Understanding Stocks

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WHERE TO BUY STOCKS 65 ways was eerily similar to the boom and bust cycle that the stock market went through beginning in March 2000. It wasn’t the Internet that fascinated the nation and helped usher in the roaring 1920s, it was electricity. At the same time, many people became enamored with the stock market. With very favorable margin rates (you could borrow 9 times the amount of your original investment), it seemed as if everyone was in the stock market. As more and more people entered the market, the prices of stocks went up. (In a way, it was like a huge Ponzi scheme. People paid off what they owed on their original investment with the paper profits they made on their rising stocks.) The attitude of the Coolidge administration was laissezfaire, a French term meaning “letting things be.” The government wanted to let the forces of capitalism work without interference. As the stock market got shakier and the economy got worse, the new president, Herbert Hoover, realized that something had to be done. The goal was to increase margin requirements (which many considered the main culprit) without causing panic. Unfortunately, the market panicked. After a series of frightening stops and starts, the market finally crashed on October 24, 1929. Over $10 billion of investors’money was wiped out before noon. Huge crowds of angry and shocked investors packed the visitor’s gallery of the NYSE to watch the debacle. By noon the market was in a “death spiral.” Investors around the world were horrified at the extent of the financial damage. By October 29, 1929, all the market’s gains from the past year had been wiped out. Eventually, the market fell 89 percent from its 1929 high of 381. After the crash, economists tried to figure out what had gone wrong. It was obvious that many people had missed the signs the market was overpriced. For example, the P/Es of many stocks were high, well beyond what was considered the P/E safe zone of 15. In addition, the Fed decided to raise interest rates, which many economists considered to be the wrong move. Congress also had a hand in turning what really was a recession into a fullblown depression. For example, during this period it doubled income taxes and raised tariffs on imports and exports.
66 UNDERSTANDING STOCKS Another problem was that banks were allowed to operate with few restrictions on how much they could lend. After the crash, many of the banks’ customers had no way of paying back the money they had borrowed, forcing many banks to close. Finally, many people believed that fraud and insider activity was to blame. After the initial crash, the United States entered a 3-year bear market; the Dow finally bottomed at 41 in 1932. The new president, Franklin Delano Roosevelt (FDR), took a number of unprecedented steps to bring stability and trust to the market, including creating the SEC in 1932. Wall Street was skeptical about letting the government interfere with the private sector, but the steps FDR took eventually helped turn the economy around. However, it took 25 years for the Dow to make it back to 381. In the next chapter, you will learn how to build wealth over time by using long-term investment strategies.
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UNDERSTANDING STOCKS Michael Sincer
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For more information about. this ti
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Acknowledgments I’d like to give
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Introduction This book will be diff
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INTRODUCTION ix losing money (Part
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PART ONE WHAT YOU NEED TO KNOW FIRS
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1 C H A P T E R Welcome to the Stoc
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WELCOME TO THE STOCK MARKET 5 techn
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WELCOME TO THE STOCK MARKET 7 was c
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WELCOME TO THE STOCK MARKET 9 long
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WELCOME TO THE STOCK MARKET 11 Jone
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WELCOME TO THE STOCK MARKET 13 10,1
Page 26 and 27: WELCOME TO THE STOCK MARKET 15 For
Page 28 and 29: WELCOME TO THE STOCK MARKET 17 McDo
Page 30 and 31: 2 C H A P T E R Stocks: Not Your On
Page 32 and 33: STOCKS: NOT YOUR ONLY INVESTMENT 21
Page 40 and 41: 3 C H A P T E R How to Classify Sto
Page 42 and 43: HOW TO CLASSIFY STOCKS 31 dividend
Page 44 and 45: HOW TO CLASSIFY STOCKS 33 Penny Sto
Page 46 and 47: HOW TO CLASSIFY STOCKS 35 run fairl
Page 48 and 49: 4 C H A P T E R Fun Things You Can
Page 50 and 51: FUN THINGS YOU CAN DO (WITH STOCKS)
Page 60 and 61: 5 C H A P T E R Understanding Stock
Page 62 and 63: UNDERSTANDING STOCK PRICES 51 Views
Page 64 and 65: UNDERSTANDING STOCK PRICES 53 After
Page 66 and 67: 6 C H A P T E R Where to Buy Stocks
Page 68 and 69: WHERE TO BUY STOCKS 57 whether a fu
Page 70 and 71: WHERE TO BUY STOCKS 59 Market Order
Page 72 and 73: WHERE TO BUY STOCKS 61 Some people
Page 74 and 75: WHERE TO BUY STOCKS 63 market, avoi
Page 78 and 79: PART TWO MONEY-MAKING STRATEGIES Co
Page 80 and 81: 7 C H A P T E R Want to Make Money
Page 82 and 83: WANT TO MAKE MONEY SLOWLY? TRY THES
Page 88 and 89: 8 C H A P T E R Want to Make Money
Page 90 and 91: WANT TO MAKE MONEY FAST? TRY THESE
Page 98 and 99: PART THREE FINDING STOCKS TO BUY AN
Page 100 and 101: 9 C H A P T E R It’s Really Funda
Page 102 and 103: IT’S REALLY FUNDAMENTAL: INTRODUC
Page 108 and 109: 10 C H A P T E R Fundamental Analys
Page 110 and 111: FUNDAMENTAL ANALYSIS: TOOLS AND TAC
Page 118 and 119: 11 C H A P T E R Let’s Get Techni
Page 120 and 121: LET’S GET TECHNICAL: INTRODUCTION
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LET’S GET TECHNICAL: INTRODUCTION
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12 C H A P T E R Technical Analysis
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TECHNICAL ANALYSIS: TOOLS AND TACTI
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13 C H A P T E R The Psychology of
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THE PSYCHOLOGY OF STOCKS: INTRODUCT
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THE PSYCHOLOGY OF STOCKS: INTRODUCT
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PART FOUR UNCOMMON ADVICE Copyright
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14 C H A P T E R What Makes Stocks
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WHAT MAKES STOCKS GO UP OR DOWN 151
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15 C H A P T E R Why Investors Lose
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WHY INVESTORS LOSE MONEY 159 Mistak
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WHY INVESTORS LOSE MONEY 161 nies w
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WHY INVESTORS LOSE MONEY 163 Mistak
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WHY INVESTORS LOSE MONEY 165 bly wi
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WHY INVESTORS LOSE MONEY 167 2. Tra
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WHY INVESTORS LOSE MONEY 169 As wit
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16 C H A P T E R What I Really Thin
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WHAT I REALLY THINK ABOUT THE STOCK
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Index AAA bonds, 20-21 Advice, 164-
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INDEX 191 Environment, 149-155 defl
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INDEX 193 Mutual fund redemptions,
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INDEX 195 Specialists, 14, 62 Split
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About the Author Michael Sincere be
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