The Forbes/CFA Institute Investment Course – Timeless Principles for Building Wealth +Website

Preface xiii
<p>Acknowledgments xvii</p>
<p>Chapter 1 Building Capital 1</p>
<p>Role of the Stock Market in Building Wealth 2</p>
<p>Determining Your Financial Position 3</p>
<p>Your Financial Inventory Guide 4</p>
<p>Investment Margin 11</p>
<p>Defi ning Your Goals 12</p>
<p>Return Requirements 13</p>
<p>Risk Profi le 14</p>
<p>Life Cycle and the Risk/Return Mix 15</p>
<p>Other Considerations 16</p>
<p>Asset Classes 17</p>
<p>Asset Allocation 20</p>
<p>Active versus Passive Investing 22</p>
<p>Diversifi cation 23</p>
<p>Dollar Cost Averaging 24</p>
<p>Chapter Takeaways 31</p>
<p>Chapter 2 How Securities Markets Function 33</p>
<p>Role of Securities Markets 33</p>
<p>The Securities Exchanges 36</p>
<p>Over–the–Counter Markets 37</p>
<p>NASDAQ 38</p>
<p>Electronic Communication Networks 39</p>
<p>Stock Quotes 39</p>
<p>The Third Market 40</p>
<p>Other Markets 40</p>
<p>How the New York Stock Exchange Operates 41</p>
<p>How the NASDAQ Operates 43</p>
<p>From SOES to SuperMontage 44</p>
<p>OTC Bulletin Board and Pink Sheets 45</p>
<p>How the ECNs Operate 45</p>
<p>Crossing Systems 46</p>
<p>Electronic versus Floor Trading 46</p>
<p>Preferencing 48</p>
<p>Internalization 49</p>
<p>Chapter Takeaways 49</p>
<p>Chapter 3 Selecting a Broker and Trading 51</p>
<p>Structure of a Brokerage Firm 52</p>
<p>Activities of a Brokerage Firm 53</p>
<p>Services Offered by All Brokers 54</p>
<p>Full–Service versus Discount Brokers 55</p>
<p>Online Brokers 58</p>
<p>Choosing a Brokerage Firm 58</p>
<p>Commissions 60</p>
<p>Direct Purchase of Securities 62</p>
<p>Placing Orders 63</p>
<p>Odd–Lot Trading 66</p>
<p>Margin 67</p>
<p>Transaction Example 68</p>
<p>Settlement 69</p>
<p>Stock Symbols and the Ticker Tape 70</p>
<p>Questions to Ask Your Broker 71</p>
<p>Chapter Takeaways 73</p>
<p>Chapter 4 Tax–Favored Investment Strategies 75</p>
<p>Capital Gains and Dividends 75</p>
<p>Traditional IRAs 77</p>
<p>Roth IRAs 79</p>
<p>401(k) Plans 80</p>
<p>Education Savings Accounts and 529 Plans 82</p>
<p>Other Pension Plans 83</p>
<p>Mutual Funds and Taxes 85</p>
<p>Using Tax–Advantaged Accounts 86</p>
<p>Chapter Takeaways 87</p>
<p>Chapter 5 Reading Financial Statements 89</p>
<p>Income Statements 91</p>
<p>Balance Sheet 95</p>
<p>Statement of Cash Flows 99</p>
<p>Making Sense of the Numbers 102</p>
<p>Profi tability Ratios 102</p>
<p>Asset Utilization Ratios 105</p>
<p>Leverage Ratios 108</p>
<p>Revisiting ROE 110</p>
<p>Liquidity Ratios 110</p>
<p>Market Multiples 112</p>
<p>Look Beyond the Numbers 114</p>
<p>Read the Footnotes 115</p>
<p>Can You Trust Financial Statements? 115</p>
<p>Chapter Takeaways 119</p>
<p>Chapter 6 Sources for Investment Information 121</p>
<p>Where to Obtain Information 123</p>
<p>Securities and Exchange Commission 124</p>
<p>Earnings Releases and Regulation Fair Disclosure 125</p>
<p>Investment Brokers and Dealers 127</p>
<p>Can You Trust Brokerage House Reports? 128</p>
<p>Investment Newsletters and Other Publications 129</p>
<p>Corporate Reports 130</p>
<p>Reading the Annual Report 130</p>
<p>Government Reports 131</p>
<p>Chapter Takeaways 131</p>
<p>Chapter 7 Common Stocks and Economic Indicators 133</p>
<p>Another Look at the Balance Sheet 133</p>
<p>Why Common Shares Have Value 136</p>
<p>Macroeconomic Factors 136</p>
<p>Industry–Specifi c Factors 140</p>
<p>Other Barometers 141</p>
<p>Evaluating Data 141</p>
<p>Chapter Takeaways 143</p>
<p>Chapter 8 Fundamental Analysis 145</p>
<p>Investing versus Trading 145</p>
<p>Passive Investing 146</p>
<p>Active Investing 147</p>
<p>Business Focus 153</p>
<p>Industry Outlook 154</p>
<p>Company Status 155</p>
<p>Major Trends 157</p>
<p>Earnings History and Outlook 158</p>
<p>Dividends 159</p>
<p>Price–Earnings and Price–Book Ratios Revisited 161</p>
<p>Discounted Cash Flow 163</p>
<p>Evaluating Management 164</p>
<p>Some Final Thoughts on Fundamental Analysis 165</p>
<p>Chapter Takeaways 165</p>
<p>Chapter 9 Technical Analysis 167</p>
<p>The Value of Charts 169</p>
<p>Reading Charts 171</p>
<p>Dow Theory 171</p>
<p>Head and Shoulders 175</p>
<p>Support and Resistance Levels 176</p>
<p>Trading Ranges 177</p>
<p>Breakaway Gaps 178</p>
<p>Importance of Volume 179</p>
<p>Other Technical Indicators 182</p>
<p>Time to Grow Bullish 184</p>
<p>Chapter Takeaways 187</p>
<p>Chapter 10 Fixed–Income Securities 189</p>
<p>Bonds 189</p>
<p>Understanding Bonds 190</p>
<p>Understanding Bond Prices 191</p>
<p>Bond Prices and Interest Rates 192</p>
<p>Call Feature 194</p>
<p>Credit Quality of Bonds 194</p>
<p>Other Issues Concerning Bonds 196</p>
<p>How to Buy Bonds 199</p>
<p>Money Market Securities 200</p>
<p>Preferred Stock 201</p>
<p>Understanding Preferred Stock 202</p>
<p>Tax Treatment 203</p>
<p>Trust Preferred Securities 204</p>
<p>Final Thoughts on Bonds and Preferred Stocks 204</p>
<p>Chapter Takeaways 205</p>
<p>Chapter 11 Derivatives 207</p>
<p>Defi ning Derivative Instruments 207</p>
<p>Futures 209</p>
<p>Spot Asset 209</p>
<p>The Futures Market 210</p>
<p>Delivery 211</p>
<p>Hedging 212</p>
<p>Stock Index Futures 212</p>
<p>Single–Stock Futures 214</p>
<p>Options 215</p>
<p>Defi nition of Options 216</p>
<p>Options Markets 216</p>
<p>Important Terms to Know 216</p>
<p>Listed Options 217</p>
<p>What an Option Is Worth 219</p>
<p>Commissions 221</p>
<p>To Sell or to Exercise 222</p>
<p>Some Popular Option Strategies 222</p>
<p>A Warning about Naked Option Writing 225</p>
<p>Chapter Takeaways 226</p>
<p>Chapter 12 Mutual Funds 229</p>
<p>An Investment Company 229</p>
<p>Closed–End or Open–End 230</p>
<p>A Short History of the Mutual Fund Industry 232</p>
<p>Categories of Mutual Funds 232</p>
<p>Advantages of Mutual Funds 237</p>
<p>Disadvantages of Mutual Funds 238</p>
<p>Mutual Fund Expenses 239</p>
<p>How to Choose a Fund 242</p>
<p>Some Final Thoughts about Mutual Funds 243</p>
<p>Hedge Funds 243</p>
<p>Chapter Takeaways 247</p>
<p>Chapter 13 Rules of Thumb and Key Phrases 249</p>
<p>Final Comments 254</p>
<p>Suggested Readings 255</p>
<p>About the Authors 257</p>
<p>Index 259</p>