| _Duration: 1h 25min | Topic: Equity, Orders & The Power of Tools_ |
No class this Wednesday.
Final exam: Wednesday, December 3rd, during the regular class hour in Room 108.
The exam will last 90 minutes.
If you have an adaptation or extra-time accommodation, you’ll start earlier (the professor will be in class from 9:00–9:30).
The format will be the same as the midterm — short conceptual questions, multiple choice, no penalty for wrong answers.
Focus on clarity, reasoning, and integration of concepts.
Luis began with a quote from Alice in Wonderland:
“My dear, here we must run as fast as we can just to stay in place.
And if you wish to go anywhere, you must run twice as fast as that.”
That was the metaphor for the day. The world — and especially finance — is moving at exponential speed.
The message was clear: keeping up now requires adaptation, not memorization. The tools are changing, the rules are changing, and so the skill to connect, learn, and act fast matters more than knowing formulas by heart.
Before entering into the world of equity, we revisited a fundamental principle:
Markets are made of information.
In the Efficient Market Hypothesis (EMH), prices incorporate available information.
The better information flows, the closer we get to “efficiency.”
But information itself is uneven — and so is access to tools that interpret it.
Luis used the class as a live experiment: not everyone had heard of Gemini 3.0, Google’s new AI model. That simple fact illustrated how information asymmetry still shapes markets — and classrooms.
The core of the session was a live demonstration of how AI can now code, calculate, and visualize finance models instantly — if guided with good prompts.
Luis used Google AI Studio to build, from scratch, a web app that:
Pulls real stock data (AAPL, GOOGL, TSLA, TEF, etc.).
Computes expected returns, variance, and covariance.
Plots random portfolios, the efficient frontier, and the capital allocation line.
Adds the risk-free rate, Sharpe ratio, and even overlays the Security Market Line (SML) from the CAPM.
This was not a canned example — it was created live, through “by-coding” (coding by conversation).
This was not about coding; it was about thinking like a creator.
Tools like Gemini, ChatGPT, or NotebookLM are no longer futuristic — they are extensions of reasoning.
The goal isn’t to become a programmer, but to know how to think in systems and ask intelligent questions that trigger complex models.
Luis compared it to driving a car:
“You don’t need to be a mechanic to drive — but you must know how the steering wheel works.”
The class then walked through the logic of modern portfolio theory, linking risk, return, and diversification step by step:
| Concept | Meaning | Formula / Intuition |
|---|---|---|
| Expected Return (E[R]) | Average payoff of a stock or portfolio. | Mean of returns. |
| Variance / Standard Deviation (σ² / σ) | Dispersion — how volatile returns are. | σ = √Var |
| Covariance & Correlation | How two assets move together. | Cov(A,B) = E[(A-μA)(B-μB)] |
| Portfolio Variance (2 assets) | Total risk combining individual variances + covariance. | σₚ² = w₁²σ₁² + w₂²σ₂² + 2w₁w₂Cov(1,2) |
| Efficient Frontier | The set of portfolios with the best risk-return ratio. | Tangency = maximum Sharpe. |
| CAPM (SML) | Expected return depends on systematic risk (β). | E[Rᵢ] = Rf + βᵢ(E[Rm]-Rf) |
Sharpe ratio measures total efficiency (return per unit of total risk).
Alpha (α) measures relative performance vs. what CAPM predicts — i.e., whether an asset is over- or under-valued relative to its risk.
A portfolio’s β is the weighted average of its components.
In practice: Sharpe = efficiency; Alpha = opportunity.
The second half of the class focused on how trades actually happen, bringing theory to the floor of the stock exchange.
Primary vs. Secondary Markets:
IPOs (initial issuance) vs. ongoing trading platforms like NYSE, NASDAQ, BME.
Historical note: the Mercado de Corros — the old Spanish trading floor — used hand signals (“corros”) to communicate buy/sell orders.
Today, those signals are replaced by algorithms and platforms, but the logic of coordination is the same.
| Type | Description |
|---|---|
| Market Order | Executes immediately at best available price. |
| Limit Order | Executes only at a specified price or better. |
| Stop Order | Triggers when price crosses a threshold. |
| Stop-Loss | Sells automatically when price falls below a level. |
| FOK (Fill or Kill) | Must execute in full or not at all. |
Luis emphasized liquidity as the forgotten dimension of finance:
“Return and risk are the visible gods — liquidity is the Holy Spirit.”
He explained how stop-loss cascades can trigger flash crashes, when automatic orders flood the market faster than liquidity can absorb — turning small drops into collapses.
Despite the excitement around stocks, Luis reminded everyone that bonds remain the foundation of financial valuation:
They define the risk-free rate, which anchors all models.
They give rise to the yield curve, which reflects expectations of inflation and growth.
Understanding bond pricing and duration is essential: if you master duration, you understand how prices react to rates — and you can rebuild most of finance from there.
Price of a bond = PV of coupons + principal.
Duration = sensitivity to rate changes.
Sharpe ratio = (Return – Rf) / σ.
Alpha = actual return – CAPM expected return.
Systemic vs. Idiosyncratic risk.
Liquidity, risk, return — the real trinity.
Basel I/II/III (context, not formulas).
Financial system map (Markets, Banking, Insurance; 3 supervisors).
Explain in plain English what each model means.
Interpret a graph of Efficient Frontier, SML, and CAPM.
Connect theory with action — knowing not just how to price, but why it matters.
Luis ended by saying this was “probably not my best class ever, but definitely the most powerful one.”
Not because of what was taught, but because of the tools used — the real-time demonstration of AI as a teaching partner.
His challenge to the class:
“If you told me a year ago I could teach Markowitz live, with real data and a web app created in minutes, I would have said it’s impossible.
Now, it’s just Monday morning.”
24 de noviembre de 2025, 8:06a.m. 1 h 25 min 10 s Two ideas, three ideas. First idea is that things are happening so fast. Next week will be last week. This Wednesday we don’t have class. This Wednesday we won’t see each other and next Monday we will will be last Monday before Wednesday. Yep. Things are going so fast. Monday, Monday, Wednesday, yes. Final will take place Wednesday the 3rd, a normal hour class here. Yes, if anyone needs any adaptation, I will be here one hour before yes, so I will not. Right. There are people that needs adaptations. I will start the exam as an hour people that will start before will start in this row. So please as you came to the room next Wednesday, please as you came. To the room next Wednesday, do it. Uh. Do it with calm thinking, no burkart. Yeah, do it with calm thinking that there are people doing the same. Make sense. So first tell me. Yes, the classroom Monday. We all need normal calendar set this Wednesday. Normal hour class. It will start at 10 to 10:30, but I will be here probably at 10 or at 9:30 just in case because there are people that and I will say now what’s up? No, I won’t send a WhatsApp. I’m gonna do it right now. Bless for a full. There won’t be class exam will take place. Yeah, the exam will take place the Wednesday 3rd at normal class hour, but it will finish it, but no and. I will finish it at 12:00 AM if anyone. The exam will. Take 90 minutes. If anyone needs an adaptation or extra time, I will. It will be given before, not after. I will be at class or on class? In class? In class? No, I will be in class. In class from. Nine. Room 108. Yep. OK, this is one idea. Second idea. Today I’m going to talk about equity, but before talking about equity. I want to share with you. Anyone knows what I why I have taken this here? You wanna know what is this? For what? What I’m thinking about, what I want to show you, what I’m going to talk about. Let me look for one sentence from Alice in the Wonderland. You want to stay in your place if you want to stay in. Your place you should run and this is from Alice. My dear, he will hear. We must run as fast as we can just to stay in place. And if you wish to go anywhere, you must run twice as fast as that. Yep. Let me share this with you and also share this with you. And this is just to say Gemini 3.0. Have you heard about Gemini 3.0? Who have heard about Gemini 3.0? Noah. John. Yes, you. You were Dustin. Sorry, Dustin. I I you know, I know you. You know also that I no, I mean I 3.0. That’s it. Have you tried? We just have her. Noah, have you heard? Have you tried? Have you heard? Have you tried? You, you heard from, you heard from. Because once you try, you cannot stop and your life will change. Anyone knows? Anyone have anyone? That’s not know what is Gemini. All of you know what is Emini. Do you know what he’s doing? No, you don’t know. You can continue. We will work for those that will know it. I continue doing whatever you’re doing. I will be support the rest. We have parallel. You can you doing that? This is. This is something important. I have talked a lot about information. In this course I have talked a lot about information. What is the feature market hypothesis about? What is the PCM market hypothesis about? Do you remember from the beginning about the access that people in marketing that information how how the market at its most efficient state can reflect the like the crisis and securities? At the end, everything feels. We’re talking about the fishing mark hypothesis. Everything feels, everything feels in price. It has to do with price, but this is at the end. At the end this feels in price. Why? Because we are going to buy ourselves. Today we will talk about buying or sell and selling, buying and selling. Yes, today we will talk about buying and selling. Everything finished with price, but at the beginning, the beginning there was. Information and the more information we put, the better. Last Friday I was in a conference and I was sitting. I I sit in the last row with my computer. And I feel like you. I was with the computer, but trust me, I was truly getting posts. I answered all my emails. I did a lot of things and also I was attending. And just taking two or three words, all words that they were. It was about risk management. A lot of things they were talking about. I knew there were new things. Two clicketing posts, clicketing posts I wrote has to do with things that were said. What I’m saying, I’m not telling you to be looking at me all the time. I don’t really care about you to look at me, but I care about you if you are in one place. And whatever will happen in this place will have to do with your life. Bing Photos. Probably you can see, oh, Gemini has not to do with discourse. Efficient market hypothesis has not to do with discourse. 3 levels of efficient market hypothesis has not to do. Yes, it has to, yes. Relations is something that if I were to, I would start this apart. Yes, information. There are people here that have not heard Gemini or does not know what is Gemini about. Make sense? I am using you as a social experiment. There are people here that does not know what is Gemini. I don’t need to ask. That’s that’s everyone knows what is. Chat CPD. 8. I don’t need to ask that. No, that DPT. So open A I mobile. Yes, at the beginning it was it was Bath. That Bath was it was Google A I. Now Google. Now who does not care about you, you see? Their models. Why? Because they know that their models are absolutely awesome. And those of you that will use them will make an entire ecosystem and they’re absolutely powerful ecosystem if you use Google models. And I’m gonna demonstrate it if you use Google models. How do you call baseball home run? Throw in the Yes, you take Google model. There is not computing power enough to pay all the balls Google is able to throw out of the stadium. On one hand, chat DPD. What does chat DPD mean users? In order to continue burning money, that typically open AI is it. They know it. Why? Because they need users, they earn money and they use this money in order to have computing power. Whatever I say will go through chat TPT not once 1020 times because I’m sending you the transcripts. It will go through Google. If you use Google Notebook, you use Google Notebook, it will go through. Do you understand what I’m saying? Google doesn’t need all of you. Google just want all of you that will use it wisely to use it. Yes, OK. I’m thinking about what sort I’m talking about that week, yes. Today’s class has to do with equity. Let me show you. No, let me show you. Let me start talking about equity and let me show you the power of one of the parts from Google ecosystem. Yes, this won’t be asked in the final. Here I have variation. Deviation of one stop. Yes. How do you calculate deviation? By calculating the variance and then square root of the variance here you have. Expected return. Yes, you can take one stock. Let me call it stock A, return A. And here you’ve got one stop, yes, here you’ve got a second one. With its return makes sense. Let me write a third one. With its return, what can I do? I can create portfolios combining these stocks, yes. And if I draw all possible portfolios, I could draw, I could draw the investment opportunity set once among all these portfolios I could look for having. A risk-free asset. I can look for the highest SARP ratio. Yes, and this would be if these are all the stocks in the world. This would be the market. Make sense. What is this? This this is called Markovic theory. Mark, I don’t know how to Mark Vobie. I was so close on words. Marco, I had all letters, just misspelling in order. OK, what I’m going to do? What is Google AI Studio? Google AI Studio. It’s one page where you can find almost everything Google has developed. If you have Google Gmail, you have Gmail. Last week Google released ChatGPT. Sorry ChatGPT Gemini 3 Gemini 3 for images is Nano Banana. Nano Banana. It’s incredible. You can upload to Nano Banana 3 pictures. I have did it. I did it with my own family. No 5-5 pictures and. You you just prompt. I want a picture combining all these people and it do it does, yes, but it does in a way that is amazing. But let me by code. What is by coding? Anyone knows what is by coding? He’s coding with a prompt. He’s talking with a deputy, saying you talk, but whatever you are talking with him, he do it with coding. But I’m going to ask. OK. I want to develop a. Complete with page in order to. Explain in class Markovic model, yes. You to let me use. Day. Speakers of the. Stocks and with one year data through. The stocks and the. Investment. Set Yes. What is the investment opportunity set? The line that combines all possible, not the investment, the investment opportunity set and the efficient frontier. Yeah, me night pro preview. Oh. It will take a little bit of time also. Google. Now he’s thinking Google realizing in I3. If you go to Google Notebook Ellen, you will see new features in Google Notebook Ellen. I am not paying nothing to Google. I am not paying. I’m just using. Free capabilities, yes. If you just look in Google notebook and then you can have infographics, you can have a complete summaries and reports. You can have. It has evolved also. Google, look at it and not only look he’s starting. He has he’s doing the complete webpage, yes. Calculate and display the correlation matrix of the selected stocks. This is again put for Markovic portfolio optimization. He’s doing what is what is he doing? The complete program what I have to ask him for you. We will know Bukelem is also incredible. I’m going to show you later, not later today. I’m going to show you next Monday. We will know Bukelem and I will use it to review for the final. I will get here with all. Information that I have already sent you and we will review. We will perform final review with Google notebook elect. I’m going to continue using Chatipiki, but because all my information is in Chatipiki. I’m going to continue using that what I want you to see that everything is happening at an incredible high speed. By coding is something that will put you into another level. Sorry, one thing. You’ve seen Salt DPT. Have you tried Salt DPT? Does it put you to another level? So if it is the first floor, but being in the first floor is not enough this. This oh, it’s done. Markovic laugh. Full screen. Add a digger. Let me. E. Let me look for Microsoft speaker. MSFT, yes. Sorry for not knowing. 123 Tesla. Sorry, I don’t know. Excellent. Perfect. OK, Google AI run. Rossesi model. This is Google. Oh, this is. Let me see, because I don’t know. There are three. No, this is each one. Here you’ve got the data. Oh, these are random portfolios. Yes, these are random portfolios. Apple, Google, Tesla, or. I have tell him I am teaching in class. He has showed me the correlation matrix. Let me. This is the initial prompt, yes. The graph is up. I can not. Clearly this thing with the stocks. Also the efficient. Frontier looks more like a whole a sewing machine. That will take. Say we. I got, I don’t know, even in Spanish. Sierra de Cortar Madera. This is Spanish, yes, also the and I. will want that to look like a Not line like a yeah like not line like a continuous function, continuous function. Also I will like to. Please, my students, they please. Free asset and the capital. Location line. Could you do it with a that let me turn the light on and off? The graph is a little confusing. I cannot clearly distinguish the stocks. I would like aye. Oh. Like to see the point that goes on with its stock in its code. Yes, also the Fishing Frontier looks more like a Sierra de Cortar de Madera and I will want to look like a continuous function. Also I would like to teach my students could you do it with a tick that let me also I. Would like to introduce the. Risk free right by myself. Please, it looks like if I were rewriting first thing that comes to my mind. But trust me, I have been paying for this for more than three years. I have seen its evolution and. What I’m doing is all things that is that are written here. Makes sense for an LLM have put all together. There is one program that Google has already developed. What is Google going to do with this prompt? Changing the. I’m going to I I was thinking about telling him I want everything in pink. At first I’m going to ask this and then I will go to the format, yes. It takes. It takes the stocks. We are time. It takes the stocks real time. Mhm. It’s thinking. Look revising chart presentation. I’ve been medical and I the user request. The main issue is that distinguish individual stocks on the graph is difficult. I am focusing on user feedback that indicates a need to for clear color call represent of. Improving frontier smoothness, developing frontier refinement, adding call to visualization, focusing frontier optimization and chasing visualization elements, improving frontier illustration. Smoothing and refinement dating scatter plot plot mapping. Here is the updated code to implement the capital allocation line. Components. Any thoughts regarding this? Any thoughts? Anyone of you have studied Markovic portfolio theory? And. What do you think about this? Have you ever been displayed Markovic portfolio theory so fast so? With real time, we not just the model on theory, that’s also all the web page that contains it’s done, no, it’s done what? Oh, oh, here it is. Also you can try you can select a device preview. You can do it for mobile. 3.5 is okay. Please, I know it’s Monday morning. I know it’s Monday morning. I know that I am just going to make a click. I’m just gonna make a click. And before doing a click. What is the quote? That’s one small click for a man. I’m not landing in the moon. I’m not landing in the moon, but. I I’m not landing in the mood. But what I want you is to feel a little bit of emotion, to share this emotion, not for me, just for you. I don’t know. I mean, I am putting too much expectations into this, but. Yeah, to match this. OK. Ladies no. OK. There is no capital allocation line. This should be higher search ratio. Fiscal response with efficient frontier. This is Tesla. No way. Apple, Google, Tesla. Google. Oh, and you can have. OK, there is not. There is no capital allocation line, but if in order to draw the capital allocation line, you just need to connect the risk rate 3.5 with the start, yes, the start maximum share ratio. Is this one, but this is not the maximum sharp ratio. Personally, I think that the maximum sharp ratio should be this one, yes, or Google itself. What do you think? You feel this is amazing. I have this. I’m the one that has done this. I can do this. With just three stocks, I can take all the stocks that I want, but also I can tell you do it for three stocks and if you want a fourth or a fifth, put the TPV. And start asking for money. This is so close to this commercial. You cannot just develop something in one minute and then put it into make fun. I have the complete web page here. I have the complete web page. Yeah. Let me see. I’m going to try if it works with the Spanish companies. TEF TEF stands for Telefonica. This is the ticker for Telefonica. Yes. The more the stocks, the more calculus it work. It grows in an exponential way, so with five stocks. This should be telefonica. Yes, this is telephone, but this is these are portfolios with waves. 8% Telefonica is 8% and 80 percent, 8% and 80. This is Telefonica. This is section. No. One year prize history. Careful. This is simulated. This is not the the real graph, yes. What I have asked? I have asked. Or I have asked for a graph in order to explain. Therefore with because you have. I have asked for something and I think that he has got everything. Now do you understand that between something and everything? There is a whole world, yes. This is brand new only. Less than a week, not this. Nice coding is there for a lot of a lot of time. What I’m saying is the model that has become three after being just two or 2.5 and Gemini is transversal. Gemini affects everything. You can use this with your. You may account with Google Docs with almost everything you want and you can use this. You can use this with. All the transcript. I haven’t sent you the transcript last transcriptions. If anyone sends a WhatsApp in the WhatsApp group, not now, but if anyone sends a WhatsApp, a WhatsApp asking for transcriptions, I will immediately resend them. Yes, in order to this transcription and all transcriptions, but. Any questions you can connect. You can connect this with his hub. You can download this. You can customize everything you need. This is by coding and this all by coding. This is 1 web page in order. Lobado is an AI that helps you do it. I’ve coding, but personally I think that this one is much better than than lovable and it goes with all Google ecosystem, yes. OK. Any questions? Any thoughts? If you tell me at the beginning of this course. That when talking about equity, I could explain. Akovic model in just five minutes with a live example. I would have said this is impossible. I will have say let let me go. One step forward. OK. OK. But. What I’m asking is yes, moving into next. What I’m asking is I’m I’m asking him. I want to explain also to my students, not just Marco, but also. Capital search model and I want to have two graphs. On one I want Markovic model and on the other I want the SML graph having a common point for each stock being the return of the stock, yes. I have explained it clearly. I have seen before that he understand instructions and the back. No, no. What I was thinking about, I was thinking, oh, this is great, Mark. What I have thought later, next step should be some and then I have thought let’s do it. From Gizmo live. What is the variance of a portfolio? Variance of a portfolio is weight A raised square deviation A raised square plus weight B raised square deviation B + 2 times weight A weight B covariance between A&B. If instead of two, we have three, the chorizo becomes bigger. We should have here weight C square, the HMC square plus two weight a weight C covariance between A and C. Plus 2 weights B, weight C covariates between B&C. Yes, this Teresa becomes bigger and this word is so complex. Sharp too from this model I’m creating instead of talking about deviations. Sharp used to talk about beta and it’s I’m still talking about return. There is a risk free with beta zero and all assets in sharps if the market is 1. And this is the SML. This is a much more simple model and from all these things what finance people remember, just remember the SML line equation that is the expected return of my stock should be equal to the risk rate plus beta of the stock. Times market premium return on the market minus free free rate, yes. What is this DSML? This tool connects Markovic portfolio theory, diversification of total risk with the cap and pricing of system, systematic risk, input tickers to generate efficient frontier left and the security market line right. However, over a stop to see its position in both. I am synchronize. From Markovic. From the model to visualize the fishing frontier and capping. Mm. Mm. These with them. I need. Know how to put all these things the way? When I take all my glasses, but just with with transcript and also doing real time exercises. And so we I am using this because we are in equity and we are talking about equity, but what can they told? Compare US GDP with China GDP to this with all countries. Just select take demographics here, take demographics out, make a map with all the whatever you imagine. Whatever you imagine. And you see that? Let me go to today’s class. Let me go to today’s class. Let me move forward. Let me move forward here and then I will come back. Yes, let me move here. I was not thinking about explaining this. I was. I was not thinking about explaining this. But what do you find? What can you find in these slides? If we have one stock, we can we can calculate from historical data. If you have one stock, we can calculate from historical data the expected return of the stock and and also. Sorry, you can calculate from one stock the expected return for one stock and the deviation of this expected return, yes. You can draw the return and deviation. You can have a second stock and then if you have two stocks you can draw the investment opportunity set for two stocks if instead of two you have three. Oh, this is for two and I’m changing correlation. Yes, I’m changing correlation if instead of two. You have 3 stocks, you will have a cloud of points. That is what I have done, yes. And this is the efficient frontier, Markovic with several, with six, with 35 and then you have the efficient frontier. And then what I was what I have asked Gemini later is I have a risk free asset. And draw me this line, yes. Then I move from Markovic to Kapem, from Markovic to Kapem. I have one stock. This is the demonstration of Kapem and once we are with the. Cap M in the cap M world, life is so simple. We have just said we have said that risk expected return is the risk rate plus beta times market premium. What does this say that if you give me the risk, you tell me the risk, you tell me beta of your stock. I will tell you the expected return in. Case the stock is well priced. For example, if risk free is 3% and market SP500 expected return is 8%, you have here that 3% + 5% beta whatever. If beta is 1, the stock of the risk of the return of the market risk and return would be the market one if beta is higher. Than one. Riskier and if beta is lower than one, less risky. What is the market? I have chosen in the example SP500. SP500 is just an index, but it’s an index that has to do with probably because all that companies were technological, I should have chosen NASDAQ. As a but whatever. What is better? Beta has to do with risk. And then let me see. Life is simple. If you want, if you want, instead of having this victory, how do you calculate data of a portfolio? How do you calculate the top approaches? Weight a beta a plus weight B beta B plus weight C beta C yes. And capital market line is what we have in Markovic and in beta world we are moving into a new world with where you have the SML and life is much simpler. Here got got them. OK, one thing that I haven’t include, one thing that I have not included is the relationship between. Do we? SML on. A. One thing. I’m looking for the comparison having the SML on one side. It other location line. Yeah. Yes, I was looking for this relationship, yes. What is this relationship about? Here you’ve got capital market line, here you’ve got security market line, yes, and it’s one word and another and another word. I have gone through this quickly, but here. I’ve got the same. I have no. I have done this live and with real data. And I have to send the market the SP500 that is this one. And which one is this stock? Wow, look. Because it has same return, because it has same return, it shows you the position in both. I’m thinking about living away the socratic risk, yes, focusing on systematic risk, but can you see from? This is talk. Which is the red one. I would bet that is Google. Yes, red one is Google. What I will bet that this is Google. I I don’t know which one is this green one. Tesla. I don’t know about Tesla too much, but why I know that this one is Google. If I would have seen this green one, I would say that Google is too much rid of. But why? Why? Because Google is overperforming the market. Why Google is overperforming the market? Because of these wonderful tools, Google this. In another way, why Google is not showing this to everyone? Because they don’t need it, because if everyone start using this, they will need a lot of computing power and they don’t have no computer power for the whole world. Trust me, this is absolutely amazing. I will bet. OK. You know percentage. Less than 1% of finance teacher or 2% finance teacher teachers will. I mean, it’s not because of me. I don’t know who can teach this. I know who can do it better than me, everyone, but with more power. I don’t know anyone that could teach like this real time, but I’m teaching now. I’m teaching finance. I’m teaching programming. I’m teaching your strategy. John, what do you think about this? I think it’s very impressive the way how you assist you in teaching these concepts. No, no, teach whatever you think about, you can do it. I mean, I’m just asking this because it wasn’t easy. But maybe you have one business, your hair for pets. Yes, do it. Or you need to deliver homework for a teacher. What you will do? Yes, program it and how long will it take? Nothing. You just program it. You have your web page. Careful because this is like driving. You don’t need to know mechanics. In order to drive. You don’t need to know mechanics in order to drive, but at least you need to know how to drive. At least at least at least you need. I’m not talking about driving license, but also you need your driving license, but at least you know how to drive. So personally now I don’t know how to turn this into life, into my own webmates. I don’t know, but I promise one thing on January I will know. Because it is not so difficult, but people do it and I have this at DVD in order to explain me how to do it, yes. May I ask? I don’t understand what it tells me because I understand that in the graph of Markowitz, the star is the ratio of stocks I will have with a higher return. And less risk, kind of for that. But then what’s the other graph telling me? OK, here, here, Imakovic. Risk and return for a portfolio and one absolutely important thing that I have, I haven’t told him is the sharp ratio. Sharp ratio is something you should came from this class, you should take from this class and sharp ratio probably will be asked. What is charge ratio? Is the tangent of the taking the risk free is the tangent of of that line. What is the tangent about? The ratio you take return over risk, return minus risk rate. So charge ratio the bigger the charge ratio the better. So which one has the highest ratio this point? Once you have all these points, looking for the higher ratio is relatively simple and if you work in a in a headphone, one thing that you will hear a lot is hedge ratio, hedge ratio, hedge ratio, the hedge ratio, the bigger the hedge ratio, the more return. Even the electric, yes. So here we have this and in this graph once you see one of the points, once you see one of the points, you have two things. You have everything. In this graph you have everything. What does everything means? Two things. Idiosyncratic and systematic. What is idiosyncratic? Idiosyncratic has to do with yourself. For example, now I have 75% of the class. Those that are not in class is because of idiosyncratic. You understand the point if you are not in class if you one day. Has a big, for example, Gemini 3 releasing Gemini 3 for Google. It’s the ocean graphic. And one is systematic Trump or a piece of new that affect everyone. So the market on one hand has systematic risk. If there are bad news or if there are good news, it will affect all the stocks. And then there is idiosyncratic that belongs just to yourself. Yes, here in this graph on the Markovic graph, we have everything. Idiosyncratic and systematic and which is the best? Stop giving this graph. The best is the market. Why? Because you can create a portfolio that combines. You can create the capital market line, you can combine in a portfolio. I’m looking for oh, so capital allocation line. Yes, I still have. It’s perfect. You can which being rational, yes, what you will want. The highest the risk even, sorry, the highest the return even the less risk, yes. So you will always take a portfolio that will combine. I wish I have here the line, the capital location line. You will take a portfolio that is in this line. Yes, and that line is the one there. No, no, no, no. This I’m talking just about this idiosyncratic and systematic. And in this line you will be here moving from here. Here, once we are here, we have two things, idiosyncratic and systematic. If we get rid about idiosyncratic and we just focus on the systematic part. We are moving here. If the market were efficient here, if the market is efficient, we will still have a cloud. Yes, if the market is efficient, we will have a cloud. Why? Because everyone has its own line. This point is the most efficient point, but we have idiosyncratic parts, yes, if we take away idiosyncratic and we just focus in the systematic part. All points, all these dogs should lay on this line. And this line tells me about systematic. The more you look like the market, the more return you will have like the market. The less you will look, the higher the return and leaving away all these points should be on this line. But as you can see, there are points that are not on the line. None of the points are on the line. There are two ideas on one hand. Please to rate for at least not here. The line looks more like this. The line looks more like this and there is still a line, yes, but considering that the risky rate is there, what this tell me that points that lay over. Overperform of the market overperform that what this SML predict. SML stands for security market line. So in this point, what does this graph tell me? Given your risk and your return, risk and return, what is what the market predicts for you and what are you doing the market? Predict this return for me but I am doing I am having this so I have this beta for example Tesla has a beta of two. It should give a return of 70, for example, and it’s giving a return of 30%, so it’s over it overperformed the market. Makes sense. So when you want to invest and I look into these graphs, I probably should have a portfolio like the one in the star, but if I look in the SML graph, it’s to tell me OK, how independent they could be from the systematic risk. Yes. Or also another way in order to see if you are looking for investment, highest ratio, the highest the better and also diversification, different markets, different. And coming here you can use this in order to see how well you are performing on or how well the stocks perform considering the market on one hand here ISR ratio and on the other hand here. This distance is called alpha positive alphas. Alpha is another mission in order to see if the stock perform or the stock performing. Here you see Alpha, here you see highest separation and one of the things I’m thinking is. Taking the transcription. Taking from this transcription a prompt and then coming here and say introduce also questions into the graph. And and you see how can I improve this in an instant way so I can do it directly. So he’s telling me to measure performing. I would like to show. Where is? I don’t know how to say also. Great. This is incredible. Thanks. In order to finish I would like to explain my students how this help taking decisions to investors on one side sharp ratio and on the other alpha. Let’s come back in a while. Let me. I want to tell you two things quickly today. Let me start with today’s class. Equity market. Equity regarding equity markets, primary market, IPO, secondary market is stock exchange, NASDAQ, Chicago, NYC. How do you call New York stock exchange NYC? NYSC NYSC are platform, platform, platform where traders and brokers connect themselves and follow the order investor give them. These are platforms and what is the preemptive? Right. I’m going to have a capital increase. I’m going to easy new shares and all shareholders have a right for these new shares. Yes, and they can sell this right. This right is called. Predentative right then. What is the secondary market in Spain? It would be it’s called. It used to be called Mercado de Corros. What is a Mercado de Corros? What is? Sorry, what is a Mercado de Corros? Here is a picture of Mercado de Corros. Where people physically were there. You have 10 minutes and you have 10 minutes for negotiate talking the stocks. You sell, you buy, make sense. Mercado de Corros. What is this? Because a lot of people were talking is the first time I see this picture. I love it. This is the Spanish stock exchange. Oh, I I love, I I love this. And because I love it, what I’m going to do this with this. Uh. Uh. I have lost my. Or can I send me a message? Can you John look for Mercado Corros Rancia and send it in the WASA group? Here I was looking for this. What is this? Do you know what is this? Look this. This is a target. This is a target that man in language symbols. They used to talk not with language symbols. This this is their own. Language, yes. But why they say these things? I want to buy true stocks. I want to buy. I want to sell because it was so loudly, because it was so loudly. But I’m not here in order to talk just about the past. I want to talk about the past and the future. Mercado de Corros evolved to the Internet. Yes, to electronic platform. This is the case of Spain, but also you have NY is SE you have also. Chicago Botov Exchange. You have also Bolivia Stock Exchange for sure and whatever. And I want to talk about market orders. Why, John, I want to talk about market orders. Why? Because of liquidity, because all these things that I have explained, Markovic and all these things has to do with theory. In real life there is not only life has not only I’m going to calculate which stock I should buy, which stock I should sell. I will this presentation my portfolio in real life what we should also do. Not just in but also do and doing has to do in the market. You have 30 times doing has to do with. Efficient market hypothesis has to do with getting a price in order to do what? Buy or sell? And when we are buying or selling the stock, if we are buying, what do we need? We are fine. So simple. You want to buy something, you need to find out a seller. A seller. If you want to buy, you need to find a seller. And if you don’t find a seller, you will have a what’s kind of problem, liquidity problem and if there is a money. You put a stop loss, a stop loss at 80. All of you know what is a stop loss. Stop loss is at where you some worries the stop loss. Stop loss orders. Yes, what is a stop loss order is an order that if the price of the stock. It’s 100, it will automatically sell. If the stop touch 100, it will sell. What is the problem that you have one stop loss at 100? The order tells you to sell. At the best price, what the best price would be if there is a panic or if there is a plus class? Please thank you. And one minute it reach 100 again and you see your stock, you have your stock, you have the stock loss and after 2 minutes you have sold your stock loss for 100 for 30 and the stock price is 120 for example. You see what I’m talking about? What I’m talking is about orders. Let me show you flash glasses. And let me glass grass. John, sorry for abusing. Can you go to the Wikipedia? Flash grass and Sir, what you find there? No, flash crash, yes. In modern finance, a flash crash is a very rapid, deep and volatile fall in security. I’m looking for graphs. There should be graphs. OK, here you’ve got the explanation, but if you. One graphs. Yes, look in images. 2000 But there are more than just the 2010. There are plus classes, plus classes happens. Yes, well, what I want to show you, I want to talk about orders. I’m talking about the stock exchange and I’m talking about orders. What is a market order people saying or buying? When you place an order, there are three or four things. I don’t know how much. You need to know the price. There are two ways in order to talk about the price. You can say an exact number. Or you can say best price possible. Yes, you say an exact number, the order could be closed or not depending on the stock reaching the price. If you say best price, the order will be set will be closed. Make sense? At which price? If you say the price, at the price at the order could not be closed. So on one hand you we have price. Then we have the number of stocks we want to buy at a given price. Fill or kill F OK, F OK. Feel or kill. What does this mean? I want to send to sell 100 stocks at 10 euros. If you don’t sell, if you don’t find a buyer for this 100 at this price for all. Don’t sell them. Don’t sell them. I don’t want to keep one or two stocks. I want to sell all or not. Or you can say you can go he or kill. Or I don’t know the opposite order to fill or key, but it’s just a GPT as a question. Yes, so we have price. We have number of stocks. And we have the time this. Still today, if you don’t do it today, can send the order. Yes. Mhm. Why I want to talk about orders? Because a lot of people that come to finance class classes goes from here just thinking about return and risk, return and risk, return and risk and they forget John about. Liquidity, return, risk, return, risk and the Holy Trinity are three parts, not just the God and the soul. There is also the Holy Spirit and liquidity is something that not too much people talk about it. That is absolutely important. Like language. We talk a lot about theory and practice, theory and practice, theory and practice. But what about language? But it’s language. But it’s among us what makes things happen, yes. So liquidity is important. Yes, there is not. I want to buy. OK, place an order. This is not. An international legal. Standard. It’s just an international standard. Do you understand what I’m saying? All traders all over the world use somehow this language it it can change, but normally orders are are placed in an. Standardized way because at the end people work with all markets all over the world. All markets are interconnected. You work with investors all over the world and at the end everyone understand same language. Make sense. What else? I wanted to to talk today about equity, about orders, limit orders, stop orders, conditional orders and order duration. Perfect. And then transactions, financing, short sale, financing a long position, leveraging your position. IPO process and takeovers. OK. Any questions regarding the stock exchange? Let me go back. How many days do I have dedicated to talk about fixed income? I’m fixing compilation. All of you should know how to calculate the price of a bond. And in finance, bonds matter. Why bonds matter in finance? Because finance has to do with credit in the future and thanks to bonds, we have the framework, the precise framework bonds. Are absolutely important. We got from once the deal curve. Yes. Well, I want to go. I want to ask Google to program the deal curve, the dynamic deal curve and but what? Not now, not now. Don’t worry. Any question regarding the stock exchange? Let me come back here in order to fix. Look. SARP ratio analysis explains efficiency. Alpha analysis explains valuation. It calculates the exact JS and alpha distance from the SML to determine if the stock is cheap, positive alpha or expensive negative alpha relatively to to its risk. This is what Gemini has thought before answering me, that it corresponds so with the explanation that I have given you. Let me just run and see. I don’t know. No, this has not been. This has not been the best class of my entire life. This has not been probably. I mean, I don’t know which one has been my my best class. But probably this not probably. This has been the most powerful class I have ever teach. Why? Because of the tools that I have used. I’m not telling you, oh look, how good am I? Because probably today not everyone would have understood same, probably some of you know that has previous knowledge. Has gone a little bit farther or has recap things. Probably someone that has not any kind of knowledge goes from here. Stocks are complicated, there are, but I have to say at the end you should focus more on bonds. But stocks are complicated because regarding the stocks, nobody can predict the future. But I’m not talking about myself. I’m not talking about finance. I’m talking about the tools that I have used. Regarding these tools, it has been the most powerful class in my life and. Look, charge ratio analysis. Jensen Alpha. Is the return I’m getting worth the total volatility I’m affecting? Winner Google I would like. So. I don’t have WhatsApp created, but to to get together with it. No, I’m going to close the session, I’m going to open WhatsApp and I’m going to share this with you. Any questions? We are done. Enjoy the week.