Stock Investing For Dummies<sup>®</sup>, 2nd Edition,9780764599033

Stock Investing For Dummies^®, 2nd Edition

by Paul Mladjenovic

Edition: 2nd

ISBN13: 9780764599033

ISBN10: 0764599038

Format: Paperback

Pub. Date: 2006-01-01

Publisher(s): For Dummies

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Summary

The Dummies way to score big in the stock market Stock Investing For Dummies, Second Edition covers the basics of investing for individuals and households that want to watch their savings grow. Simple, straight-forward, and honest, this friendly guide covers all the categories of stocks, teaches readers how to analyze stocks, and offers invaluable resources for developing a portfolio. Investing consultant Paul Mladjenovic offers wise advice and proven tactics for beginners who want to get in the game without risking their shirts. Whether the market is up or down, readers will benefit from sound, practical investing strategies and insights that have helped generations of investors profit from the markets. Paul Mladjenovic (Englewood Cliffs, NJ) is the owner of PM Financial Services and a Certified Financial Planner and investing consultant with nineteen years of experience in investing.

Author Biography

Paul Mladjenovic is a certified financial planner practitioner, writer, and public speaker who has a Web site at www.mladjenovic.com. His business, PM Financial Services, has helped people with financial and business concerns since 1981. In 1985 he achieved his CFP designation. Since 1983, Paul has taught thousands of budding investors through popular national seminars such as “The $50 Wealthbuilder” and “Stock Investing Like a Pro.” Paul has been quoted or referenced by many media outlets such as Bloomberg, MarketWatch, CNBC, and many financial and business publications and Web sites. As an author, he has written the books The Unofficial Guide to Picking Stocks (Wiley, 2000) and Zero-Cost Marketing (Todd Publications, 1995). In 2002, the first edition of Stock Investing For Dummies was ranked in the top 10 out of 300 books reviewed by Barron’s. In recent years, Paul accurately forecasted many economic events, such as the rise of gold and the decline of the U.S. dollar. At press time he has been warning his students and clients about the coming decline in housing. He maintains a financial database for his readers and students at www.supermoneylinks.com

Introduction

(1)

About This Book

(1)

Conventions Used in This Book

(1)

What You're Not to Read

(1)

Foolish Assumptions

(1)

How This Book Is Organized

(3)

Part I: The Essentials of Stock Investing

(1)

Part II: Before You Start Buying

(1)

Part III: Picking Winners

(1)

Part IV: Investment Strategies and Tactics

(1)

Part V: The Part of Tens

(1)

Part VI: Appendixes

(1)

Icons Used in This Book

(1)

Where to Go from Here

(1)

Part I: The Essentials of Stock Investing

(62)

Exploring the Basics

(8)

Understanding the Basics

(1)

Getting Prepared before You Get Started

(1)

Knowing How to Pick Winners

(4)

Recognizing stock value

(1)

Understanding how market capitalization affects stock value

(1)

Sharpening your investment skills

(2)

Boning Up on Strategies and Tactics

(1)

Getting Some Good Tips

(3)

Taking Stock of Your Current Financial Situation and Goals

(18)

Establishing a Starting Point

(8)

Step 1: Making sure you have an emergency fund

(1)

Step 2: Listing your assets in decreasing order of liquidity

(3)

Step 3: Listing your liabilities

(1)

Step 4: Calculating your net worth

(1)

Step 5: Analyzing your balance sheet

(2)

Funding Your Stock Program

(5)

Step 1: Tallying up your income

(1)

Step 2: Adding up your outgo

(1)

Step 3: Creating a cash flow statement

(1)

Step 4: Analyzing your cash flow

(1)

Finding investment money in tax savings

(1)

Setting Your Sights on Your Financial Goals

(4)

Defining Common Approaches to Stock Investing

(10)

Matching Stocks and Strategies with Your Goals

(2)

Investing for the Future

(2)

Focusing on the short term

(1)

Considering intermediate-term goals

(1)

Preparing for the long term

(1)

Investing for a Purpose

(3)

Making loads of money quickly: Growth investing

(1)

Steadily making money: Income investing

(2)

Investing for Your Personal Style

(3)

Conservative investing

(1)

Aggressive investing

(2)

Recognizing the Risks

(14)

Exploring Different Kinds of Risk

(9)

Financial risk

(1)

Interest rate risk

(1)

Understanding the adverse effects of rising interest rates

(2)

Market risk

(1)

Inflation risk

(1)

Tax risk

(1)

Political and governmental risks

(1)

Personal risks

(1)

Emotional risk

(2)

Minimizing Your Risk

(2)

Gaining knowledge

(1)

Staying out . . . for now

(1)

Getting your financial house in order

(1)

Diversifying your investments

(1)

Weighing Risk Against Return

(2)

Say Cheese: Getting a Snapshot of the Market

(10)

Knowing How Indexes Are Measured

(1)

Checking Out the Indexes

(7)

The Dow Jones Industrial Average

(3)

Nasdaq indexes

(1)

Standard & Poor's 500

(1)

Russell 3000 Index

(1)

Wilshire Total Market Index

(1)

International indexes

(1)

Using the Indexes

(2)

Tracking the indexes

(1)

Investing in indexes

(2)

Part II: Before You Start Buying

(74)

Gathering Information

(18)

Looking to Stock Exchanges for Answers

(1)

Understanding Stocks and the Companies They Represent

(4)

Accounting for taste and a whole lot more

(1)

Understanding how economics affects stocks

(3)

Staying on Top of Financial News

(3)

Figuring out what a company's up to

(1)

Discovering what's new with an industry

(1)

Knowing what's happening with the economy

(1)

Seeing what the politicians and government bureaucrats are doing

(1)

Checking for trends in society, culture, and entertainment

(1)

Reading (And Understanding) Stock Tables

(5)

52-week high

(1)

52-week low

(1)

Name and symbol

(1)

Dividend

(1)

Volume

(1)

Yield

(1)

P/E

(1)

Day last

(1)

Net change

(1)

Using News about Dividends

(2)

Looking at important dates

(2)

Understanding why these dates matter

(1)

Evaluating (Avoiding?) Investment Tips

(2)

Going for Brokers

(12)

Defining the Broker's Role

(2)

Distinguishing between Full-Service and Discount Brokers

(3)

Full-service brokers

(2)

Discount brokers

(1)

Choosing a Broker

(1)

Discovering Various Types of Brokerage Accounts

(2)

Cash accounts

(1)

Margin accounts

(1)

Option accounts

(1)

Judging Brokers' Recommendations

(4)

Investing for Growth

101

(14)

Becoming a Value-Oriented Growth Investor

102

(1)

Getting Tips for Choosing Growth Stocks

103

(7)

Making the right comparison

103

(1)

Checking out a company's fundamentals

104

(1)

Looking for leaders and megatrends

104

(1)

Considering a company with a strong niche

105

(1)

Noticing who's buying and/or recommending the stock

105

(1)

Learning investing lessons from history

106

(1)

Evaluating the management of a company

107

(3)

Making sure a company continues to do well

110

(1)

Exploring Small-caps and Speculative Stocks

110

(5)

Avoid IPOs, unless

111

(1)

If it's a small-cap stock, make sure it's making money

112

(1)

Investing in small-cap stocks requires analysis

112

(3)

Investing for Income

115

(12)

Understanding Income Stocks

116

(2)

Advantages of income stocks

116

(1)

Disadvantages of income stocks

117

(1)

Analyzing Income Stocks

118

(6)

Understanding your needs first

118

(2)

Checking out yield

120

(2)

Checking the stock's payout ratio

122

(1)

Diversifying your stocks

123

(1)

Examining the company's bond rating

123

(1)

Exploring Some Typical Income Stocks

124

(3)

Utilities

124

(1)

Real estate investment trusts (REITs)

124

(2)

Royalty trusts

126

(1)

Using Basic Accounting to Choose Winning Stocks

127

(16)

Recognizing Value When You See It

127

(4)

Understanding different types of value

129

(1)

Putting the pieces together

130

(1)

Accounting for Value

131

(12)

Walking on a wire: The balance sheet

132

(3)

Looking at the income statement

135

(3)

Tooling around with ratios

138

(5)

Part III: Picking Winners

143

(52)

Decoding Company Documents

145

(12)

Getting a Message from the Muckety-Muck: The Annual Report

145

(5)

Analyzing the annual report's anatomy

146

(3)

Going through the proxy materials

149

(1)

Getting a Second Opinion

150

(5)

Company documents filed with the SEC

150

(2)

Value Line

152

(1)

Standard & Poor's

152

(1)

Moody's Investment Service

153

(1)

Brokerage reports: The good, the bad, and the ugly

153

(2)

Compiling Your Own Research Department

155

(2)

Analyzing Industries

157

(10)

Badgering the Witness and Interrogating the Industries

158

(5)

Is the industry growing?

158

(1)

Are the industry's products or services in demand?

159

(1)

What does the industry's growth rely on?

160

(1)

Is this industry dependent on another industry?

160

(1)

Who are the leading companies in the industry?

161

(1)

Is the industry a target of government action?

161

(1)

Which category does the industry fall into?

162

(1)

Outlining Key Industries

163

(4)

For sale

164

(1)

Baby, you can drive my car

165

(1)

Thanking Mr. Roboto

165

(1)

Banking on it

165

(2)

Emerging Sector Opportunities

167

(14)

Bullish Opportunities

168

(6)

Commodities: Feeding and housing the world

168

(1)

Energy

169

(1)

Gold

170

(2)

Silver

172

(1)

Healthcare

173

(1)

National Security

173

(1)

Bearish Outlook

174

(3)

Warning on housing

174

(2)

The great credit monster

176

(1)

Cyclical stocks

177

(1)

Important for Bulls & Bears

177

(4)

Conservative and bullish

178

(1)

Aggressive and bullish

178

(1)

Conservative and bearish

179

(1)

Aggressive and bearish

179

(1)

Diversification

179

(2)

Money, Mayhem, and Votes

181

(14)

Avoiding the Bull When Elephants and Donkeys Talk Turkey

182

(5)

Understanding price controls

184

(1)

Ascertaining the political climate

184

(1)

Discovering systemic and nonsystemic effects

185

(2)

Poking into politics: Resources

187

(1)

Easing into Economics

187

(8)

Understanding economic impact

188

(5)

Inquiring about economics: Resources

193

(2)

Part IV: Investment Strategies and Tactics

195

(72)

Taking the Bull (Or Bear) by the Horns

197

(12)

Bulling Up

198

(4)

Recognizing the beast

198

(2)

Avoiding the horns of a bull market

200

(1)

Toro! Approaching a bull market

200

(2)

Bearing Down

202

(4)

Identifying the beast

202

(3)

Heading into the woods: Approaching a bear market

205

(1)

Straddling Bear and Bull: Uncertain Markets

206

(3)

Pinpointing uncertainty is tough

206

(1)

Deciding whether you want to approach an uncertain market

207

(2)

Choosing a Strategy That's Just Right for You

209

(8)

Laying Out Your Plans

209

(3)

Living the bachelor life: Young single with no dependents

210

(1)

Going together like a horse and carriage: Married with children

210

(1)

Getting ready for retirement: Over 40 and either single or married

211

(1)

Kicking back in the hammock: Already retired

212

(1)

Allocating Your Assets

212

(3)

Investors with less than $10,000

213

(1)

Investors with $10,000--$50,000

214

(1)

Investors with $50,000 or more

214

(1)

Knowing When to Sell

215

(2)

Understanding Brokerage Orders and Trading Techniques

217

(16)

Checking Out Brokerage Orders

218

(8)

Time-related orders

218

(2)

Condition-related orders

220

(6)

Buying on Margin

226

(2)

Examining marginal outcomes

226

(1)

Maintaining your balance

227

(1)

Going Short and Coming Out Ahead

228

(5)

Setting up a short sale

229

(1)

Oops! Going short when prices grow taller

230

(1)

Watching out for ticks

231

(1)

Feeling the squeeze

231

(2)

Getting a Handle on DPPs, DRPs, and DCA . . . PDQ

233

(10)

Being Direct with DPPs

233

(3)

Investing in a DPP

234

(1)

Finding DPP alternatives

235

(1)

Recognizing that every pro has a con

236

(1)

Dipping into DRPs

236

(4)

Getting a clue about compounding

237

(1)

Building wealth with optional cash payments (OCPs)

238

(1)

Checking out the cost advantages

238

(1)

Weighing the pros with the cons

239

(1)

The One-Two Punch: Dollar Cost Averaging and DRPs

240

(3)

Looking at What the Insiders Do: Corporate Hijinks

243

(12)

Tracking Insider Trading

244

(1)

Looking at Insider Transactions

245

(3)

Learning from insider buying

245

(2)

Picking up tips from insider selling

247

(1)

Considering Corporate Stock Buybacks

248

(3)

Boosting earnings per share

249

(1)

Beating back a takeover bid

250

(1)

Exploring the downside of buybacks

250

(1)

Stock Splits: Nothing to Go Bananas Over

251

(4)

Ordinary stock splits

252

(1)

Reverse stock splits

252

(3)

Tax Benefits and Obligations

255

(12)

Paying through the Nose

255

(5)

Understanding ordinary income and capital gains

256

(2)

Minimizing the tax on your capital gains

258

(1)

Coping with capital losses

258

(2)

Sharing Your Gains with the IRS

260

(2)

Filling out forms

260

(1)

Playing by the rules

261

(1)

Discovering the Softer Side of the IRS: Tax Deductions for Investors

262

(2)

Investment interest

262

(1)

Miscellaneous expenses

262

(1)

Givin' it away

263

(1)

Knowing what you can't deduct

263

(1)

Taking Advantage of Tax-Advantaged Retirement Investing

264

(3)

IRAs

264

(1)

401(k) plans

265

(2)

Part V: The Part of Tens

267

(28)

Ten Warning Signs of a Stock's Decline

269

(6)

Earnings Slow Down or Head South

269

(1)

Sales Slow Down

270

(1)

Exuberant Analysts Despite Logic

271

(1)

Insider Selling

271

(1)

Dividend Cuts

272

(1)

Increased Negative Coverage

272

(1)

Industry Problems

272

(1)

Political Problems

273

(1)

Debt Is Too High or Unsustainable

273

(1)

Funny Accounting: No Laughing Here!

273

(2)

Ten Signals of a Stock Price Increase

275

(6)

Rise in Earnings

275

(1)

Increase in Assets as Debts Are Stable or Decreasing

276

(1)

Positive Publicity for Industry

277

(1)

Heavy Insider or Corporate Buying

277

(1)

More Attention from Analysts

278

(1)

Rumors of Takeover Bids

278

(1)

Praise from Consumer Groups

279

(1)

Strong or Improving Bond Rating

279

(1)

Powerful Demographics

279

(1)

Low P/E Relative to Industry or Market

280

(1)

Ten Ways to Protect Yourself from Fraud

281

(8)

Be Wary of Unsolicited Calls and E-mails

281

(1)

Get to Know the SEC

282

(1)

Don't Invest If You Don't Understand

282

(1)

Question the Promise of Extraordinary Returns

283

(1)

Verify the Investment

283

(1)

Check Out the Broker

284

(1)

Beware of the Pump-and-Dump

284

(2)

Watch Out for Short-and-Abort

286

(1)

Remember That Talk Is Cheap (Until You Talk to an Expert)

286

(1)

Recovering (If You Do Get Scammed)

287

(2)

Ten Challenges and Opportunities for Stock Investors

289

(6)

Debt, Debt, and More Debt

289

(1)

Derivatives

290

(1)

Real Estate

290

(1)

Inflation

291

(1)

Pension Crisis

291

(1)

Government's Unfunded Liabilities

292

(1)

Recession/Depression

292

(1)

Commodities

293

(1)

Energy

293

(1)

Dangers from Left Field

294

(1)

Part VI: Appendixes

295

(2)

Appendix A: Resources for Stock Investors

297

(14)

Financial Planning Sources

297

(1)

The Language of Investing

298

(1)

Textual Investment Resources

298

(3)

Periodicals and magazines

298

(1)

Books and pamphlets

299

(1)

Special books of interest to stock investors

300

(1)

Investing Web sites

301

(1)

General investing Web sites

301

(1)

Stock investing Web sites

301

(1)

Investor Associations and Organizations

302

(1)

Stock Exchanges

302

(1)

Finding Brokers

303

(2)

Choosing Brokers

303

(1)

Brokers

303

(2)

Investment Sources

305

(1)

Dividend Reinvestment Plans

306

(1)

Sources for Analysis

306

(3)

Earnings and earnings estimates

306

(1)

Industry analysis

306

(1)

Factors that affect market value

307

(1)

Technical analysis

308

(1)

Insider trading

308

(1)

Tax Benefits and Obligations

309

(1)

Fraud

309

(2)

Appendix B: Financial Ratios

311

(8)

Liquidity Ratios

312

(1)

Current ratio

312

(1)

Quick ratio

312

(1)

Operating Ratios

313

(2)

Return on equity (ROE)

313

(1)

Return on assets (ROA)

314

(1)

Sales to receivables ratio (SR)

314

(1)

Solvency Ratios

315

(1)

Debt to net equity ratio

315

(1)

Working capital

315

(1)

Common Size Ratios

316

(1)

Valuation Ratios

316

(3)

Price-to-earnings ratio (P/E)

317

(1)

Price to sales ratio (PSR)

317

(1)

Price to book ratio (PBR)

318

(1)

Index

319

Stock Investing For Dummies®, 2nd Edition

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Stock Investing For Dummies^®, 2nd Edition