53):
company, one of the two waysthey can pay their owners is in
the form of a dividend. Soafter, and we've talked about
this a little bit before, whereyou have the company's overall
revenue, and then they pay itcover all their expenses, their
employees or their buildings,all their their costs of goods
(27:14):
sold all that stuff. And at theend of the day, they have their
gross their profits, their theirnet profits.
Chris Holling (27:21):
Right
Sean Cooper (27:22):
of those profits, they have a couple of different
options. One of them is to paytheir owners a dividend. So that
dividend for a lot of companies,they treat it almost like a
coupon, and they try to keep itvery, very steady. To attract
investors, they see that you'repaying, you know, a 4% dividend
(27:43):
every year over time maybe iteven grows very slightly over
time, something along thoselines, but it's not guaranteed.
There's no guarantee behind thatdividend. Unless we're talking
about preferred stock, in whichcase the it's it's still not
guaranteed. But the the set orthe the interest of that
dividend is set upfront. And itis senior to non preferred stock
(28:15):
buy. We're getting kind of intothe weeds there with that
though. Yeah, exactly. So thedividends are one way that
you're looking to recognizeappreciation or return on
investment when you buy a stock.
The other way is the actualappreciation of the company or
the growth of the company. Sothe overall value of the company
goes up your share of thecompany, your your stock price
(28:37):
goes up to reflect that.
Chris Holling (28:42):
Sure. Right.
Sean Cooper (28:44):
And that one, you can only technically recognize
that appreciation if youactually sell your stock, and
then you recognize the gains onit there. But obviously, you it
can also depreciate this thevalue of the company, the value
of your stock can go down andthen you have a loss. So that
that's where one of the manyways that the the bond versus
(29:06):
the stock is different.
Chris Holling (29:09):
Yeah, I get that.
And that's, that's morerecognized in the sense of where
you have involvement in thecompany and aren't receiving
any, any profits in dividendsthat you would see. I mean, I
guess both ways, but when you'retalking about only getting your
money back from selling yourportion of the company, that's
that's when dividends aren'tbeing paid out at the time,
(29:30):
right?
Sean Cooper (29:34):
Yeah, there's lots of companies that don't pay any
dividends at all.
Chris Holling (29:37):
Yeah.
Sean Cooper (29:38):
And then you're literally your only value in
terms of recognizingappreciation is if the price of
the stock, the value of thecompany goes up over time, and
then you can sell it at a higherprice than what you bought it
for.
Chris Holling (29:53):
Yeah, absolutely.
I mean, I'm comfortable withthat. I don't even I don't even
know that I follow up questionsfor it.
Sean Cooper (30:00):
No, that's fair.
Chris Holling (30:01):
That makes sense.
Sean Cooper (30:02):
Yeah, I mean that that's kind of the broad terms
in term, when we're talking debtversus equity. So the debt would
be the bonds, the equity wouldbe the stocks.
Chris Holling (30:13):
And, and I, I'm sorry, I cut you off. Go ahead
Sean Cooper (30:17):
oh, just saying that the bonds would be the
investor is a lender, and eitherwith the stocks, the investor is
a owner of the company. Now,keep in mind when we talk about
ownership, and you mentionedkind of participation, when it
comes to stocks, typically,you're not a participant in the
way like a an executive of thecompany is
Chris Holling (30:41):
right,
Sean Cooper (30:42):
you know, with with most stocks, you're not
interacting with the day to dayoperations, there might be some
various elections that go out.
So you'll you'll have some sayin some of the bigger decision
making like should we elect anew CEO? And yeah, these are our
options that the Board ofDirectors has presented. They're
(31:06):
recommending this person, and doyou agree with that election for
the CEO? Or is there somebodyelse that you? And normally it's
just a yes or no vote? It's nottypically. Here, all your
options?
Chris Holling (31:24):
Sure.
Sean Cooper (31:25):
But those are the types of things or, you know,
we're changing the way voting isdone. And we only need x
percentage to make this passinstead of a different
percentage, or we want to changethe dividend. You know, that
(31:48):
depends on a variety of things.
And most time a dividend changeis probably a poor example,
because they're just going to doit based on profitability. But
yeah, there are a few thingsthat as a participating
stockholder, you would get a sayin, but it's not. For the most
part, you're not a participantin the company, though, the way
(32:10):
the the owner, the primaryowners of the company are or the
way the board of directors orthe CEOs or executives are. And
if you're a preferredstockholder, you probably have
no voting rights at all.
Chris Holling (32:26):
Gotcha. Unless you unless you own a certain
portion, to a large portion tobe able to make those decisions,
because then you get out of thatposition, right?
Sean Cooper (32:37):
Not with preferred stock, typically, preferred
stock has no voting rights. Soit's just a different type of
stock. So you're, it's stillownership, but it's kind of that
trade off of the most stock thatyou're going to buy is you get
those voting rights, whereaswith preferred stock instead, in
(32:58):
exchange for forgoing the votingrights, you're getting a
preference preferentialtreatment on the dividends that
are paid out, and normally, it'sa set dividend, that you get
paid as a preferred stockholderbefore any other stockholders
get any dividends.
Chris Holling (33:13):
Gotcha. Okay.
Yeah, I guess I was under theimpression that if you if you
purchase that amount, then youyou go into a slot where you'd
be able to have those votingrights, but not, not under that
category.
Sean Cooper (33:24):
Yeah, it all depends on the type of stock
that you're buying.
Chris Holling (33:28):
Okay.
Yeah, that makes sense. What,but what else what else we got?
Sean Cooper (33:35):
That was it, I was just trying to help people
understand the difference. Whystock typically has a higher
return on investment than, thanbonds. And it's because it is
more risky, you're actuallytaking ownership, you're not
getting any type of set setpayment. you're relying on the
growth of that companypredominantly, and possibly
(33:57):
dividends from profitprofitability, whereas the bond
has a stated coupon rate and haspreferential treatment in terms
of repayment if something doeshappen to the company, whereas
stockholders are the last to getrepaid. So you have a higher
likelihood of losing potentiallyeverything. And then just in
(34:18):
terms of the you know, whatyou're trying to achieve? Do you
as an investor want a setpayment, you want that that that
lower risk of being a securedcreditor or potentially even an
unsecured creditor relative to astockholder? Or do you want
(34:38):
ownership in that company in thechance to participate in the
growth of the company? Sotypically speaking, the stocks
act as a better hedge againstinflation like what we were
talking about in a few episodespreviously, then then bonds but
they are they are more risky. SoJust wanted to get
(34:59):
help everybody understand the
Chris Holling (34:59):
yeah, that totally makes sense
those differences from aninvestor standpoint, and also
from the standpoint of thecompany, when they're choosing
to raise money, whether theydecide to lend or actually sell
part of the company is when theysell part of the company, you
know, if they own 100%, and theydecide, okay, we're going to
sell 30% of the company. Well,that's 30% of the company that
(35:21):
they no longer get to benefitfrom the the future growth of
the company on that portion ofit.
Right
Sean Cooper (35:27):
they're. They're giving that up. So right.
Chris Holling (35:30):
No, I think that's important, you know, more
more tools for the toolbox, whenyou're when you're looking at
stuff. And if you are concernedabout inflation, maybe
reevaluating bonds or, or just,you know, being being aware of
it, because that's, that's whatwe're about is making sure that
you just know what's going on.
And you can you can make the thechoices that you think are
important to you, that you thinkis going to be the most
(35:51):
beneficial for for you and, andall the reasons that investing
is important to you.
Sean Cooper (35:57):
Yep.
Chris Holling (35:58):
I like it.
Sean Cooper (35:58):
Yeah. And, you know, in general terms, you
typically see a portfolio have amix of stocks and bonds, and
other investments. I mean, thisis just the tip of the iceberg.
There's lots of other ways ofinvesting. But these are the the
two biggies is debt versusownership. Stocks versus bonds.
(36:21):
Typically, you'd see a mix, butdetermining the appropriate mix
for you. And also, you know,even evaluating individual
companies as to whether or notit's better to buy a stock
versus a bond in that particularcompany. And then you can get
into other things like thederivatives of those investment
vehicles, or even differentforms, like we were talking
(36:44):
about the preferred stock, or inthe form of bonds, there's also
convertible bonds, which are isa bond that it's like it
Chris Holling (36:53):
doesn't have a top on it, you take the top off
in the summer time, you enjoythe wind in your hair.
Sean Cooper (37:00):
No,
Chris Holling (37:01):
oh,
Sean Cooper (37:01):
no.
But it does provide theflexibility like that, you know,
in that the convertible canenjoy the the nice sunny days,
if you will, but also go up whenit rains. And in that case, the
the convertible bond benefitsfrom being a bond that's getting
(37:23):
paid a coupon, although it'stypically a lower coupon rate
than your traditional bond. Butit can also benefit if the
company does really well,because you can actually convert
your bond into stock.
Chris Holling (37:37):
Oh interesting, so
Sean Cooper (37:37):
and that's where the convertible comes into play,
Chris Holling (37:39):
it's just that flexibility to kind of hop
around
Sean Cooper (37:41):
correct Yeah, yeah. And it's because of
that flexibility that itnormally pays a lower interest
rate. But it gives you basicallythe opportunity to potentially
participate in stockappreciation as well, should you
choose to convert it but withoutthe risk of actually directly
participating. So if you knowthe company does really poorly,
then the value of the stock goesdown. Now the value of your
(38:05):
convertible bond is also goingto go down but not to the same
degree as the stock itselfbecause you still have that
coupon
Chris Holling (38:14):
with the numbers floating through your hair and
the
Sean Cooper (38:19):
right
Chris Holling (38:20):
wind on your face. And
Sean Cooper (38:22):
yeah, I don't think that's what anybody envisions
when they're talking aboutdriving around.
Chris Holling (38:26):
You know, they should though, you know, you
know,
Sean Cooper (38:28):
With the convertible,
Chris Holling (38:29):
they picture, I'm buying a convertible and this.
Yeah.
Sean Cooper (38:34):
They should be picturing the numbers. That's
true.
Chris Holling (38:40):
No, okay. I think I think that's I think that's
good. I think that's a goodcoverage on on these spots.
Unless Unless you think we'reforgetting something unless I'm
sure I would be forgettingsomething. If If it were up to
one of us to remember something.
Sean Cooper (38:54):
No, I think more than anything at this point, I'd
just be getting off into theweeds on some of those other
investment vehicles.
Chris Holling (39:01):
No,
Sean Cooper (39:02):
we'll be stuck talking more about no even
stocks and bonds in detail lateron.
Chris Holling (39:07):
So pineapple juice, yeah. I'm keeping my safe
word. Good. I'm glad we wereable to touch on that. I hope
this I hope this was helpful. Ihope that this helps cover some
baseses so that if you aregetting involved into into
these, these portions of Hey, Ithink I'm going to start getting
(39:29):
involved in the stock market andmaybe talking to a broker about
some bonds and see what you wantto do and tools for the toolbox.
And while you're looking atthese things I'm I'm hoping this
establishes a little bit morethan just Hey, if I put this
money into this, thisabbreviation of a name that I
think it will go up and I'llmake money. This This should
(39:50):
hopefully have a betterfoundation for you to go from.
Yeah, me? Yeah, Bueller. Okay.
Sean Cooper (39:58):
Good. Well, and just to clarify, I mean, if
you're getting involved in thestock market, and you've opened
up an account with, typicallythat's going to be with a broker
dealer or you know, yeah, anynumber of them out there that
you can open up an account with,and they're going to have a bond
trading desk that you canutilize, typically. So you can
do it all in the same place,whether you're buying stocks or
(40:20):
bonds, or exchange traded fundsor mutual funds that invest in
either or both of those vehicles
Chris Holling (40:28):
and talk with them about your options and see
what's the most appealing thingfor you. I think that's, that's
a good way to go about it. Cool.
Okay, wish we should hop offthis mic before you get in the
weeds, and I yell at you forgetting in the weeds. So thank
you, again for joining us onanother episode on the truth
about investing. Back to Basics.
(40:49):
My name is Chris Holling.
Sean Cooper (40:51):
And I'm Sean Cooper.
Chris Holling (40:52):
And we will catch you in the next episode.
Allegedly. Yes, no we will
Sean Cooper (41:00):
what is our next episode?
Chris Holling (41:01):
Our next episode should be I just looked at it
and then I forgot. Your stocksversus bonds?
Sean Cooper (41:10):
No, that's what we talked about.
Chris Holling (41:11):
No, we Oh, well, we love to two
episodes. And togethereverybody. Look at how efficient
we are. That's so good.
Sean Cooper (41:19):
So what's after that
Chris Holling (41:20):
passive versus passive slash, active
investing, the differencesbetween the two and and we're
kind of talking about the God,see, you're gonna get me on a
tangent I told you to not put mein the weeds here. Okay, thank
you for joining us and we'llwe'll catch you next time.
Sean Cooper (41:37):
Perfect.
Chris Holling (41:42):
podcast disclaimer, disclaimer. The
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that is required for thispodcast to be up and running and
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episodes. We hope you enjoy itjust as much as we enjoyed
(42:03):
making. All content on thispodcast and accompanying
transcript is for informationalpurposes only opinions expressed
herein by Sean Cooper are solelythose of fit financial
consulting, LLC unless otherwisespecifically cited. Chris
Holling that's me is notaffiliated with Fit financial
consulting LLC. Nor do the viewsexpressed by Chris Holling me
(42:27):
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this podcast is intended aslegal accounting or tax advice,
(42:48):
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Our firm has no control over theaccuracy or content of these
(43:08):
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(43:31):
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Follow up or individualizedresponses to consumers in a
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(43:55):
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securities administrator. Amen.
How do you spell candy with twoletters? C and Y? AN D spells
Okay. Um, let me think, what wasthe you know, somebody told me
(44:30):
once that dad jokes don't haveto be good, they just have to
exist
Sean Cooper (44:37):
I think that's what makes them dad jokes.
Chris Holling (44:39):
That's probably tre Actually. singing in the
shower is all fun and gamesuntil you get shampoo in your
mouth. Then it's a soap opera.
Sean Cooper (44:50):
Okay, that one was pretty decent.
Ready should we actually get on this?
Maybe start talking someinvesting?
Chris Holling (00:05):
No, because I haven't told you I went to a
fancy dress party dressed as analarm clock but I left early in
a bad mood. People are therewinding me up all night.
Okay, let's say I the thepessimist sees the tunnel, the
(00:28):
optimist a light at the end ofthe tunnel. The realist sees a
train. The train engineer seesthree idiots on the railroad
tracks. Okay, I like that.
That's, that's good. That'sThat's good. Okay, Sean. Should
we start stuff?
Sean Cooper (00:50):
Indeed.
Chris Holling (00:51):
Okay, Indeed, indeed. 1
Sean Cooper (00:55):
2
Chris Holling (00:56):
3
Sean Cooper (00:57):
4
Chris Holling (01:00):
5.
(01:26):
Welcome, everyone, again toanother episode of truth about
investing back to basics. Myname is Chris Holling.
Sean Cooper (01:35):
And I'm Sean Cooper,
Chris Holling (01:36):
and we want to talk about debt versus
ownership. Today,
Sean Cooper (01:42):
stocks versus bonds.
Chris Holling (01:43):
What No, I even told you
Sean Cooper (01:45):
debt versus equity borrowing versus selling.
Lending versus buying.
Chris Holling (01:51):
So you're it's not it's not that
Sean Cooper (01:54):
it's all the same stuff
Chris Holling (01:55):
I read you the wrong thing on our episode plan
list and you're going rogue onme it's it's that you're
describing what we're going totalk about and and
Sean Cooper (02:03):
that's right.
Chris Holling (02:03):
I had No idea.
Well, good.
Sean Cooper (02:10):
I wasn't disagreeing with you.
Chris Holling (02:11):
I you know, it sure felt like it. I could feel
the animosity through yourresponse, which is Oh, as
Sean Cooper (02:18):
Feeling a little defensive over there,
Chris Holling (02:19):
as I'm told. As my wife likes to tell me tone
matters. You said it was such atone that I just I felt I felt
immediately defensive and Iokay, well, here's the deal I my
my preparation for today was melooking at the thing that says
(02:43):
debt versus ownership
Sean Cooper (02:48):
Good job.
Chris Holling (02:50):
Thank you
Sean Cooper (02:50):
Way to be a go getter.
Chris Holling (02:53):
Did you like the emphasis on the on the sipping?
I thought that was it's muchmore of a visual
Sean Cooper (02:59):
it didn't quite come through for me,
Chris Holling (03:01):
sir. Oh, yeah, that was uncomfortable. I'm
sorry. Okay, well, yeah, let'sOkay, let's let's, what why what
what is, okay, we'll do whatwe've been doing this season, I
think I'm going to say what Iunderstand debt versus ownership
to be. And then you either tellme, I'm an idiot, or you go
(03:21):
You're right, but you forgotthese things. And then we'll
we'll go from there.
Sean Cooper (03:25):
Okay, perfect,
Chris Holling (03:26):
cool. So, ownership
Sean Cooper (03:28):
Fun for everybody
Chris Holling (03:30):
ownership is the actual owning of said item of
some sort, which is usuallyinvolving in my head say a car
will go with a car today theowning outright of the vehicle
and there is not a lien on thatvehicle at all, because it is
yours through and throughbecause it is bought and paid
(03:53):
for entirely and you do not oweanybody any money anywhere.
Whereas if you have a lien andan agreement where it is a
partial ownership to you and theperson that you have the loan
agreement with, then you are inthat person's debt and well
person but you know that thatentities debt and therefore
(04:18):
share ownership at that point,and alluding to your mentioned
earlier than you might besharing ownership within stocks.
That makes sense since I'msaying it out loud. And and you
(04:39):
also need to own the way thatyou act in a day to day manner.
So that society doesn't lookdown upon you.
Sean Cooper (04:52):
They often do that anyway.
Chris Holling (04:55):
Stop talking about me. There's there's
There's my, my Crash Course, wasthat I cover everything. Are we
going to have one single episodewhere I go? This is what I think
it is. And you Yeah, man, let'swrap it up. As I'm thinking No,
but
Sean Cooper (05:15):
today is not that day
Chris Holling (05:16):
Tomorrow is not Looking good either. Yeah. But
yeah, that's that's what Iunderstand it to be Sean.
Sean Cooper (05:26):
So, so I nothing you said is wrong
Chris Holling (05:30):
I know much, much like how a day to day is for me
anyway. Yeah,
Sean Cooper (05:36):
yeah. Can we get Katie on here to discuss that
Chris Holling (05:39):
I don't want to talk about that Nope, No
Sean Cooper (05:44):
No, it's a lot like last time I mean just looking at
it through different lenses orfrom, you know discussing it
from a different goal, ifyou will. So in talking about
debt Yes, you're you're talkingabout debt that the consumer
typically sees, you know, all ofus see on a day to day basis
debt in the form of borrowing topurchase something, you know, a
(06:06):
car or a house or even using acredit card to buy your your day
to day groceries taking outtemporary debt in that that
form. From an investorstandpoint, the debt is
reversed, if you will. So when acompany is looking to get
started looking to grow, orexpand something along those
(06:29):
lines, and they need additionalfunds more than they can raise
on their own, or more than theycan borrow from a bank. More
than they can generate byselling their product or
service, they have a couple ofdifferent options. Number one,
they can borrow from investors.
(06:51):
So they actually become theborrower and you you the
investor becomes the lender. Sothat is what that is basically
what a bond is, a bond is theirpromise to repay you plus
interest, repay you being theinvestor. So it's debt reversed,
(07:12):
if you will, instead of youbeing the borrower, you are the
lender, you're the one gettingpaid the interest. And like you
were talking about, the otheroption is for them to actually
sell part of the company. Sothey're actually selling
ownership in the company. Andthat's what you are buying. When
you buy a stock, you are buyingownership, a very, very small
(07:33):
percentage of ownershiptypically, unless we're talking,
you know, venture capital, andyou're actually, you know,
buying 30 40% of the company,something like that.
Chris Holling (07:42):
Shout out to previous episodes,
Sean Cooper (07:45):
Thats right
Chris Holling (07:45):
venture capital.
Sean Cooper (07:46):
That's right,
Chris Holling (07:46):
That's right.
Sean Cooper (07:48):
So but most of the time, we're talking about
individual share purchases, inwhich case, we're talking about
tiny, tiny pieces of the theoverall company, unless you're
buying lots and lots of shares.
Chris Holling (08:01):
And then, like, when you're setting up a bond,
and not so much a purchase intothe ownership venture capitalism
side as a whole, that I wouldassume is a How do I put this,
like a, like, agreed upon thingahead of time, I guess is the
(08:22):
best way to put it. So like thethe option comes up as a, we are
selling bonds into this company,and then you purchase it and
then your money's returned downthe road, because you're the
lender? Or does that kind ofhappen? No, I guess that's the
only way that makes sense.
Because then if you're involvingan actual ownership of the
company, then it's just theoption to purchase that owner
(08:43):
back out down the road, but it'snot a guarantee that that person
getting paid back per se. Right.
Sean Cooper (08:53):
Right. So you're getting a number of
different things. So first off,in regards to the bond, yes, it
is stated upfront, it is statedin the form of a coupon that
would be your your interestrate. So bonds are sold at a
how, how did I lose the name ofit? par value is normally like
1000 bucks for a bond.
Chris Holling (09:18):
Okay
Sean Cooper (09:19):
Okay, so that that's the value of the bond,
that's what you're going to getpaid back at the end of the term
what, you know, five years, 10years, whatever the term is for
the bond, you're going to get$1,000 back, they have a set
coupon rate that they're paying.
So say it's 5%. So on that$1,000 bond, you're going to get
paid $50 annually. Okay. Whatyou pay for that bond varies
(09:45):
depending on where interestrates are. So for example, if
interest rates currently are 3%,and they're paying 5%, then
you're going to pay more than$1,000 for that bond in order to
buy it
Chris Holling (10:05):
at the initial purchase,
Sean Cooper (10:08):
correct,
Chris Holling (10:08):
okay.
Sean Cooper (10:10):
So you're gonna pay, basically whatever excess
amount brings that 5% coupondown to an annualized yield of
roughly 3%. Whereas if it's acoupon of 3%, they're paying 3%.
And interest rates are currently5%, you're going to pay less for
that bond. So you're going tobuy it at a discount, rather
(10:32):
than a premium. And that's sothat you annualize closer to
that 5%. Because if you buy itfor, say, $950, then you're
getting that 3% coupon plusyou're realizing a gain at the
end of the $50 differencebetween the 950 you purchase it
for and the $100. par value,
Chris Holling (10:54):
I believe it's pronounced coupon. Okay, so I,
unfortunately, and I, I'm surethis is my problem, and
everybody else listening islike, this guy is slow. But I
was, I was I think that was toomany numbers for me to retain,
to be completely honest. So when
Sean Cooper (11:12):
the numbers aren't really that critical in this
regard, because they weren'texact.
Chris Holling (11:16):
Okay,
Sean Cooper (11:16):
the point is, it is laid out upfront, if the coupon
that's being quoted is
Chris Holling (11:23):
coupon
Sean Cooper (11:23):
higher, yeah, sure.
Higher than current interestrates, you're going to pay a
premium for that bond. If thecoupon being quoted is lower
than current interest rates,you're going to buy it at a
discount,
Chris Holling (11:35):
okay. But when from when you're looking at the
the interest rates is thathigher interest rates than the
normal or where it was when thecompany was founded? Or what
what's the baseline for thisinterest rate?
Sean Cooper (11:49):
baseline for the interest rate is whatever
current current going rates are,relative to the credit quality
of the company. So if othercompanies, so if in general
terms, we're talking about ahigh credit company, so a
company that's very likely tostay in business, very likely to
(12:10):
pay their their coupon and beable to purchase, pay their
bonds back in the end, if thegoing rate is X percent, that's
kind of your baseline, and thenwhat they decide to pay as a
company for their coupon is therelative where it be that
(12:32):
relativity comes into play.
Chris Holling (12:34):
Okay, and
Sean Cooper (12:35):
so it's just the market rate, whatever
the market rate is, at that timewhen the bond is issued, or when
you're purchasing the bond,because even though the Bond
could be, let's say, the goingrate is 5%. And they issue a
bond at 5%. Okay, so that bondis going to be purchased at par.
Chris Holling (12:56):
So just for easy,
Sean Cooper (12:57):
but interest rates are going to go ahead,
Chris Holling (12:59):
I'm sorry, just for easy numbers on this. So
like, we'll do $100, right forwhatever the base is on this
just so that like 5% is fivebucks kind of thing. So your
your bond is that $100 and youryour 5%, that you're looking at
your 5% interest rate exists,and I get that. So what where
(13:20):
does that come into play?
Sean Cooper (13:23):
The current 5% or the 5% of the company's paying?
Chris Holling (13:26):
I guess that's what I don't understand. That's
my fault.
Sean Cooper (13:30):
No, that's okay. So the current 5% is really derived
from market participants marketdemand, supply and demand and
the appetite for risk. So forexample, if there's lots of
things that are going to comeinto play here, number one would
be what we talked aboutpreviously looking at prime or
(13:52):
labor, which is the Londoninterbank offer rate. So those
those baseline rates that arereally kind of derived from
governments,
Chris Holling (14:00):
okay?
Sean Cooper (14:01):
So the Federal Reserve, so that's going to
typically be a factor. Otherfactors are going to be the
risk, not only in the market atthe time. So if there's lots of
volatility in the market, that'sgoing to create more of a risk
premium people are going todemand a higher interest rate
(14:25):
than they might otherwise would.
And then the risk of theindividual company, so you know,
you look at companies, theirtheir credit rating, there's
number of different companiesthat actually do credit ratings
on corporations. And so triple Bwould typically be like the
cutoff between your high yieldand your more standard more
(14:50):
higher credit quality companies.
So anything in the a range isgoing to be a higher credit
rating and therefore going to,they're not going to have to pay
as high interest rate to getpeople to invest in them because
they're less likely to gobankrupt and not be able to pay
their debt back. So it's therisk of the company the risk
(15:12):
that the company will not beable to pay back. That is part
of where that interest rate thatthe demand side interest rate is
derived from.
Chris Holling (15:23):
Okay. I think that makes sense. Just the
there's there's differentcompanies that that get
involved, or, depending on thecompany that you're looking at
may affect different portions ofit, depending on what level
they're at, you know, theirtheir volatility and stuff that
you're you're talking about. AndI guess I'm referring to that
(15:46):
first stage, the the initialpart of like, I get that
different variables create thedifferent interest rates now,
I'm, I'm getting that. And Iguess I'm talking about now that
we're talking about theinvesting process. This season,
I I decided that I want to startlooking at purchasing bonds, and
you own a company that is goingto sell bonds, and let's do
(16:10):
business, you and I right? Andso since we've established the
market rate is that 5% amountbecause of these variables that
we were just talking about.
Sean Cooper (16:20):
Okay,
Chris Holling (16:21):
I say I want to buy this bond from you, that is
valued at $100. And I know the5% market rate exists. Does that
cost me $105? To purchase?
Sean Cooper (16:34):
No.
Chris Holling (16:34):
Okay, how much?
Sean Cooper (16:36):
Well, I mean, it depends on what the
coupon is that the bond is goingto be paying.
Chris Holling (16:40):
Coupon Okay, sure. I that's what I'm
trying to understand. I I'mlearning about bonds, I know
that there's variables anddepends on the company. And
because you're reliable, andI've looked at the variables, I
know that it's gonna sit at 5%with you, and I say I want to
buy a bond worth $100. Andthere's a 5% rate in there. What
do I owe you? And you say,blank,
Sean Cooper (17:07):
I say, what's the coupon that the company is
paying?
Chris Holling (17:11):
I don't know. I have no idea.
Sean Cooper (17:13):
Well, that that determines the price.
Chris Holling (17:14):
Okay. So
Sean Cooper (17:16):
without knowing the coop, okay, you got you got to
know the going interest rate,you got to know the coupon, then
you can determine price.
Chris Holling (17:23):
Okay.
Sean Cooper (17:24):
So what you also have to know the the term of the
bond how long it's, it is, but
Chris Holling (17:32):
I don't know, give me an example, then give me
give me like a, an examplecoupon. So that I'm tracking
here.
Sean Cooper (17:41):
Well the coupon is an interest rate. If it's a
brand new bond, oftentimes, it'sgoing to be issued at the
current going rate for thatparticular company's risk level,
Chris Holling (17:51):
which is the 5%.
Right, that we're talking about?
Sean Cooper (17:53):
Correct.
Chris Holling (17:54):
Okay, so we know that it's $100 bond, and it's a
5% coupon interest rate thingthat we're looking at. So do I,
do I pay you 100? Do I pay you105? Do I pay you 95? What
Sean Cooper (18:10):
if Okay, so, first off your $100 is killing me
because they're all they'realways in increments of 1000.
But
Chris Holling (18:18):
do what? Okay, let's take that out. see if 1000
1000.
Sean Cooper (18:25):
Thanks.
Chris Holling (18:25):
All right. You're welcome. You're very well.
Sean Cooper (18:28):
So the assuming the going rate for my company's risk
rating is 5%.
Chris Holling (18:37):
Yes.
Sean Cooper (18:38):
If I'm paying a coupon that is also 5%. Then you
would pay par value. So if it's$1,000 bond, you'd pay $1,000.
Chris Holling (18:49):
Okay, at a 5% interest rate that's established
when you buy the bond, then
Sean Cooper (18:56):
correct.
Chris Holling (18:56):
Okay.
Sean Cooper (18:57):
Yes.
Chris Holling (18:58):
And then with the bond established at that 5%,
that we were talked the 5%coupon that we have
Sean Cooper (19:08):
right
Chris Holling (19:09):
established here, then when you pay me back as the
owner, then I will get my 1000plus 50 bucks, because that's
the 5% that was established.
Sean Cooper (19:21):
Right? And you would have received $50 every
single year as well.
Chris Holling (19:24):
Okay. Okay, because it holds that 5% that
was established annually. Andthen when you pay me back, it's
the original 1000 and the final5% or whatever, but the
Sean Cooper (19:39):
exactly,
Chris Holling (19:40):
okay. Okay. Now I'm tracking here. So when does
that change to the 950? Whendoes it become like a discount
at that point, so to speak.
Sean Cooper (19:51):
Okay, so I'll touch on that here in a sec. I should
also mention that there areother types of bonds, some of
them that actually retain all ofit. Till the very end, some of
them that will pay back a pieceover time. Typically speaking,
though, you're looking at thatcoupon that we've been talking
about, and then the finalpayment, all in one lump sum.
(20:12):
But anyway, just touching onthat
Chris Holling (20:14):
akay,
Sean Cooper (20:15):
where you are going to look at typically that change
in the price of the bond is thesecondary market. So after the
initial issue, so in thisscenario, you bought the bond
from me, the company, in thisexample, for 1000 bucks. Now, if
interest rates were to fall, acouple years into this
(20:35):
agreement, so say it's a 10 yearbond, you've had it for two
years, I've paid you two yearsof the $50. And interest rates
dropped to say 3%.
Chris Holling (20:49):
Okay.
Sean Cooper (20:51):
And you decide to sell the bond to someone else.
Chris Holling (20:57):
Okay,
Sean Cooper (20:57):
okay, I have nothing to do with it that
except for the fact that I'm nowpaying someone else, but that
someone else had to buy the bondfrom you. Now, because interest
rate, the current interest ratemarket is only 3%. And this bond
is paying 5%. It's worth more tosomeone than anything else in
the general market.
Chris Holling (21:19):
Okay,
Sean Cooper (21:20):
does that make sense? Because if they were to
go out and buy a brand new bond,it would probably be paying them
3%. But this one's paying five.
So they would have to pay apremium in order to get that
bond from you. Otherwise, you'dbe really silly.
Chris Holling (21:31):
Sure. Yeah.
Sean Cooper (21:33):
So that's where they'd be paying over the
$1,000. Mark.
Chris Holling (21:37):
Okay.
Sean Cooper (21:39):
Okay. Whereas if interest rates had gone up from
that five baseline, so they wentup to 7%.
Chris Holling (21:45):
Right,
Sean Cooper (21:46):
then he, that person who's buying the
bond from you could have gone tothe market and bought a bond
that was paying them seven, butthey're buying a bond, that's
only paying them five from you,which means in order for them to
net the same, they're going topay you less than the $1,000
they're going to buy it at adiscount.
Chris Holling (22:05):
Okay. Okay, that makes sense. And then that, is
that done? from person toperson? Like, could I could I
call you later today and buy abond from you if you have them?
Or is that done through arepresentative of some sort?
Sean Cooper (22:18):
Typically, you're going to be looking at an
intermediary for the most part,
Chris Holling (22:23):
like a company representative or like,
I'm sorry, a broker or some sort
Sean Cooper (22:27):
a broker dealer.
Yeah.
Chris Holling (22:29):
Okay.
Sean Cooper (22:30):
Yeah. Some of the large exchanges? Well, for
example, in the stock market,you have the stock exchanges,
like the NASDAQ, or the New YorkStock Exchange, okay, there's a
market for bonds as well.
Typically, you have, mostcompanies have their own fixed
income department. So where youcan you can buy and sell bonds.
Chris Holling (22:51):
Okay.
Okay, that makes sense. I'm gladwe cleared that up. I was really
confused there for a minute.
Sean Cooper (23:00):
Okay, no, I'm glad.
But the other aspect of thisthat we need to touch on before
we jump over to the stocks andthe ownership is there's a
couple of reasons why someonemight buy a bond, as opposed to,
you know, might lend a companymoney as opposed to actually
giving them money in exchangefor ownership.
Chris Holling (23:22):
Okay,
Sean Cooper (23:22):
as we've already talked about, that coupon is a
set amount, you know, whatyou're going to get. So having a
fixed payment, hence, fixedincome from the borrower or the
lender standpoint, can be verynice for planning purposes. On
the other aspect of it is, ifsomething were to happen to the
company, they were to declarebankruptcy, they were going to
(23:46):
cease to exist. Those lendersare going to be one of the first
people paid back.
Chris Holling (23:52):
Okay.
Sean Cooper (23:54):
So if a company has bonds outstanding, as well as
stock outstanding, and they gobankrupt, the bondholders get
paid back before thestockholders.
Chris Holling (24:05):
Okay, that makes sense. Is it is it common
practice? Kind of like when wewere when we were talking about
the GameStop exchange stuff thatwas that was going on at the
time and in in also a previousepisode, that when there's
expectation that companies aregoing to possibly go out of
(24:29):
business and you you put a puton them, right?
Sean Cooper (24:33):
You would buy a put
Chris Holling (24:35):
Buy a put put, I like put a put, it's kind of
like it's kind of like put put,but you, you would buy a put
because you you believe it'sgoing to be worth less than than
it is at the time. Is it alsocommon for people to
simultaneously purchase bondswithin those companies while
(24:55):
they're thinking about it, or.
Im just trying
Sean Cooper (24:59):
not Tipically Well, I mean, it depends on your how
high a risk we're talking aboutif I'm actually going bankrupt.
So So I mean, you're you'redelving into derivatives with
your your put, which is anoption
Chris Holling (25:12):
in a future episode. Pineapple juice.
Sean Cooper (25:14):
But yeah, we don't want to get too deep into that
Chris Holling (25:15):
From a bond one, the bond, yes, the bond is
going to be more secure than anyequity that you might take out
in the company might buy in thecompany. But if we're talking
about a company that we'rereally worried about going
bankrupt, there's still thechance that you will not get all
of your money back.
Sean Cooper (25:33):
That's why, right, and that's why the bond in order
for that company to sell bonds,in that case, they're going to
be a high credit risk, they'regoing to have to pay a much
higher interest rate in order toattract investors.
Chris Holling (25:46):
Okay, that makes a lot more sense. That's why I
wanted to ask that. Okay.
Sean Cooper (25:50):
Yep. So that's where we get the high yield
bonds, higher risk higher. Andby higher risk, I mean, higher
risk that the company is goingto go bankrupt, but also higher
yield, and that yield is the thecoupon higher interest rate,
Chris Holling (26:03):
okay. Yep, that makes sense. Okay, well, then
then talk to me about stocks inownership, then.
Sean Cooper (26:10):
So that would just be the other side of the coin,
where, as opposed to lendingmoney and expecting a set
payment, in return, you areactually buying a piece of the
company with the expectation ofparticipating in the growth of
that company. Or the if not thegrowth, at least the earnings of
(26:31):
that company, because there aretwo ways that you're, you can
recognize appreciation as astock owner. And neither of them
are set in stone, when you buyit the way it was with the bond,
like there's no set coupon, whenyou buy a stock. Now the
(26:53):
company, one of the two waysthey can pay their owners is in
the form of a dividend. Soafter, and we've talked about
this a little bit before, whereyou have the company's overall
revenue, and then they pay itcover all their expenses, their
employees or their buildings,all their their costs of goods
(27:14):
sold all that stuff. And at theend of the day, they have their
gross their profits, their theirnet profits.
Chris Holling (27:21):
Right
Sean Cooper (27:22):
of those profits, they have a couple of different
options. One of them is to paytheir owners a dividend. So that
dividend for a lot of companies,they treat it almost like a
coupon, and they try to keep itvery, very steady. To attract
investors, they see that you'repaying, you know, a 4% dividend
(27:43):
every year over time maybe iteven grows very slightly over
time, something along thoselines, but it's not guaranteed.
There's no guarantee behind thatdividend. Unless we're talking
about preferred stock, in whichcase the it's it's still not
guaranteed. But the the set orthe the interest of that
dividend is set upfront. And itis senior to non preferred stock
(28:15):
buy. We're getting kind of intothe weeds there with that
though. Yeah, exactly. So thedividends are one way that
you're looking to recognizeappreciation or return on
investment when you buy a stock.
The other way is the actualappreciation of the company or
the growth of the company. Sothe overall value of the company
goes up your share of thecompany, your your stock price
(28:37):
goes up to reflect that.
Chris Holling (28:42):
Sure. Right.
Sean Cooper (28:44):
And that one, you can only technically recognize
that appreciation if youactually sell your stock, and
then you recognize the gains onit there. But obviously, you it
can also depreciate this thevalue of the company, the value
of your stock can go down andthen you have a loss. So that
that's where one of the manyways that the the bond versus
(29:06):
the stock is different.
Chris Holling (29:09):
Yeah, I get that.
And that's, that's morerecognized in the sense of where
you have involvement in thecompany and aren't receiving
any, any profits in dividendsthat you would see. I mean, I
guess both ways, but when you'retalking about only getting your
money back from selling yourportion of the company, that's
that's when dividends aren'tbeing paid out at the time,
(29:30):
right?
Sean Cooper (29:34):
Yeah, there's lots of companies that don't pay any
dividends at all.
Chris Holling (29:37):
Yeah.
Sean Cooper (29:38):
And then you're literally your only value in
terms of recognizingappreciation is if the price of
the stock, the value of thecompany goes up over time, and
then you can sell it at a higherprice than what you bought it
for.
Chris Holling (29:53):
Yeah, absolutely.
I mean, I'm comfortable withthat. I don't even I don't even
know that I follow up questionsfor it.
Sean Cooper (30:00):
No, that's fair.
Chris Holling (30:01):
That makes sense.
Sean Cooper (30:02):
Yeah, I mean that that's kind of the broad terms
in term, when we're talking debtversus equity. So the debt would
be the bonds, the equity wouldbe the stocks.
Chris Holling (30:13):
And, and I, I'm sorry, I cut you off. Go ahead
Sean Cooper (30:17):
oh, just saying that the bonds would be the
investor is a lender, and eitherwith the stocks, the investor is
a owner of the company. Now,keep in mind when we talk about
ownership, and you mentionedkind of participation, when it
comes to stocks, typically,you're not a participant in the
way like a an executive of thecompany is
Chris Holling (30:41):
right,
Sean Cooper (30:42):
you know, with with most stocks, you're not
interacting with the day to dayoperations, there might be some
various elections that go out.
So you'll you'll have some sayin some of the bigger decision
making like should we elect anew CEO? And yeah, these are our
options that the Board ofDirectors has presented. They're
(31:06):
recommending this person, and doyou agree with that election for
the CEO? Or is there somebodyelse that you? And normally it's
just a yes or no vote? It's nottypically. Here, all your
options?
Chris Holling (31:24):
Sure.
Sean Cooper (31:25):
But those are the types of things or, you know,
we're changing the way voting isdone. And we only need x
percentage to make this passinstead of a different
percentage, or we want to changethe dividend. You know, that
(31:48):
depends on a variety of things.
And most time a dividend changeis probably a poor example,
because they're just going to doit based on profitability. But
yeah, there are a few thingsthat as a participating
stockholder, you would get a sayin, but it's not. For the most
part, you're not a participantin the company, though, the way
(32:10):
the the owner, the primaryowners of the company are or the
way the board of directors orthe CEOs or executives are. And
if you're a preferredstockholder, you probably have
no voting rights at all.
Chris Holling (32:26):
Gotcha. Unless you unless you own a certain
portion, to a large portion tobe able to make those decisions,
because then you get out of thatposition, right?
Sean Cooper (32:37):
Not with preferred stock, typically, preferred
stock has no voting rights. Soit's just a different type of
stock. So you're, it's stillownership, but it's kind of that
trade off of the most stock thatyou're going to buy is you get
those voting rights, whereaswith preferred stock instead, in
(32:58):
exchange for forgoing the votingrights, you're getting a
preference preferentialtreatment on the dividends that
are paid out, and normally, it'sa set dividend, that you get
paid as a preferred stockholderbefore any other stockholders
get any dividends.
Chris Holling (33:13):
Gotcha. Okay.
Yeah, I guess I was under theimpression that if you if you
purchase that amount, then youyou go into a slot where you'd
be able to have those votingrights, but not, not under that
category.
Sean Cooper (33:24):
Yeah, it all depends on the type of stock
that you're buying.
Chris Holling (33:28):
Okay.
Yeah, that makes sense. What,but what else what else we got?
Sean Cooper (33:35):
That was it, I was just trying to help people
understand the difference. Whystock typically has a higher
return on investment than, thanbonds. And it's because it is
more risky, you're actuallytaking ownership, you're not
getting any type of set setpayment. you're relying on the
growth of that companypredominantly, and possibly
(33:57):
dividends from profitprofitability, whereas the bond
has a stated coupon rate and haspreferential treatment in terms
of repayment if something doeshappen to the company, whereas
stockholders are the last to getrepaid. So you have a higher
likelihood of losing potentiallyeverything. And then just in
(34:18):
terms of the you know, whatyou're trying to achieve? Do you
as an investor want a setpayment, you want that that that
lower risk of being a securedcreditor or potentially even an
unsecured creditor relative to astockholder? Or do you want
(34:38):
ownership in that company in thechance to participate in the
growth of the company? Sotypically speaking, the stocks
act as a better hedge againstinflation like what we were
talking about in a few episodespreviously, then then bonds but
they are they are more risky. SoJust wanted to get
(34:59):
help everybody understand the
Chris Holling (34:59):
yeah, that totally makes sense
those differences from aninvestor standpoint, and also
from the standpoint of thecompany, when they're choosing
to raise money, whether theydecide to lend or actually sell
part of the company is when theysell part of the company, you
know, if they own 100%, and theydecide, okay, we're going to
sell 30% of the company. Well,that's 30% of the company that
(35:21):
they no longer get to benefitfrom the the future growth of
the company on that portion ofit.
Right
Sean Cooper (35:27):
they're. They're giving that up. So right.
Chris Holling (35:30):
No, I think that's important, you know, more
more tools for the toolbox, whenyou're when you're looking at
stuff. And if you are concernedabout inflation, maybe
reevaluating bonds or, or just,you know, being being aware of
it, because that's, that's whatwe're about is making sure that
you just know what's going on.
And you can you can make the thechoices that you think are
important to you, that you thinkis going to be the most
(35:51):
beneficial for for you and, andall the reasons that investing
is important to you.
Sean Cooper (35:57):
Yep.
Chris Holling (35:58):
I like it.
Sean Cooper (35:58):
Yeah. And, you know, in general terms, you
typically see a portfolio have amix of stocks and bonds, and
other investments. I mean, thisis just the tip of the iceberg.
There's lots of other ways ofinvesting. But these are the the
two biggies is debt versusownership. Stocks versus bonds.
(36:21):
Typically, you'd see a mix, butdetermining the appropriate mix
for you. And also, you know,even evaluating individual
companies as to whether or notit's better to buy a stock
versus a bond in that particularcompany. And then you can get
into other things like thederivatives of those investment
vehicles, or even differentforms, like we were talking
(36:44):
about the preferred stock, or inthe form of bonds, there's also
convertible bonds, which are isa bond that it's like it
Chris Holling (36:53):
doesn't have a top on it, you take the top off
in the summer time, you enjoythe wind in your hair.
Sean Cooper (37:00):
No,
Chris Holling (37:01):
oh,
Sean Cooper (37:01):
no.
But it does provide theflexibility like that, you know,
in that the convertible canenjoy the the nice sunny days,
if you will, but also go up whenit rains. And in that case, the
the convertible bond benefitsfrom being a bond that's getting
(37:23):
paid a coupon, although it'stypically a lower coupon rate
than your traditional bond. Butit can also benefit if the
company does really well,because you can actually convert
your bond into stock.
Chris Holling (37:37):
Oh interesting, so
Sean Cooper (37:37):
and that's where the convertible comes into play,
Chris Holling (37:39):
it's just that flexibility to kind of hop
around
Sean Cooper (37:41):
correct Yeah, yeah. And it's because of
that flexibility that itnormally pays a lower interest
rate. But it gives you basicallythe opportunity to potentially
participate in stockappreciation as well, should you
choose to convert it but withoutthe risk of actually directly
participating. So if you knowthe company does really poorly,
then the value of the stock goesdown. Now the value of your
(38:05):
convertible bond is also goingto go down but not to the same
degree as the stock itselfbecause you still have that
coupon
Chris Holling (38:14):
with the numbers floating through your hair and
the
Sean Cooper (38:19):
right
Chris Holling (38:20):
wind on your face. And
Sean Cooper (38:22):
yeah, I don't think that's what anybody envisions
when they're talking aboutdriving around.
Chris Holling (38:26):
You know, they should though, you know, you
know,
Sean Cooper (38:28):
With the convertible,
Chris Holling (38:29):
they picture, I'm buying a convertible and this.
Yeah.
Sean Cooper (38:34):
They should be picturing the numbers. That's
true.
Chris Holling (38:40):
No, okay. I think I think that's I think that's
good. I think that's a goodcoverage on on these spots.
Unless Unless you think we'reforgetting something unless I'm
sure I would be forgettingsomething. If If it were up to
one of us to remember something.
Sean Cooper (38:54):
No, I think more than anything at this point, I'd
just be getting off into theweeds on some of those other
investment vehicles.
Chris Holling (39:01):
No,
Sean Cooper (39:02):
we'll be stuck talking more about no even
stocks and bonds in detail lateron.
Chris Holling (39:07):
So pineapple juice, yeah. I'm keeping my safe
word. Good. I'm glad we wereable to touch on that. I hope
this I hope this was helpful. Ihope that this helps cover some
baseses so that if you aregetting involved into into
these, these portions of Hey, Ithink I'm going to start getting
(39:29):
involved in the stock market andmaybe talking to a broker about
some bonds and see what you wantto do and tools for the toolbox.
And while you're looking atthese things I'm I'm hoping this
establishes a little bit morethan just Hey, if I put this
money into this, thisabbreviation of a name that I
think it will go up and I'llmake money. This This should
(39:50):
hopefully have a betterfoundation for you to go from.
Yeah, me? Yeah, Bueller. Okay.
Sean Cooper (39:58):
Good. Well, and just to clarify, I mean, if
you're getting involved in thestock market, and you've opened
up an account with, typicallythat's going to be with a broker
dealer or you know, yeah, anynumber of them out there that
you can open up an account with,and they're going to have a bond
trading desk that you canutilize, typically. So you can
do it all in the same place,whether you're buying stocks or
(40:20):
bonds, or exchange traded fundsor mutual funds that invest in
either or both of those vehicles
Chris Holling (40:28):
and talk with them about your options and see
what's the most appealing thingfor you. I think that's, that's
a good way to go about it. Cool.
Okay, wish we should hop offthis mic before you get in the
weeds, and I yell at you forgetting in the weeds. So thank
you, again for joining us onanother episode on the truth
about investing. Back to Basics.
(40:49):
My name is Chris Holling.
Sean Cooper (40:51):
And I'm Sean Cooper.
Chris Holling (40:52):
And we will catch you in the next episode.
Allegedly. Yes, no we will
Sean Cooper (41:00):
what is our next episode?
Chris Holling (41:01):
Our next episode should be I just looked at it
and then I forgot. Your stocksversus bonds?
Sean Cooper (41:10):
No, that's what we talked about.
Chris Holling (41:11):
No, we Oh, well, we love to two
episodes. And togethereverybody. Look at how efficient
we are. That's so good.
Sean Cooper (41:19):
So what's after that
Chris Holling (41:20):
passive versus passive slash, active
investing, the differencesbetween the two and and we're
kind of talking about the God,see, you're gonna get me on a
tangent I told you to not put mein the weeds here. Okay, thank
you for joining us and we'llwe'll catch you next time.
Sean Cooper (41:37):
Perfect.
Chris Holling (41:42):
podcast disclaimer, disclaimer. The
disclaimer following thisdisclaimer is the disclaimer
that is required for thispodcast to be up and running and
fully functioning and movingforward. This is going to be the
same disclaimer that you willhear in each one of our
episodes. We hope you enjoy itjust as much as we enjoyed
(42:03):
making. All content on thispodcast and accompanying
transcript is for informationalpurposes only opinions expressed
herein by Sean Cooper are solelythose of fit financial
consulting, LLC unless otherwisespecifically cited. Chris
Holling that's me is notaffiliated with Fit financial
consulting LLC. Nor do the viewsexpressed by Chris Holling me
(42:27):
again, represent the views offit financial consulting, LLC.
This podcast is intended to beused in it's entirety. Any other
use beyond the author's intentdistribution or copying of the
contents of this podcast isstrictly prohibited. Nothing in
this podcast is intended aslegal accounting or tax advice,
(42:48):
and is for informationalpurposes only. All information
or ideas provided should bediscussed in detail with an
advisor, accountant or legalcounsel. Prior to
implementation. This podcast mayreference links to websites for
the convenience of our users.
Our firm has no control over theaccuracy or content of these
(43:08):
other websites. advisoryservices are offered through fit
financial consulting, LLC, aninvestment advisor firm
registered in the state ofWashington and Colorado. The
presence of this podcast on theinternet shall not be directly
or indirectly interpreted as asolicitation of investment
advisory services to persons ofanother jurisdiction unless
(43:31):
otherwise permitted by statute.
Follow up or individualizedresponses to consumers in a
particular state by our firm andthe rendering of personalized
investment advice forcompensation shall not be made
without our first complying withjurisdiction requirements or
pursuant to an applicable stateexemption for information
(43:55):
concerning the status ordisciplinary history of a
broker, dealer, investmentadvisor or other
representatives. A consumershould contact their state
securities administrator. Amen.
How do you spell candy with twoletters? C and Y? AN D spells
Okay. Um, let me think, what wasthe you know, somebody told me
(44:30):
once that dad jokes don't haveto be good, they just have to
exist
Sean Cooper (44:37):
I think that's what makes them dad jokes.
Chris Holling (44:39):
That's probably tre Actually. singing in the
shower is all fun and gamesuntil you get shampoo in your
mouth. Then it's a soap opera.
Sean Cooper (44:50):
Okay, that one was pretty decent.
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