Understanding Wall Street, Fifth Edition »

Jeffrey B. Little has been a registered investment analyst, serving as senior analyst at a major Wall Street firm and as a vice president of the prominent investment counsel firm, T. Rowe Price Associates.

Lucien Rhodes is a respected financial journalist with several years experience as a senior analyst and portfolio manager in both commercial and investment banking.

A fully revised edition of the

INVESTING CLASSIC

For over 30 years this comprehensive, easy-to-read guide has served well as the

definitive reference for successful investing. Now in its fifth edition and completely

updated, Understanding Wall Street helps investors prosper in today’s challenging

economy—whether you’re just beginning or among the millions soon to retire.

Understanding Wall Street, Fifth Edition, has new sections and information on the

issues most important to today’s investors, including:

• How to use the Internet as an investing tool
• The shift to exchange traded funds (ETFs)
• The link between Wall Street and Main Street
• The Risks and rewards of the global economy

Praise for previous editions of Understanding Wall Street:

“Recommended. An excellent introduction to stock market intricacies.” —Booklist

“A lucid guide to those downtown mysteries.” —Newsday

“Remarkable . . . it remains as useful as ever . . . Experience may be the best

teacher, but this manual runs a close second.” American Library Book Review

Preface ix

1 What Is a Share of Stock? 1

How a company is organized

The meaning of profits and dividends

How stock prices are determined

2 Wall Street-How It Works 15

A pictorial and narrative description of Wall Street's colorful history

The role of the investment banker

An explanation of listed and over-the-counter trading

3 Analyzing Your Company 37

How to identify the best companies and interpret their financial statements

Using the reinvestment rate

Calculating financial ratios

Other highlights of security analysis

4 Reading the Financial Pages 57

The history and calculations of the Dow /ones Averages

How to read the stock tables, earnings reports, stock split announcements, and other important news items

5 Investing and Trading 81

Finding a stockbroker or investment advisor

Opening a brokerage account

Setting investment objectives

Understanding the margin account

How to make money in a bear market

Investment clubs

Exchange traded funds (ETFs)

6 Growth Stocks 117

The meaning of "the growth stock theory" of investing

How companies grow

Identifying growth companies

A guide on how much to pay for growth stocks

7 Manias, Fads, and Panics 143

Recognizing investment bubbles

Examples and the pitfalls of emotional investing

The stock market crashes of 1929 and 1987

The recent dot-com bubble

8 From Wall Street to Main Street 167

The Great Real Estate Bubble

A new investment landscape

Government versus business

Greed and atrocities

Bankruptcies and"bailouts"

9 Bonds, Preferred Stocks, and the Money Market 185

An explanation of bonds and the bond tables

Calculating "yield to maturity"

Investing inconvertible bonds

Tax advantages of municipal bonds

Understanding the Federal Reserve

The use of T-bills and other money market instruments

10 The Internet 211

The background of this fast-growing medium

How today's investors are using the World Wide Web

11 Global Investing 223

The emerging global market

The Japanese stock market

The markets in London, Germany, France, and elsewhere

ADRs

Participating through mutual funds

12 Gold and Silver 239

Learning from the past

Gold and silver as a store of value

Supply and demand, production, and stockpiles

The investment opportunities and risks

A few equities

13 The Principles of Technical Analysis 255

Methods for improving market timing

Constructing bar charts and point & figure charts

How to read charts

The WST Ratio and other reliable technical indicators

14 Stock Options and Other Derivatives 287

How to use "put" and "call" options

The two dimensions of a premium

Valuing option premiums

Index options

Simple explanations of various option strategies

Other derivatives explained, including interest rate swaps and credit default swaps

15 Personalities of Wall Street 325

Key players during the early days of Wall Street

Tycoons and stock traders

Great investors

The "movers and shakers" of today

Sources 339

A dictionary of Wall Street

Useful business publications

Investment services

Appendix 353

Historical annual statistics for the Dow Industrials and Consumer Price Index (CPI)

Illustration Credits 357

Index 359