Ian & Stuart's Australian Mac: Not for Sale/Another.not.for.sale (Australia).iso/Dr. Doyle/Investment.faq

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From: [e-mail] (Christopher Lott)
Subject: misc.invest FAQ on general investment topics (part 1 of 5)
Message-ID: <[e-mail]>
Followup-To: misc.invest
Summary: Answers to frequently asked questions about investments.
         Should be read by anyone who wishes to post to misc.invest.
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Archive-name: investment-faq/general/part1
Version: $Id: faq-p1,v 1.18 1994/09/02 13:16:16 lott Exp lott $
Compiler: Christopher Lott, [e-mail]

This is the table of contents for the general misc.invest FAQ,
and is the first part of a 5-part posting.

Articles in this FAQ discuss issues pertaining to money and
investment instruments, specifically stocks, bonds, options, life
life insurance, etc.  Subjects more appropriate to misc.consumers
(e.g., low-fee credit cards) are not included here.  For extensive
information on mutual funds, see the mutual fund FAQ, which is
maintained by [e-mail].

Compilation copyright (c) 1994 by Christopher Lott.  Use and copying
of this information, distribution of the information on electronic
media, and preparation of derivative works based upon this information
are permitted, so long as the following conditions are met:
    + No fees or compensation are charged for this information,
      excluding charges for the media used to distribute it.
    + Proper attribution is given to the authors of individual articles.
    + This copyright notice is included intact.

Disclaimers:  This information is made available AS IS, and no
warranty is made about its quality or correctness.  Rules, regulations,
laws, conditions, rates, and such information discussed in this FAQ
all change quite rapidly.  Information given here was current at the
time of writing but is almost guaranteed to be out of date by the time
you read it.  Mention of a product does not constitute an endorsement.
Answers to questions sometimes rely on information given in other
answers.  Readers outside the USA can reach US-800 telephone numbers,
for a charge, using a service such as MCI's Call USA.  All prices are
listed in US dollars unless otherwise specified.

Availability of the FAQ:
    via news:
        posted monthly to unmoderated groups: misc.invest,misc.invest.stocks
                            moderated groups: misc.answers,news.answers
    via the World-Wide Web:
        http://www.cis.ohio-state.edu/hypertext/faq/usenet\
                /investment-faq/general/top.html
    via anonymous ftp:
        site: rtfm.mit.edu
        path: /pub/usenet/news.answers/investment-faq/general/*
    via mail:
    address: [e-mail]
    required msg body: send usenet/news.answers/investment-faq/general/*

Please send comments and new submissions to the compiler.

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TABLE OF CONTENTS

    Internet Sources for Investment Information
    Other Sources for Investment Information
    Advertisement in the misc.invest.* groups
    American Depository Receipts (ADR)
    Annual Reports
    Beginning Investor's Advice
    Beta
    Bonds
    Book-to-Bill Ratio
    Books About Investing (especially stocks)
    Bull and Bear Lore
    Buying and Selling Stock Without a Broker
    Circuit Breakers on NYSE
    Computing the Rate of Return on Monthly Investments
    Computing Compound Return
    Dave Rhodes and Other Chain Letters
    Derivatives
    Discount Brokers
    Dividends on Stock and Mutual Funds
    Dollar Cost and Value Averaging
    Dollar Bill Presidents
    Dramatic Stock Price Increases and Decreases
    Direct Investing and DRIPS
    Electronic Trading
    Exchange Phone Numbers
    Federal Reserve and Interest Rates
    Free Information
    Future and Present Value of Money
    Getting Rich Quickly
    Charles Givens
    Goodwill
    Hedging
    Instinet
    Investment Associations (AAII and NAIC)
    Initial Public Offering (IPO)
    Investment Jargon
    Life Insurance
    Money-Supply Measures M1, M2, and M3
    Market Makers and Specialists
    NASD Public Disclosure Hotline
    One-Letter Ticker Symbols
    One-Line Wisdom
    Option Symbols
    Options on Stocks
    P/E Ratio
    Pink Sheet Stocks
    Portfolio-Tracking Software
    Renting vs. Buying a Home
    Retirement Plan - 401(k)
    Retirement Plan - IRA
    Retirement Plan - SEP-IRA
    Round Lots of Shares
    Savings Bonds (from US Treasury)
    Securities and Exchange Commission (U.S.)
    Shorting Stocks
    SIPC, or How to Survive a Bankrupt Broker
    Software Archives for Investment-Related Programs
    Stock Basics
    Stock Index Types
    Stock Index - The Dow
    Stock Indexes - Others
    Stock Splits
    Technical Analysis
    Ticker Tape Terminology
    Treasury Debt Instruments
    Treasury Direct
    Uniform Gifts to Minors Act (UGMA)
    Warrants
    Wash Sale Rule (from U.S. IRS)
    Zero-Coupon Bonds

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Subject: Internet Sources for Investment Information
Last-Revised: 17 Aug 1994
From: [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

The following sites offer access via the Internet to investment information
of all kinds, including but not limited to historical price data, current
equity quotes, company addresses and phone numbers, and newsletters.  Some
are free, some are not.  References to a ``URL'' mean that the information
is provided by a World-Wide Web server.  To access these servers, you will
need a browser such as Mosaic, Cello, or Lynx; conventional routes like ftp,
telnet, or e-mail will not work.

    + Security APL offers free 15-minute delayed stock quotes on their WWW
      server.  Use the document URL http://www.secapl.com/secapl/Welcome.html

    + QuoteCom offers financial market data via the net and e-mail.  Anyone
      can get up to 5 free quotes per day simply by registering; paid services
      include portfolio tracking, S&P reports, and more.  Use the document
      URL http://www.quote.com/ or send e-mail to [e-mail]

    + Ticker.Com provides end-of-day quotes for up to 30 stocks, options, or
      mutual funds on the US and Canadian markets for an annual fee of $50.
      Subscribers can retrieve 60-day histories of any stock or mutual fund
      as often as they wish.  All information is sent and received via e-mail.
      Send e-mail to [e-mail] for more information.

    + NETworth offers free quotations on mutual funds via their WWW server.
      Use the URL http://networth.galt.com/

    + Martin Wong's QUOTESERVER.  Summary of stock market activity updated
      at approximately 21:45 EST with the current day's closing information
      for the market and about 200 individual issues.  Available by e-mail
      by contacting [e-mail] - but see the next entry.

    + Experimental Stock Market Data - a page that provides a link to data
      and charts based on the most recent closing information from the stock
      markets.  Use the document URL http://www.ai.mit.edu/stocks.html

    + Current exchange rates for major currencies and a wealth of other data
      that is downloaded from the U.S. Department of Commerce's Economic
      Bulletin Board is available from the University of Michigan.  Use either
      anonymous ftp to host una.hh.lib.umich.edu, directory /ebb/indicators,
      or use the document URL gopher://una.hh.lib.umich.edu/11/ebb

    + Addresses and phone numbers for about 8,500 companies may be requested,
      one at a time, by sending e-mail to [e-mail] using the
      subject line "conamadph tkr please".  Note that the quotes are NOT part
      of the line, tkr means the ticker symbol of the company, everything is
      lower case, the please is required, and the body of the msg is ignored.
      If the company is not in this database, the return msg will be empty.

    + Ed Savage ([e-mail]) collects equity data.  Stated
      purpose: "To collect publicly available market data in one place so
      people can FTP it easily."  Donate *freely redistributable* data or
      access same via anonymous ftp to host name dg-rtp.dg.com.  Use the
      document URL ftp://dg-rtp.dg.com/pub/misc.invest for more information
      on formats, content, etc.  This is NOT a real-time or 15-min delay
      quote server.  It does have a limited number of close-of-day quotes.

    + The Electronic Data Gathering and Data Retrieval (EDGAR) Project offers
      access to a number of documents (10-K, 10-Q, etc.) which companies file
      with the US Securities and Exchange Commission (SEC).  Send e-mail to
      [e-mail], use anonymous ftp to the host
      town.hall.org, or access the WWW servers http://www.town.hall.org and
      http://edgar.stern.nyu.edu/EDGAR.html

    + The Global Network Navigator, a service of O'Reilly and Associates,
      maintains a personal finance center for users of the World-Wide Web.
      Use the document URL http://nearnet.gnn.com/gnn/meta/finance/index.html

    + A collection of links to investment and tax information is available at
      URL http://www.cs.cmu.edu:8001/afs/cs.cmu.edu/user/jdg/www/invest.html

    + The company A2I Communications offers access to some data by telnet-ing
      to the site bolero.rahul.net and logging in under user guest.

    + Information about some European markets is available via the document
      URL http://www.wiwi.uni-frankfurt.de/AG/JWGI/JWGI2hom.html

    + Dow Jones News Retrieval is on the Internet - see next article.

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Subject: Other Sources for Investment Information
Last-Revised: 19 Jul 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail]

The following organzations, primarily commercial enterprises, offer
historical price data, current equity quotes, newsletters, and other
information for a fee.  Access is primarily via phone lines and a
modem.  Also included here are BBS's run by the US Government.

    + Prodigy.  US$15/month for basic service includes 15 minute delayed
      quotes on stocks at NO additional charge.  Additional US$15/month for
      historical data download service (flat fee).  Available via local
      dial-up all over the US.  Contact them at 800-PRO-DIGY.

    + Compuserve.  US$8.95/month for basic service includes 15-min delayed
      quotes on stocks and options and access to (mutual) Fund Watch Online.
      Historical quotes are available for about US$.05 each.  Available via
      local dial-up all over the US.
      Contact them at 800-848-8990 or [phone].

    + GEnie.  US$8.95/month includes 4 free hours; subsequent hours are $3.
      Has daily closing quotes. Genie Professional service (price not given)
      gives historical quotes, stock reports, different investment s/w, access
      to Charles Schwab and online trading.  Contact them at 800-638-9636.

    + Farpoint. ($4 or $8/week for an IBM-compatible diskette) provides
      daily high, low, close, and volume for for approximately 6000 stocks.
      They offer historical data from 1 July 89 to present.  Write to
      Farpoint, 3412 Milwaukee Avenue, Suite 477, Northbrook, Illinois 60062.
      Also see the listing for the Farpoint BBS below.

    + inGenius.  Broadcasts stock quotes and news via cable TV in the US.
      Decoder costs $150 and provides 9600-baud serial-line output. Tier 1
      service is $60/year and includes quotes 3x/day and news stories.
      Tier 2 service costs $22/month and adds 15-min delayed quotes and
      investment blurbs.  Ftp a UNIX Xpress-reader from ftp.acns.nwu.edu
      in directory pub/xpress.  Beware that your local cable rep. may not
      know that the cable co. offers it!  Contact inGenius at 800-7PC-NEWS.

    + Worden Brothers TeleChart 2000.  PC software costs $29.  Historical
      data costs 1/2-cent/day for minimum 300 days, 1/4-cent thereafter,
      and includes high, low, close, and volume.  Offers data from about 1988
      for every listed and OTC issue and many indexes.  Toll-free number for
      downloading data at 14.4K baud.  Contact them at 800-776-4940.

    + Dow Jones News Retrieval.  Stock, bond, mutual, index quotes as well
      as news articles on companies, and misc. analysis packages.  US $30
      per month flat rate for the after hours service (8pm-5am local time).
      Available via dialup over Tymnet and SprintNet; available via Internet.
      Contact them at 800-522-3567 or [phone].

    + InterTrade provides historical quotes for stocks, funds, and indices
      on all three major US markets on floppy disks.  One year of data for
      a block of 500 stocks/funds/indices costs $20.  Subscriptions available.
      Contact them at [phone] or 72066,[e-mail].

    + The American Association of Individual Investors (AAII) sells a package
      on floppy disk issued quarterly with financial info (balance sheets,
      company summary, stock summary, income statement data) on many issues.
      Only $99/year if you are a member. Contact them at [phone].

    + Standard & Poor's Compustat (most complete and most expensive).
      Contact them at ............

    + Disclosure's "Compact Disclosure" on CD (only $6,000 a year).
      Contact them at ............

    + Value Line's Database
      Contact them at ............

Bulletin Boards for historical stock information include:
    + The Farpoint BBS offers a free source of historical stock data
      (about 3 years worth).  They give you 120 minutes of free time
      daily and have historical data files on hundreds of stocks.
      Phone number is [phone].

    + The Business Center BBS in San Diego carries historical data on
      most issues on the NYSE, NASDAQ, and AMEX.   TBC also provides free
      15-minute delayed quotes on over 12,000 symbols, mutual funds, and
      indexes.  It is free but limits on-line time to 20 minutes.
      Phone number is [phone].

    + FinComm BBS.  "The Online Magazine Of Wall Street Computing."
      Individual daily quotes available for free.  US$50/year buys a premium
      account that offers unlimited access to historical stock data.
      Phone number is [phone].

    + Stock Data.  $10/month for daily market data via modem, $30-$45
      per month for weekly update via diskette.  Historical data back to
      1987 at $1/day.  Phone number is [phone].

Government-run bulletin boards include:
    + Bureau of the Census, [phone]

    + Bureau of Economic Analysis, [phone]
      Business and industry information; economic analysis;
      agricultural reports.

    + Energy Information Administration, [phone]
      Petroleum production, reserve and consumption reports.

    + Department of Commerce, [phone]
      Economic Bulletin Board, [phone]
      Latest economic reports.

    + Department of Labor, [phone]
      Labor news, employment, producer prices, CPI.

    + Federal Reserve Bank of St. Louis, [phone]
      Historical monetary and economic data.

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Subject: Advertisement in the misc.invest.* groups
Last-Revised: 2 Sep 1994
From: [e-mail], [e-mail]

I find unsolicited advertisements to be the obnoxious junk mail of the
net.  I feel about them much the same as I do about the people who
interrupt my dinner or wake me at 6 AM (it's happened!) with phone
calls requesting money for this or that cause.  But there is an
additional concern I have for the longer term.  What is the long-term
consequence of the commercialization of the net?  If the ads begin to
swamp the traditional users you will not only lose a lot of those
users (who will tune out), but you run the risk of inviting
governmental regulation.  All it takes is a few novices to get
snookered by slick scams on the net and call the police, go running to
the SEC, call their congressman, etc., to get the idea of rampant net
fraud on the front page of your morning paper.  And there is nothing
your local congressman would rather do than come riding in on a white
horse to save us from this evil.  Censorship and the limitation of
access can happen a lot quicker than some might think.  After all, the
internet was created by government funding, and the US backbone is
still supported by Uncle Sam.  I'm already reading in the papers about
the explosive growth of traffic on the net, and I am not eager to
hasten the day when the ever-brightening public spotlight brings the
regulation which inevitably follows.  Most of the usenet traffic is
still friendly "What does anyone know about X?" and "Here's what I
know about X!" kind of communication, but as the volume of readers
expands it attracts the commercial vultures who will gladly use this
"free" medium to search for a quick buck.  It may be that those of us
who flame the occasional unsolicited commercial posts are simply
trying to hold back an inevitable flood, but that won't keep us from
trying.

What can you do about it?  First, you can reply to the poster
directly to express your distaste and disgust at his/her shameless
use of the net for his/her personal monetary profit.  Be polite but
direct.  I don't recommend mail-bombing (sending hundreds if not
thousands of messages) because that's just stooping to their level.
Second, when you reply, be sure to use the CC: field to direct a
carbon copy to the system administrator; one of the addresses root or
postmaster should work.   E.g., you can complain to the administrator
of site "big.company.com" by sending mail to "[e-mail]" or
or to "[e-mail]".  Readers of misc.invest report
that major service providers such as AOL, Delphi, and Sprint, where an
unfortunate number of junk articles seem to originate, have started to
listen to complaints about their misguided users and have in some
cases responded by canceling the article, the user, or both.  Take a
stand and write some mail.  It won't even cost you a stamp.  Let your
voice be heard.  Usenet is a self-policed state of anarchy, and if its
users complain loudly, consistenly, and clearly about the advertisers,
then I think there's hope.

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Subject: American Depository Receipts (ADR)
Last-Revised: 11 Dec 1992
From: [e-mail]

An American Depository Receipt is a share of stock of an investment in
shares of a non-US corporation.

For example, BigCitibank might purchase 25 million shares of a non-US
stock. Call it EuroGlom Corporation (EGC).  Perhaps EGC trades on the
Paris exchange, where BigCitibank bought them.  BigCitibank would then
register with the SEC and offer for sale shares of EGC ADRs.

EGC ADRs are valued in dollars, and BigCitibank could apply to the
NYSE to list them.  In effect, they are repackaged EGC shares, backed
by EGC shares owned by BigCitibank, and they would then trade like any
other stock on the NYSE.

BigCitibank would take a management fee for their efforts, and the
number of EGC shares  represented by EGC ADRs would effectively
decrease, so the price would go down a slight amount;  or EGC itself
might pay BigCitibank their fee in return for helping to establish a
US market for EGC.  Naturally, currency fluctuations will affect the
US Dollar price of the ADR.

Dividends paid by EGC are received by BigCitibank and distributed
proportionally to EGC ADR holders.  If EGC withholds (foreign) tax on
the dividends before this distribution, then BigCitibank will withhold
a proportional amount before distributing the dividend to ADR holders,
and will report on a Form 1099-Div both the gross dividend and the
amount of foreign tax withheld.

Most of the time the foreign nation permits US holders (BigCitibank in
this case) to vote their shares on all or most issues, and ADR holders
will receive ballots which will be received by BigCitibank and voted in
proportion to ADR Shareholder's vote.  I don't know if BigCitibank has
the option of voting shares which ADR holders failed to vote.

Having said this, however, for the most part ADRs look and feel pretty
much like any other stock.

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Subject: Annual Reports
Last-Revised: 28 Jun 1994
From: [e-mail]

The July 1994 Issue of "Better Investing" magazine, page 26 has a three-page
article about reading and understanding company annual reports.  I will
paraphrase:

1.  Start with the notes and read from back to front since the front is
    management fluff.

2.  Look for litigation that could obliterate equity, a pension plan in
    sad shape, or accounting changes that inflated earnings

3.  Use it to evaluate management. I only read the boring things of the
    companies I am holding for _long term_ growth.  If I am planning
    a quick in & out, such as buying depressed stocks like BBA, CML, CLE,
    etc.),  I don't waste my time.

4.  Look for notes to offer relevant details; not "selected" and "certain"
    assets. Revenue & operating profits of operating divisions, geographical
    divisions, etc.

5.  How the company keeps its books, especially as compared to other
    companies in its industry.

6.  Inventory. Did it go down because of a different accounting method?

7.  What assets does the company own and what assets are leased?

If you do much of this, I really recommend just reading the article.

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Subject: Beginning Investor's Advice
Last-Revised: 16 Nov 1993
From: [e-mail], [e-mail]

Investing is just one aspect of personal finance.  People often seem to
have the itch to try their hand at investing before they get the rest
of their act together.  This is a big mistake.  For this reason, it's
a good idea for "new investors" to hit the library and read maybe read
three different overall guides to personal finance - three for different
perspectives, and because common themes will emerge (repetition implies
authority?).  Anyway, what I'm talking about are books like:

  Madigan and Kasoff, The First-Time Investor, ISBN 0-13-942376-1
  Andrew Tobias,
     [Still] the Only [Other] Investment Guide You Will Ever Need.
         (3 versions with slightly different titles, all very similar.)
  Sylvia Porter, New Money Book for the 80s
  Money Magazine, Money Guide

Another good source is the Mutual Fund Education Alliance (MFEA); write
them at MFEA, 1900 Erie Street, Suite 120, Kansas City, MO 64116.

What I am specifically NOT talking about is most anything that appears
on a list of investing/stock market books that are posted in misc.invest
from time to time.  You know, Market Logic, One Up on Wall Street,
Beating the Dow, Winning on Wall Street, The Intelligent Investor, etc.
These are not general enough. They are investment books, not personal
finance books.

Many "beginning investors" have no business investing in stocks.  The
books recommended above give good overall money management, budgeting,
purchasing, insurance, taxes, estate issues, and investing backgrounds
from which to build a personal framework.  Only after that should one
explore particular investments.  If someone needs to unload some cash
in the meantime, they should put it in a money market fund, or yes,
even a bank account, until they complete their basic training.

While I sympathize with those who view this education as a daunting
task, I don't see any better answer.  People who know next to nothing
and always depend on "professional advisors" to hand-hold them through
all transactions are simply sheep asking to be fleeced (they may not
actually be fleeced, but most of them will at least get their tails
bobbed).  In the long run, you are the only person ultimately responsible
for your own financial situation.

All beginners should read the article about Charles Givens in this FAQ.
Advanced beginners should also check the recommended list of books
about stocks and other investments that also appears in this FAQ.

-----------------------------------------------------------------------------

Subject: Beta
Last-Revised: 11 Dec 1992
From: [e-mail],[e-mail],[e-mail]

Beta is the sensitivity of a stock's returns to the returns on some market
index (e.g., S&P 500). Beta values can be roughly characterized as follows:

b < 0        Negative beta is possible but not likely.  People thought gold
        stocks should have negative betas but that hasn't been true

b = 0        Cash under your mattress, assuming no inflation

0 < b < 1    Dull investments (e.g., utility stocks)

b = 1        Matching the index (e.g., for the S&P 500, an index fund)

b > 1        Anything more volatile than the index (e.g., small cap. funds)

b -> infinity    Impossible, because the stock would be expected to go to zero
        on any market decline.  2-3 is probably as high as you will get

More interesting is the idea that securities MAY have different betas in
up and down markets.  Forbes used to (and may still) rate mutual funds
for bull and bear market performance.

Here is an example showing the inner details of the beta calculation process:

Suppose we collected end-of-the-month prices and any dividends for a
stock and the S&P 500 index for 61 months (0..60).  We need n + 1 price
observations to calculate n holding period returns, so since we would
like to index the returns as 1..60, the prices are indexed 0..60.
Also, professional beta services use monthly data over a five year period.

Now, calculate monthly holding period returns using the prices and
dividends. For example, the return for month 2 will be calculated as:
             r_2 = ( p_2 - p_1 + d_2 ) / p_1

Here r denotes return, p denotes price, and d denotes dividend.  The
following table of monthly data may help in visualizing the process.
Monthly data is preferred in the profession because investors' horizons
are said to be monthly.
    ===========================================
      #     Date   Price   Dividend(*)   Return
    ===========================================
      0  12/31/86  45.20         0.00        --
      1  01/31/87  47.00         0.00    0.0398
      2  02/28/87  46.75         0.30    0.0011
      .       ...    ...          ...       ...
     59  11/30/91  46.75         0.30    0.0011
     60  12/31/91  48.00         0.00    0.0267
    ===========================================
(*) Dividend refers to the dividend paid during the period.  They are
    assumed to be paid on the date.  For example, the dividend of 0.30
    could have been paid between 02/01/87 and 02/28/87, but is assumed
    to be paid on 02/28/87.

So now we'll have a series of 60 returns on the stock and the index
(1...61).  Plot the returns on a graph and fit the best-fit line
(visually or using some least squares process):

                      |         *   /
               stock  |  *    *  */ *
               returns|    *  * /      *
                      |   *   /    *
                      | *   /*  *     *
                      |   /  *  *
                      | /    *
                      |
                      |
                      +------------------------- index returns

The slope of the line is Beta.  Merrill Lynch, Wells Fargo, and others
use a very similar process (they differ in which index they use and in
some econometric nuances).

Now what does Beta mean?  A lot of disservice has been done to Beta in
the popular press because of trying to simplify the concept.  A beta of
1.5 does *not* mean that is the market goes up by 10 points, the stock
will go up by 15 points.  It even *doesn't* mean that if the market has
a return (over some period, say a month) of 2%, the stock will have a
return of 3%.  To understand Beta, look at the equation of the line we
just fitted:

     stock return = alpha + beta * index return

Technically speaking, alpha is the intercept in the estimation model.
It is expected to be equal to risk-free rate times (1 - beta).  But it
is best ignored by most people.  In another (very similar equation) the
intercept, which is also called alpha, is a measure of superior performance.

Therefore, by computing the derivative, we can write:
     Change in stock return = beta * change in index return

So, truly and technically speaking, if the market return is 2% above its
mean, the stock return would be 3% above its mean, if the stock beta is 1.5.

One shot at interpreting beta is the following.  On a day the (S&P-type)
market index goes up by 1%, a stock with beta of 1.5 will go up by 1.5% +
epsilon. Thus it won't go up by exactly 1.5%, but by something different.

The good thing is that the epsilon values for different stocks are
guaranteed to be uncorrelated with each other.  Hence in a diversified
portfolio, you can expect all the epsilons (of different stocks) to
cancel out.  Thus if you hold a diversified portfolio, the beta of a
stock characterizes that stock's response to fluctuations in the market
portfolio.

So in a diversified portfolio, the beta of stock X is a good summary of
its risk properties with respect to the "systematic risk", which is
fluctuations in the market index.  A stock with high beta responds
strongly to variations in the market, and a stock with low beta is
relatively insensitive to variations in the market.

E.g. if you had a portfolio of beta 1.2, and decided to add a stock
with beta 1.5, then you know that you are slightly increasing the
riskiness (and average return) of your portfolio.  This conclusion is
reached by merely comparing two numbers (1.2 and 1.5).  That parsimony
of computation is the major contribution of the notion of "beta".
Conversely if you got cold feet about the variability of your beta = 1.2
portfolio, you could augment it with a few companies with beta less than 1.

If you had wished to figure such conclusions without the notion of
beta, you would have had to deal with large covariance matrices and
nontrivial computations.

Finally, a reference.  See Malkiel, _A Random Walk Down Wall Street_, for
more information on beta as an estimate of risk.

-----------------------------------------------------------------------------

Subject: Bonds
Last-Revised: 7 Jan 1993
From: [e-mail]

Bonds are debt instruments.   Let's say a corporation needs to build
a new office building, or needs to purchase manufacturing equipment,
or needs to purchase aircraft, they will have to raise money.

One way is to arrange for banks or others to lend them money. But a
generally less expensive way is to issue (sell) bonds.  The corporation
will agree to pay dividends on these bonds and at some time in the
future to redeem these bonds.

In the U.S., corporate bonds are often issued in units of $1,000.
When municipalities issue bonds, they are usually in units of $5,000.
Dividends are usually paid every 6 months.

Bondholders are not owners of the corporation.  But if the corporation
gets in financial trouble and needs to dissolve, bondholders must be
paid off in full before stockholders get anything.

If the corporation defaults on any bond payment, any bondholder can
go into bankruptcy court and request the corporation be placed in
bankruptcy.

The price of a bond is a function of prevailing interest rates (as
rates go up, the price of the bond goes down, and vice versa) as
well as the risk perceived for the debt of the particular
corporation.  For example, if the company is in bankruptcy, the
price of the bond will be low.

-----------------------------------------------------------------------------

Subject: Book-to-Bill Ratio
Last-Revised: 19 Aug 1993
From: [e-mail]

The book-to-bill ration is the ratio of business "booked" (orders
taken) to business "billed" (products shipped and bills sent).

A book-to-bill of 1.0 implies incoming business = ougoing product.
Often in downturns, the b-t-b drops to 0.9, sometimes even lower.
A b-t-b of 1.1 or higher is very encouraging.

-----------------------------------------------------------------------------

Subject: Books About Investing (especially stocks)
Last-Revised: 29 Jul 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail],
    [e-mail]

Books are organized alphabetically by author's last name.

Author            Title(s)
-----            --------
Peter Bernstein        Capital Ideas
Frank Cappielo        New Guide to Finding the Next Superstock
George S. Clason    The Richest Man in Babylon
Consumer's Union    Consumer Reports Money Book
Burton Crane        The Sophicated Investor
William Donoghue    No-Load Mutual Fund Guide
Dun & Bradstreet    Guide to Your Investments 1993
Louis Engel        How to Buy Stocks
Norman G. Fosback    Stock Market Logic
Gary Gastineau        The Stock Options Manual
Benjamin Graham        The Intelligent Investor, Security Analysis
C. Colburn Hardy    The Fact$ of Life
Jiler            How Charts Can Help You
Gerald M. Loeb        The Battle for Investment Survival
Peter Lynch        One Up on Wall Street
Burton Malkiel        A Random Walk Down Wall Street
Lawrence McMillan    Options as a Strategic Investment
Sylvia Porter        New Money Book for the 80s
Pring            Technical Analysis Explained
Claude Rosenberg    Stock Market Primer
L. Louis Rukeyser    How to Make Money in the Stock Market
Terry Savage        New Money Strategies for the 1990's
Charles Schwab        How to be Your Own Stockbroker
John A. Straley        What About Mutual Funds
Andrew Tobias        [Still] Only [other] Investment Guide You'll Ever Need
                (3 books, very similar titles)
John Train        Money Masters, New Money Masters
Venita Van Caspel    Money Dynamics for the 1990s
Richard Wurman et al.    Wall Strt Jrnl Guide to Understanding Money & Markets
Martin Zweig        Winning on Wall Street

-----------------------------------------------------------------------------

Subject: Bull and Bear Lore
Last-Revised: 29 Jul 1994
From: [e-mail], [e-mail]

This information is paraphrased from _The Wall Street Journal Guide to
Understanding Money & Markets_ by Wurman, Siegel, and Morris, 1990.

One common myth is that the terms "bull market" and "bear market" are
derived from the way those animals attack a foe, because bears attack
by swiping their paws downward and bulls toss their horns upward.
This is a useful mnemonic, but is not the true origin of the terms.

Long ago, "bear skin jobbers" were known for selling bear skins that
they did not own; i.e., the bears had not yet been caught.  This was
the original source of the term "bear."  This term eventually was used
to describe short sellers, speculators who sold shares that they did
not own, bought after a price drop, and then delivered the shares.

Because bull and bear baiting were once popular sports, "bulls" was
understood as the opposite of "bears."  I.e., the bulls were those
people who bought in the expectation that a stock price would rise,
not fall.

In addition, the cartoonist Thomas Nast played a role in popularizing
the symbols 'Bull' and 'Bear'.

-----------------------------------------------------------------------------

Subject: Buying and Selling Stock Without a Broker
Last-Revised: 27 Sep 1993
From: [e-mail], [e-mail]

Yes, you can buy/sell stock from/to a friend, relative or acquaintance
without going through a broker.  Call the company, talk to their investor
relations person, and ask who the Transfer Agent for the stock is.  The
Transfer Agent is the person who accomplishes the transfer, i.e., by
issuing new certificates with the buyer's name on them. The transfer
agent is paid by the company to issue new certificates, and to keep
track of who owns the company's stock.  The name of the Transfer Agent
is probably printed on your stock certificates, but it might have changed,
so it is best to call and check.

The back of the certificate contains a stock power, i.e., those words
that say you want the shares to be transferred.  Fill out the transferee
portion with the desired name, address, and tax id number to be registered.
Sign the stock power exactly as the certificate is registered: joint
tenancy will require signatures from all the people listed, stock that
was issued in maiden name must be signed as such, etc.  In addition to
signing, you must get your signature(s) guaranteed.  The signature
guarantee is an obscure ritual.  It is similar to a notary public, but
different.  The people who can provide a signature guarantee are banks
and stock brokers who are members of an exchange.  Now, your stock
broker might not be too happy to see you and help you when you are
trying to avoid paying a commission, so I suggest you get the guarantee
from your bank.  It's very easy.  Someone at the bank checks your
signature card to see if your signature looks right and then applies
a little rubber stamp.  Also, if you have the time, have the transferee
fill out a W-9 form to avoid any TEFRA withholding.  W-9 forms are
available from any bank or broker.

Then send it all to the transfer agent.  The agent will usually recommend
sending securities registered mail and insuring for 2% of the total value.
For safety, many people send the endorsement in a separate envelope from
the stock certificate, rather than using the back of the stock certificate
(if you do this, include a note that says so.)  SEC regulations require
transfer agents to comply with a 3 business day turn-around time for 90%
of the stock transfers received in good standing.  In a few days, the buyer
gets a stock certificate in the mail.  Poof!

There is no law requiring you to use a broker to buy or sell stock, except
in certain very special circumstances, such as restricted stock, or
unregistered stock.  As long as the stock being sold has been registered
with the SEC (and all stock sold on the exchanges, NASDAQ, etc. has been
registered by the company), then the public can buy and sell it at will.
If you go out and create yourself a corporation (Brooklyn Bridge Inc),
do not register your stock with the SEC, and then start selling stock in
your company to a bunch of individuals, advertising it, etc, then you can
easily violate many SEC regulations designed to protect the unsuspecting
public.  But this is very different than selling the ordinary registered
stuff.  If you own stock in a company that was issued prior to the time
the company went public, depending on a variety of conditions in the SEC
regulations, that stock may be restricted, and restricted stock requires
some special procedures when it is sold.

In brief:  I do not believe that the guy who offers to sell people 1 share
of Disney stock is violating any rules.  Just for full disclosure: I'm not
a lawyer.

-----------------------------------------------------------------------------

Subject: Circuit Breakers on NYSE
Last-Revised: 1 Apr 1994
From: [e-mail], [e-mail],
    [e-mail]

Because program trading has been blamed for the fast crash of 1987,
circuit breakers were put in place in 1989 to cut off the big boy's
computer connections whenever the market moves up or down by more
than a large number of points in a trading day.  The idea is that
this will limit the daily damage.  These are the provisions:

Trigger            Action
-------            ------
DJIA +/- 50        Program trading curbs in effect; a key computer
            is turned off, so program trading must be done
            "by hand".  Curbs are removed when the DJIA
            retraces it's gain/loss to the +/- 25 level.

S&P 500 futures +/- 12    "Side car" rule (suspends trading of S&P 500
            futures contract for one half hour); this
            effectively stops program trading.

DJIA +/- 250        NYSE halts trading for one hour.

DJIA +/- 350        NYSE halts trading for the rest of the day.

The circuit breakers cut off the automated program trading initiated
by the big brokerage houses.  The big boys have their computers directly
connected to the trading floor on the stock exchanges, and hence can
program their computers to place direct huge buy/sell orders that are
executed in a blink.  This automated connection allows them to short-cut
the individual investors who must go thru the brokers and the specialists
on the stock exchange.

Statistical evidence suggests that about 2/3 of the Mar-Apr 1994 down
slide is caused by the program traders trying to lock in their profits
before all hell breaks loose.  The volume of their trades and their
very action may have accelerated the slide.  The new game in town is
how to outfox the circuit breakers and buy or sell quickly before the
50-point move triggers the halting of the automated trading and shuts
off the computer.

-----------------------------------------------------------------------------

Subject: Computing the Rate of Return on Monthly Investments
Last-Revised: 31 Aug 1994
From: [e-mail]

Q: Assume $X is invested at the beginning of the year into some mutual
   fund or like account, with $Y added to the account every month.
   Now, down the road, if the value at any given month "i" is Vi, what
   conclusions can be drawn from it ?

The relevant formula is F = P(1+i)**n - p((1+i)**n - 1)/i where F is the
future value of your investment (i.e., the value after n periods), P is
the present value of your investment (i.e., the amount of money you invest
initially), p is the payment each period (p is negative if you are adding
money to your account and positive if you are taking money out of your
account), n is the number of periods you are interested in, and i is the
interest rate per period.  You cannot manipulate this formula to get a
formula for i; you have to use some sort of iterative method or buy a
financial calculator.

One thing to keep in mind is that i is the interest rate *per period*.
You may need to compound the rate to obtain a number you can compare
apples-to-apples with other rates.  For instance, a 1 year CD paying
12% interest is not as good an investment as an investment paying 1%
per month for a year.  If you put $1000 into each, you'll have $1120
in the CD at the end of the year but $1000*(1.01)**12 = $1126.82 in
the other investment due to compounding.  I always convert interest
rates of any kind into a "simple 1-year CD equivalent" for the purposes
of comparison.

A program 'irr' which helps calculate this is discussed in the article
"Software Archive."

-----------------------------------------------------------------------------

Subject: Computing Compound Return
Last-Revised: 22 Jan 1993
From: [e-mail], [e-mail]

To calculate the compounded return, just figure out the factor by which
the investment multiplied.  Say $1000 went to $3200 in 10 years.
Take the 10th root of 3.2 (the multiplying factor) and you get a
compounded return of 1.1233498 (12.3% per year).  To see that this works,
note that 1.1233498**10 = 3.2.

Another way of saying the same thing:  In my calculation, I assume all
the gains are reinvested so following formula applies:
    TR = (1 + AR) ** YR
where TR is total return, AR is annualized return, and YR is year. To
calculate annualized return otherwise, following formula applies:
    AR = (10 ** (Log TR/ YR)) - 1
Thus a total return of 950% in 20 years would be equivalent of 11.914454%
annualized return.

-----------------------------------------------------------------------------

Subject: Dave Rhodes and Other Chain Letters
Last-Revised: 30 Sep 1993
From: [e-mail], [e-mail]

Please do NOT post the "Dave Rhodes" or any other chain letter,
pyramid scheme, or other scam to misc.invest.

Pyramid schemes are fraud.  It's simple mathematics.  You can't
realistically base a business on an exponentially-growing cast of
new "employees."  Sending money through the mails as part of a
fraudulent scheme is against US Postal regulations.  Notice that
it's not the *asking* that is illegal, but rather the delivery of
money through the US mail that the USPS cares about.  But fraud is
illegal, no matter how the money is delivered, and asking that
delivery use the US Mail just makes for a double whammy.

Note that when someone posts this nonsense with their name and home
address attached, it's fairly simple for a postal inspector to trace
the offender down.

Although the "Dave Rhodes" letter has been appearing almost
weekly in misc.invest, and it's getting pretty old, it's mildly
interesting to see how this scam mutates as it passes through
various bulletin boards and newsgroups.  Sometimes our friend
Dave went broke in 1985, sometimes as recently as 1988.  Sometimes
he's now driving a mercedes, sometimes a cadillac, etc., etc.
The scam just keeps getting updated to keep up with the times.

-----------------------------------------------------------------------------

Subject: Derivatives
Last-Revised: 28 Feb 1994
From: [e-mail], [e-mail]

A derivative is a financial instrument that does not constitute ownership,
but a promise to convey ownership.  The most simple example is a call
option on a stock.  In the case of a call option, the risk is that the
person who writes the call (sells it and assumes the risk) may not be
in business to live up to their promise when the time comes.  In
standarized options sold through the Options Clearing House, there are
supposed to be sufficient safeguards for the small investor against this.

What really concerns regulators is the fact that big banks swap all kinds
of promises all the time, like interest rate swaps, froward currency swaps,
options on futures, etc.  They try to balance all these promises (hedging),
but there is the big danger that one big player will go bankrupt and leave
lots of people holding worthless promises.  Such a collapse could cascade,
as more and more speculators (banks) cannot meet their obligations because
they were counting on the defaulted contract to protect them from losses.

All of this is done off the books, so there is no total on how much
exposure each bank has under a specific scenario.  Some of the more
complicated derivatives try to simulate a specific event by tracking it
with other events (that will *usually* go in the same or the opposite
direction).  Examples are buying Japan stocks to protect against a loss in
the US.  However, if the *usual* correlation changes, big losses can be
the result.

The big danger with the big banks is that while they can use derivitives
to hedge risk, they can also use them as a way of taking ON risk.  Not
that risk is bad.  Risk is how a bank makes money; for example, issuing
loans is a risk.  However, banks are forbidden from taking on risk with
derivatives.  It's just too easy for a bank to hedge bonds with derivitives
that don't have the same maturity, same underlying security, etc. so the
correlation between the hedge and the risky position is weak.

-----------------------------------------------------------------------------

Subject: Discount Brokers
Last-Revised: 1 Sep 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

A discount broker offers an execution service for a wide variety of
trades.  In other words, you tell them to buy, sell, short, or
whatever, they do exactly what you requested, and nothing more.
Their service is primarily a way to save money for people who are
looking out for themselves and who do not require or desire any advice
or hand-holding about their forays into the markets.

However, discount brokering is a highly competitive business.  As a
result, many of the discount brokers provide virtually *all* the
services of a full-service broker with the exception of giving you
unsolicited advice on what or when to buy or sell, but some do provide
monthly newsletters with recomendations.  Virtually all will execute
stock and option trades, including stop or limit orders and odd lots,
on the NYSE, AMEX, or NASDAQ.  Most can trade bonds and U.S. treasuries.
Most will *not* trade futures; talk to a futures broker.  Most have
margin accounts available.  Most will provide automatic sweep of
(non-margin) cash into a money market account, often with check-
writing capability.  All can hold your stock in "street-name", but
many can take and deliver stock certificates physically, sometimes for
a fee.  Some trade precious metals and can even deliver them!

Many can buy "no-load" mutual funds for a low (e.g. 0.5%) commission.
Increasingly, many even offer free mutual fund purchases through
arrangements with specific funds to pay the commission for you; ask
for their fund list.  Many will provide free 1-page Standard and
Poor's Stock reports on stocks you request and 5-10 page full research
reports for $5-$8, often by fax.  Some provide touch-tone telephone
stock quotes 24 hours / day.  Some can allow you to make trades this
way.  Fewer provide computer quotes and trading and others say "it's
coming".

All brokerages, their clearing agents, and *any* holding companies
they have which can be holding your assets in "street-name" had better
be insured with the S.I.P.C.  You're going to be paying an SEC "tax"
(e.g. about $3.00) on any trade you make *anywhere*, so make sure your
getting the benefit; if a broker goes bankrupt it's the *only* thing
that prevents a total loss.  Investigate thouroughly!

In general, you need to ask carefully about all the services above
that you may want, and find out what fees are associated with them (if
any).  Ask about fees to transfer assets out of your account, inactive
account fees, minimimums for interest on non-margin cash balances,
annual IRA custodial fees, per-transaction charges, and their margin
interest rate if applicable.  Some will credit your account for the
broker call rate on cash balances which can be applied toward
commission costs.

The firms can generally be divided into the following categories:

   1) "Full-Service Discount"
      Provides services almost indistinguishable from a full-service
      broker such as Merryl Lynch at about 1/2 the cost.  These
      provide local  branch offices for personal service, newsletters,
      a personal account representative, and gobs and gobs of literature.

   2) "Discount"
      Same as "Full-Service", but usually don't have local branch
      offices and as much literature or research departments.
      Commissions are about 1/3  the price of a full-service broker.

   3) "Deep Discount"
      Executes stock and option trades only; other services are minimal.
      Often these charge a flat fee (e.g. $25.00) for *any* trade of
      any size.

   4) Computer
      Same as "Deep Discount", but designed mainly for computer users.

   Examples:

   Full-Service Discount    Discount    Deep Discount    Computer
   -----------------------      ----------      -------------    ---------
      Fidelity            Lombard        Pacific        E-trade
      Olde            Bidwell        Scottsdale    Accutrade
      Ouick and Reilly        Waterhouse    National
      Charles Schwab        Aufhauser    Stock Mart
      Vanguard                        Stock Cross
                        Brown

The rest often fall somewhere between "Discount" and "Deep Discount" and
include many firms that cater to experienced high-volume traders with
high demands on quality of service.  Those are harder to categorize.
Here is a list of US discount brokers and phone numbers:

AccuTrade First National   800 762 5555
K. Aufhauser & Co.         800 368 3668
Brown & Co.                800 822 2829  operator 340
E-Trade                    800 786 2573  415 326 2700
Fidelity Brokerage         800 544 7272
Fleet Brokerage            800 221 8210
Kennedy, Cabot, & Co.      800 252 0090  213 550 0711
Lombard                    800 688 3462
Barry Murphy & Co.         800 221 2111
Olde Discount              800 USA OLDE
Pacific Brokerage Service  800 421 8395  213 939 1100
Andrew Peck Associates     800 221 5873  212 363 3770
Quick & Reilly             800 456 4049
Charles Schwab & Co.       800 442 5111
Muriel Siebert             800 872 0711
Scottsdale Securities      800 727 1995  818 440 9957
Stock Cross                800 225 6196  617 367 5700
The Stock Mart             800 421-6563
Vanguard Discount          800 662 SHIP
Waterhouse Securities      800 765 5185
Jack White & Co.           800 233 3411
York Securities            800 221 3154

Below are a number of tables to help you compare commissions at
various discount brokers, with dates to mark when the information was
obtained.  Although it appears that comissions are not that volatile,
this information is still highly dated.  These tables are for stocks
only, not bonds or other investments, and are sorted by the brokerage
house's name.  A perl script written by Dave Barret to calculate
comissions for a number of these brokerage houses is also available,
the output from which is shown next.  See also the article titled
"Software Archive" for more information about that script.

                               --- $2000 trades ---
          Firm    400@5   200@10   100@20    50@40    25@80 Date
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $  48.00 $  48.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $  37.49 $  27.49 $  27.49 $  27.49 $  27.49 Jul-94
       Bidwell $  41.25 $  31.25 $  27.25 $  25.25 $  23.25 Aug-94
         Brown $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $  63.50 $  63.50 $  54.00 $  54.00 $  54.00 Aug-94
         Fleet $  44.62 $  44.62 $  44.62 $  44.62 $  44.62 Aug-94
  Full Service $  88.37 $  70.51 $  53.70 $  52.13 $  51.34 Aug-94
 Kennedy Cabot $  33.00 $  33.00 $  33.00 $  23.00 $  23.00 Jul-94
       Lombard $  36.50 $  36.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $  32.29 $  26.04 $  25.00 $  25.00 $  25.00 Aug-94
  Barry Murphy $  41.00 $  34.00 $  31.50 $  30.75 $  28.88 Jul-94
      National $  33.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $  35.00 $  50.00 $  40.00 $  40.00 $  40.00 Aug-94
       Pacific $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $  72.00 $  56.00 $  48.00 $  44.00 $  42.00 Jul-94
  Quick Reilly $  50.00 $  50.00 $  49.00 $  49.00 $  49.00 Aug-94
         Regal $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $  64.00 $  64.00 $  55.00 $  55.00 $  55.00 Aug-94
    Scottsdale $  36.00 $  31.50 $  31.50 $  31.50 $  31.50 Jul-94
Muriel Siebert $  47.40 $  47.40 $  45.00 $  37.50 $  37.50 Jul-94
   Stock Cross $  59.00 $  42.00 $  33.50 $  29.25 $  27.12 Jul-94
   Stock Mart  $  34.10 $  30.00 $  30.50 $  30.00 $  30.00 Jul-94
      Vanguard $  57.00 $  57.00 $  48.00 $  40.00 $  40.00 Aug-94
    Waterhouse $  35.00 $  35.00 $  35.00 $  35.00 $  35.00 Aug-94
    Jack White $  45.00 $  39.00 $  36.00 $  34.50 $  33.75 Jul-94
          York $  41.00 $  37.00 $  35.00 $  34.00 $  33.50 Jul-94

                               --- $8000 trades ---
          Firm   1600@5   800@10   400@20   200@40   100@80 Date
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $  48.00 $  48.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $  95.50 $  61.50 $  37.49 $  27.49 $  27.49 Jul-94
       Bidwell $  79.25 $  55.25 $  45.25 $  37.25 $  29.25 Aug-94
         Brown $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $ 109.00 $ 102.70 $ 102.70 $ 102.70 $  54.00 Aug-94
         Fleet $  91.83 $  84.67 $  84.67 $  84.67 $  47.70 Aug-94
  Full Service $ 264.18 $ 208.04 $ 170.24 $ 151.34 $ 133.49 Aug-94
 Kennedy Cabot $  83.00 $  43.00 $  33.00 $  33.00 $  33.00 Jul-94
       Lombard $  36.50 $  36.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $ 104.70 $  83.52 $  69.41 $  62.35 $  58.82 Aug-94
  Barry Murphy $  83.00 $  55.00 $  45.00 $  42.00 $  34.50 Jul-94
      National $  33.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $  67.50 $  95.00 $  70.00 $  60.00 $  40.00 Aug-94
       Pacific $  31.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $ 120.00 $  92.00 $  72.00 $  56.00 $  48.00 Jul-94
  Quick Reilly $  79.00 $  79.00 $  79.00 $  79.00 $  49.00 Aug-94
         Regal $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $ 120.00 $ 103.20 $ 103.20 $ 103.20 $  55.00 Aug-94
    Scottsdale $  84.60 $  54.00 $  45.00 $  36.00 $  31.50 Jul-94
Muriel Siebert $  74.40 $  74.40 $  74.40 $  74.40 $  45.00 Jul-94
   Stock Cross $ 161.00 $  93.00 $  59.00 $  42.00 $  33.50 Jul-94
   Stock Mart  $  ??.?? $  79.35 $  73.27 $  65.82 $  40.00 Jul-94
      Vanguard $  82.00 $  82.00 $  82.00 $  82.00 $  48.00 Aug-94
    Waterhouse $  79.25 $  62.41 $  51.07 $  45.40 $  40.05 Aug-94
    Jack White $  81.00 $  57.00 $  45.00 $  39.00 $  36.00 Jul-94
          York $  65.00 $  49.00 $  41.00 $  37.00 $  35.00 Jul-94

                               --- $32000 trades ---
          Firm   6400@5  3200@10  1600@20   800@40   400@80 Date
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $ 192.00 $  96.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $ 194.50 $ 208.17 $ 110.50 $  61.50 $  37.49 Jul-94
       Bidwell $ 223.25 $ 127.25 $  84.25 $  70.25 $  53.25 Aug-94
         Brown $  93.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  73.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $ 301.00 $ 173.00 $ 169.90 $ 169.90 $ 169.90 Aug-94
         Fleet $ 288.75 $ 158.62 $ 158.62 $ 158.62 $ 158.62 Aug-94
  Full Service $ 806.61 $ 609.81 $ 511.41 $ 455.28 $ 368.00 Aug-94
 Kennedy Cabot $ 131.00 $  99.00 $  83.00 $  43.00 $  33.00 Jul-94
       Lombard $ 130.50 $  66.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $ 321.16 $ 245.87 $ 208.22 $ 187.05 $ 172.93 Aug-94
  Barry Murphy $ 251.00 $ 139.00 $  99.00 $  87.00 $  57.00 Jul-94
      National $  97.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $ 187.50 $ 215.00 $ 135.00 $ 115.00 $  90.00 Aug-94
       Pacific $  79.00 $  47.00 $  31.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $ 296.00 $ 168.00 $ 120.00 $  92.00 $  72.00 Jul-94
  Quick Reilly $ 222.00 $ 131.40 $ 131.40 $ 131.40 $ 131.40 Aug-94
         Regal $ 128.00 $  64.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $ 360.00 $ 200.00 $ 170.40 $ 170.40 $ 170.40 Aug-94
    Scottsdale $ 257.40 $ 142.20 $  93.60 $  63.00 $  45.00 Jul-94
Muriel Siebert $ 208.20 $ 124.20 $ 124.20 $ 124.20 $ 124.20 Jul-94
   Stock Cross $ 569.00 $ 297.00 $ 161.00 $  93.00 $  59.00 Jul-94
   Stock Mart  $  ??.?? $  ??.?? $  ??.?? $ 177.72 $ 160.00 Jul-94
      Vanguard $ 156.00 $ 156.00 $ 156.00 $ 156.00 $ 156.00 Aug-94
    Waterhouse $ 241.98 $ 182.94 $ 153.42 $ 136.58 $ 110.40 Aug-94
    Jack White $ 161.00 $  97.00 $  81.00 $  57.00 $  45.00 Jul-94
          York $ 161.00 $  97.00 $  65.00 $  49.00 $  41.00 Jul-94

-----------------------------------------------------------------------------

Subject: Dividends on Stock and Mutual Funds
Last-Revised: 22 Mar 1993
From: [e-mail]

A company may periodically declare cash and/or stock dividends.
This article deals with cash dividends on common stock.  Two
paragraphs also discuss dividends on Mutual Fund shares.  A
separate article elsewhere in this FAQ discusses stock splits
and stock dividends.

The Board of Directors of a company decides if it will declare a
dividend, how often it will declare it, and the dates associated
with the dividend.  Quarterly payment of dividends is very common,
annually or semiannually is less common, and many companies don't
pay dividends at all.  Other companies from time to time will
declare an extra or special dividend.  Mutual funds sometimes
declare a year-end dividend and maybe one or more other dividends.

If the Board declares a dividend, it will announce that the dividend
(of a set amount) will be paid to shareholders of record as of the
RECORD DATE and will be paid or distributed on the DISTRIBUTION
DATE (sometimes called the Payable Date).

In order to be a shareholder of record on the RECORD DATE you must
own the shares on that date (when the books close for that day).
Since virtually all stock trades by brokers on exchanges are
settled in 5 (business) days, you must buy the shares at least
5 days before the RECORD DATE in order to be the shareholder of
record on the RECORD DATE.  So the (RECORD DATE - 5 days) is the
day that the shareholder of record needs to own the stock to
collect the dividend.  He can sell it the very next day and still
get the dividend.

If you bought it at least 5 business days before the RECORD date
and still owned it at the end of the RECORD DATE, you get the
dividend.  (Even if you ask your broker to sell it the day after
the (RECORD DATE - 5 days), it will not have settled until after
the RECORD DATE so you will own it on the RECORD DATE.)

So someone who buys the stock on the (RECORD DATE - 4 days) does
not get the dividend. A stock paying a 50c quarterly dividend might
well be expected to trade for 50c less on that date, all things
being equal.  In other words, it trades for its previous price,
EXcept for the DIVidend.  So the (RECORD DATE - 4 days) is often
called the EX-DIV date.  In the financial listings, that is
indicated by an x.

How can you try to predict what the dividend will be before it is
declared?

Many companies declare regular dividends every quarter, so if you
look at the last dividend paid, you can guess the next dividend
will be the same.  Exception: when the Board of IBM, for example,
announces it can no longer guarantee to maintain the dividend, you
might well expect the dividend to drop, drastically, next quarter.
The financial listings in the newspapers show the expected annual
dividend, and other listings show the dividends declared by Boards
of directors the previous day, along with their dates.

Other companies declare less regular dividends,  so try to look at
how well the company seems to be doing.   Companies whose shares
trade as ADRs (American Depository Receipts -- see article elsewhere
in this FAQ) are very dependent on currency market fluctuations, so
will pay differing amounts from time to time.

Some companies may be temporarily prohibited from paying dividends
on their common stock, usually because they have missed payments on
their bonds and/or preferred stock.

On the DISTRIBUTION DATE shareholders of record on the RECORD date
will get the dividend.  If you own the shares yourself, the company
will mail you a check.  If you participate in a DRIP (Dividend
ReInvestment Plan, see article on DRIPs elsewhere in this FAQ) and
elect to reinvest the dividend, you will have the dividend credited
to your DRIP account and purchase shares, and if your stock is held
by your broker for you, the broker will receive the dividend from
the company and credit it to your account.

Dividends on preferred stock work very much like common stock,
except they are much more predictable.

Tax implications:

Some Mutual Funds may delay paying their year-end dividend until
early January.  However, the IRS requires that those dividends be
constructively paid at the end of the previous year.  So in these
cases, you might find that a dividend paid in January was included
in the previous year's 1099-DIV.

Sometime before January 31 of the next year, whoever paid the
dividend will send you and the IRS a Form 1099-DIV to help you
report this dividend income to the IRS.

Sometimes -- often with Mutual Funds -- a portion of the dividend
might be treated as a non-taxable distribution or as a capital gains
distribution.  The 1099-DIV will list the Gross Dividends (in line 1a)
and will also list any non-taxable and capital gains distributions.
Enter the Gross Dividends (line 1a) on Schedule B.

Subtract the non-taxable distributions as shown on Schedule B
and decrease your cost basis in that stock by the amount of
non-taxable distributions (but not below a cost basis of zero --
you can deduct non-taxable distributions only while the running
cost basis is positive.)     Deduct the capital gains distributions
as shown on Schedule B, and then add them back in on Schedule D if
you file Schedule D, else on the front of Form 1040.

-----------------------------------------------------------------------------

Subject: Dollar Cost and Value Averaging
Last-Revised: 11 Dec 1992
From: [e-mail]

Dollar Cost Averaging purchases a fixed dollar amount each transaction
(usually monthly via a mutual fund).  When the fund declines, you
purchase slightly more shares, and slightly less on increases.  It
turns out that you lower your average cost slightly, assuming the
fund fluctuates up and down.

Value Averaging adjusts the amount invested, up or down, to meet a
prescribed target.  An example should clarify:  Suppose you are going
to invest $200 per month and at the end of the first month, your $200
has shrunk to $190.  Then you add in $210 the next month, bringing the
value to $400 (2*$200). Similarly, if the fund is worth $430 at the
end of the second month, you only put in $170 to bring it up to the
$600 target. What happens is that compared to dollar cost averaging,
you put in more when prices are down, and less when prices are up.

Dollar Cost Averaging takes advantage of the non-linearity of the 1/x
curve (for those of you who are more mathematically inclined).  Value
Averaging just goes in a little deeper when the value is down (which
implies that prices are down) and in a little less when value is up.
An article in the American Association of Individual Investors showed
via computer simulation that value averaging would outperform dollar-
cost averaging about 95% of the time. "Outperform" is a rather vague
term.  As best as I remember, whatever the percentage gain of dollar-
cost averaging versus buying 100% initially, value averaging would
produce another 2 percent or so.

Warning: Neither approach will bail you out of a declining market nor
get you in on a bull market.

-----------------------------------------------------------------------------

Subject: Dollar Bill Presidents
Last-Revised: 28 Apr 1994
From: [e-mail], [e-mail], [e-mail]

US Currency:
           Portrait        Embellishment on back
       --------        ---------------------
      $1 - George Washington    Great Seal of U.S.
      $2 - Thomas Jefferson    Signers of the Declaration
      $5 - Abraham Lincoln    Lincoln Memorial
     $10 - Alexander Hamilton    U.S. Treasury
     $20 - Andrew Jackson    White House
     $50 - Ulysses S. Grant    U.S. Capitol
    $100 - Benjamin Franklin    Independence Hall
    $500 - William McKinley    Ornate demominational marking
  $1,000 - Grover Cleveland    Ornate demominational marking
  $5,000 - James Madison    Ornate demominational marking
 $10,000 - Salmon P. Chase    Ornate demominational marking
$100,000 - Woodrow Wilson    Ornate demominational marking


U.S Tresury instruments:
           Savings Bond - Treas. Bills  - Treas. Bonds - Treas. Notes
           ------------   ------------    ------------   ------------
         $50 - Washington   -               - Jefferson
         $75 - Adams        -
        $100 - Jefferson    -               - Jackson
        $200 - Madison      -
        $500 - Hamilton     -               - Washington
      $1,000 - Franklin     - H. McCulloch  - Lincoln      - Lincoln
      $5,000 - Revere       - J.G. Carlisie - Monroe       - Monroe
     $10,000 - Wilson       - J. Sherman    - Cleveland    - Cleveland
     $50,000 -              - C. Glass
    $100,000 -              - A. Gallatin   - Grant        - Grant
  $1,000,000 -              - O. Wolcott    - T. Roosevelt - T. Roosevelt
$100,000,000 -              -                              - McKinley

-----------------------------------------------------------------------------

Subject: Dramatic Stock Price Increases and Decreases
Last-Revised: 12 Jan 1994
From: [e-mail], [e-mail]

One frequently asked question is "Why did &my_stock go [down][up] by
&large_amount in the past &short_time?"

The purpose of this answer is not to discourage you from asking this
question in misc.invest, although if you ask without having done any
homework, you may receive a gentle barb or two.  Rather, one purpose
is to inform you that you may not get an answer because in many cases
no one knows.

Stocks often lurch upward and downward by sizable amounts with no
apparent reason, sometimes with no fundamental change in the underlying
company.  If this happens to your stock and you can find no reason,
you should merely use this event to alert you to watch the stock more
closely for a month or two.  The zig (or zag) may have meaning, or it
may have merely been a burp.

A related question is whether stock XYZ, which used to trade at 40 and
just dropped to 25, is good buy.  The answer is, possibly.  Buying
stocks just because they look "cheap" isn't generally a good idea.
All too often they look cheaper later on.  (IBM looked "cheap" at 80
in 1991 after it declined from 140 or so.  The stock finally bottomed
in the 40's. Amgen slid from 78 to the low 30's in about 6 months,
looking "cheap" along the way.)  Technical analysis principles suggest
to wait for XYZ to demonstrate that it has quit going down and is
showing some sign of strength, perhaps purchasing in the 28 range.
If you are expecting a return to 40, you can give up a few points
initially.  If your fundamental analysis shows 25 to be an undervalued
price, you might enter in.  Rarely do stocks have a big decline and a
big move back up in the space of a few days.  You will almost surely
have time to wait and see if the market agrees with your valuation
before you purchase.

-----------------------------------------------------------------------------

Subject: Direct Investing and DRIPS
Last-Revised: 9 Nov 1993
From: [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail]

DRIPS offer an easy, low-cost way for buying stocks.  Various companies
(lists are available through NAIC and some brokerages) allow you to
purchase shares directly from the company and thereby avoid brokerage
commissions.  However, you must purchase the first share through a
broker, NAIC, or other conventional means. In all cases, that first
share must be registered in your name, not in street name.  (A practical
restriction here is that for some common kinds of accounts like IRAs
and Keoghs, you can't participate in a DRIP since the stock has to be
held by the custodian.)  Once you have that first share, additional
shares can be purchased through the DRIP either through dividend
reinvestments or directly by sending in a check. Thus the two names
for DRIP: Dividend/Direct Re-Investment Plan.  The periodic purchase
also allows you to automatically dollar-cost-average the purchase of
the stock.

A handful of companies sell their stock directly to the public without
going through an exchange or broker even for the first share.  These
companies are all exchange listed as well, and tend to be utilities.

Money Magazine from Nov (or Dec) 92 reports that the brokerage house
A.G. Edwards has a special commission rate for purchases of single
shares.  They charge a flat 16% of the share price.  However,
contributors to this FAQ report that some (all?) of the AGE offices
provide this service only for current account holders.

Published material on DRIPS:
 + _Guide to Dividend Reinvestment Plans_
   Lists over a one hundred companies that offer DRIP's.  The number
   given for the company is 800-443-6900; the cost is $9.00 (charge to CC)
   and they will send you the DRIPs booklet and a copy of a newsletter
   called the Money Paper.

 + _Low cost/No cost investing_ (author forgotten)
   Lists about 300-400 companies that offer DRIPs.

 + _Buying Stocks Without a Broker_ by Charles B. Carlson.
   Lists 900 companies/closed end funds that offer DRIPS.  Included is a
   profile of the company and some plan specifics.  These are: if partial
   reinvestment of dividends are allowed, discounts on stock purchased
   with dividends, optional cash payment amount and frequency, fees,
   approximate number of shareholders in the plan.

 [ Compiler's note:  It seems to me that a listing of the hundreds or
   more companies that offer DRIPS belongs in its own FAQ, and I will not
   reprint other people's copyrighted lists.  Please don't send me lists
   of companies that offer DRIPS. ]

-----------------------------------------------------------------------------

Subject: Electronic Trading
Last-Revised: 5 Jul 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

Here's how to avoid ever speaking to a broker ever again!  The following
companies offer an electronic communications path for requesting trades
on the equities and options markets.  The primary motivation for using
one of these services is lowering commissions; a second is that the
services are usually accessible 24 hours a day.  A computer, modem, and
appropriate software are required.  While some services support access
with a conventional telecommunications package, others require you to
buy special software from them for the task.  Some of the services have
toll-free numbers or local access numbers to save on telephone charges.
Primary source: Baie Netzer, ``Information highway: brokers rev up'',
International Herald Tribune, 14 May 1994.

Company:    Fidelity
Service name:    Fidelity On-line Xpress (FOX)
Software:     $40 (available from Fidelity)
Platforms:    ?
Service fees:    ?
Comm'n disc't:    10%
Features:    Trade stocks and mutual funds, obtain quotes.
Contact:    any Fidelity office or 800 544 7272

Company:    Pacific Brokerage Services (PBS)
Service name:    PBS-Online
Software:     any telecomm package
Platforms:    any
Service fees:    $50 startup, $0.25/minute
Comm'n disc't:    ?
Features:    trades, ?
Contact:    800 421 8395, [phone]

Company:    Quick & Reilly
Service name:    Quick Way
Software:     any telecomm package
Platforms:    any
Service fees:    none
Comm'n disc't:    none
Features:    trades, ?
Contact:    any Q&R office or 800 456 4049

Company:    Charles Schwab
Service name:    Equalizer (DOS), Street Smart (Windows)
Software:     SS costs $69 (free if US$15K moved to Schwab by Aug 94)
Platforms:    IBM + compatible; Mac version expected by Fall 1994
Service fees:    $8/month
Comm'n disc't:    10%
Features:    Trades, account information, quotes, reports on 5,000 companies
Contact:    any Schwab office or 800 635 7020

Company:    E-Trade**
Service name:    E-Trade
Software:     any telecomm package
Platforms:    any
Service fees:    $0.27/minute, 12 minutes credit with each trade
Comm'n disc't:    ?
Features:    Trades, options, etc.
Contact:    800 STOCKS 5 (800 786 2575), [phone]

** Disclaimer: This company is regularly discussed in the misc.invest.*
   newsgroups, and it seems only fair to warn readers at this point that
   while a few people praise the company, many criticize it unmercifully.
   Some tell horror stories of poor service and money lost.  The compiler
   of this FAQ cannot verify those stories, good or bad, has absolutely no
   experience with the company, and wishes to state clearly that your
   mileage will definitely vary.

[ Any others? ]

-----------------------------------------------------------------------------

Subject: Exchange Phone Numbers
Last-Revised: 13 Aug 1993
From: [e-mail]

If you wish to know the telephone number for a specific company that is
listed on a stock exchange, call the exchange and request to be connected
with their "listings" or "research" department.

AMEX    [phone]
ASE     [phone]
MSE     [phone]
NASDAQ  [phone]/8039
NYSE    [phone]
TSE     [phone]
VSE     [phone]/643-6500

-----------------------------------------------------------------------------

Subject: Federal Reserve and Interest Rates
Last-Revised: 8 May 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail]

This article discusses the interest rates which are managed or
influenced by the US Federal Reserve Bank, a collective term for
the collection of Federal Reserve Banks across the country.

The Discount Rate is the interest rate charged by the Federal Reserve
when banks borrow "overnight" from the Fed.  The discount rate is
under the direct control of the Fed.  The discount rate is always
lower than the Federal Funds Rate (see below).  Generally only large
banks borrow directly from the Fed, and thus get the benefit of being
able to borrow at the lower discount rate.  As of May 1994, the
discount rate was at 3.00%.

The Federal Funds Rate is the interest rate charged by banks when
banks borrow "overnight" from each other.  The funds rate fluctuates
according to supply and demand and is not under the direct control of
the Fed, but is strongly influenced by the Fed's actions.  As of May
1994, the target funds rate is 3.75%; the actual rate varies above and
below that figure.  Fed actions in 1&2Q94 have focused on this rate.

The Fed adjusts the funds rate via "open market operations".  What
actually happens is that the Fed sells US treasury securities to
banks.  As a result, the bank reserves at the Fed drop.  Given that
banks have to maintain at the Fed a certain level of required reserves
based on their demand deposits (checking accounts), they end up
borrowing more from each other to cover their short position at the
Fed.  The resulting pressure on intrabank lending funds drives the
funds rate up.

The Fed has no idea of how many billions of US treasuries it needs to
sell in order for the funds rate to reach the Fed's target.  It goes
by trial and error.  That's why it takes a few days for the funds rate
to adjust to the new target following an announcement.

Adjustments in the discount rate usually lag behind changes in the
funds rate.  Once the spread between the two rates gets too large
(meaning fat profits for the big banks which routinely borrow from the
Fed at the discount rate and lend to smaller banks at the funds rate)
the Fed moves to adjust the discount rate accordingly.  It usually
happens when the spread reaches about 1%.

Another interest rate of significant interest is the Prime Rate,
the interest that a bank charges its "best" customers.  There is no
single prime rate, but the commercial banks generally offer the same
prime rate.  The Fed does not adjust a bank's prime rate directly,
but indirectly.  The change in discount rates will affect the prime
rate.

For an in-depth look at the Federal Reserve, read _Secrets of the temple:
how the Federal Reserve runs the country_, by William Greider.

-----------------------------------------------------------------------------

Subject: Free Information
Last-Revised: 14 May 1994
From: [e-mail]

Here are some secrets from the self-proclaimed "King of Cheap/Free
Information".

1.  Local Companies:  Look in your local newspapers for information
and stories about the companies in your immediate area.  I have found
that our local papers carry some great articles about our local
companies long before the WSJ or other papers pick up on them.  The
local papers tend to report very minute details that the "big" papers
never report.  The local paper that I get covers insider buys/sells,
IPOs etc., management changes, detailed earnings reports, analyst
opinions, you name it.

2.  Stocks on Call: A free, fax-back service with lots of stories
about companies.  The information is biased because it is paid for by
the listing companies, but it is free, so you get what you pay for.
The list has been growing very rapidly, and they company drops the
information after it has been listed for 24-72 hours, so it pays to
call often.  Some articles are only posted for one day.  It takes me
about 5 minutes to get the 10 or so articles I want. They used to
publish a list in the papers, but the list is too long to do that now.
Once you have the list then you can call and get 3 stories per call
sent directly to your fax.  It is all handled by computer (usually).
You can call back and get 3 stories per call for free.  I have gotten
some great tips here - nice, fast-growing, small companies (and
some F-500s too).  Although Stocks on Calls is automatically provided
with your number (a feature of 800 service), they state that they will
not give your number away to third parties.  Contact them at
800-578-7888.

3.  Pro-Info: A second free, fax-back service, different from Stocks
on Call (see above).  This service places information into a computer
so you can access it at any time and it is always available.  Pro-Info
has such things as Investor Packages, Latest Earnings Reports, news
releases and analysts reports.  They cover about 100 companies and the
list is growing.  The quality of the faxes is not great because
Pro-Info apparently scans the pages into the computer Contact them at
800-PRO-INFO (800-776-4636).

4.  Stock Charts: I get at least one copy of Investor's Business Daily
per week.  The Friday edition is particularly great.  IBD is available
in most areas at newsstands, bookstores, etc.  IBD is a good newspaper
for its charts.

5.  Archive Information: For historical information, I save one copy
of Barron's or WSJ or IBD each month.  If I see a company that I am
suddenly interested in then I can just open up those old editions and
get some pretty good historical data.  IBD is great for this.

6.  An Important Edition of Wall St. Journal: I think it is imperative
to get a copy of the WSJ that covers the year in review.  This edition
comes out usually on the first business day of the new year.  It
contains a lot of information about how each stock has performed
during that last year, including the % movement of the stock during
the past year.  I get two copies of this paper because I get so much
out of them (one for work, one for home).

7.  SEC on Internet: This is the place where you can obtain Securities
and Exchange files (10-Ks, 10-Qs, you name it) on companies that file
electronically with the SEC.  See the entry for information on the
Internet, elsewhere in this FAQ.

8.  Archive list for ticker symbols and other information:  Available
by anonymous ftp to host dg-rtp.rtp.dg.com in the directory
deliver/savage/misc-invest/misc.info.  The file is ticker-symbols.Z
and is dated July 30, 1993.  (See also the entry for information on
the Internet, elsewhere in this FAQ.)

9.  Writing Letters: If you are interested in a company then by all
means get their address and write them a letter.  If you have a
non-discount broker then they can get you the company's address.
Otherwise go to virtually any library and they will be able to help
you find the addresses you are interested in.  When you write to a
company, tell them you are interested in investing in them and you
want to learn more about them.  Ask for 10Ks, annual reports, 10Qs,
quarterly summaries, analyst reports and anything else they can send
you.  Some companies will bury you with information if you just ask.
Ask them to add your name to their mailing list for future
information.  Many companies maintain active mailing lists and so the
information will keep flowing to you.  All this for only a stamp.

10.  Public Registers Annual Report Service: This is a outfit that
acts as a clearing house for mailing out annual reports on companies.
They have a huge list (several thousand) companies that they work for,
and they are a free service.  They also send out a newspaper called
the "Security Traders Handbook" and "The Public Register".  These
newspapers contains wealth of information on earnings, IPOs, insider
trades etc.  The price on the cover says $5.00, but I have received
several issues and have never received a bill (I wouldn't pay anyway).
You have to write to them to get on their mailing list.  The address
is: Bay Tact Corporation; 440 Route 198; Woodstock Valley, CT 06282.
Write them a letter and ask them what services they provide.  They
send out annual reports, but they do not carry analysts reports and
other news release type items.  Try calling them at 800 4ANNUAL.

11.  Reader Service Cards in Investor's Daily or other Places: Another
reason I like to get the Friday edition of IBD is because they usually
have a bunch of companies hyping themselves and offering information
if you send in a reader service card.  This is another great almost
freebie.  For a stamp you can usually find at least 3-5 companies that
are worth finding out about.

-----------------------------------------------------------------------------

Subject: Future and Present Value of Money
Last-Revised: 28 Jan 1994
From: [e-mail]

This note explains briefly two concepts concerning the time-value-of-money,
namely future and present value.

* Future value is simply the sum to which a dollar amount invested today
will grow given some appreciation rate.  The formula for future value
is the formula from Case 1 of present value (below), but solved for the
future-sum rather than the present value.

    To compute the future value of a sum invested today, the formula for
    interest that is compounded monthly is:
    fv = principal * (1 + rrate/12) ** (12 * termy)
    where
        principal = dollar value you have now
        termy     = term, in years
        rrate     = annual rate of return in decimal (i.e., use .05 for 5%)

    For interest that is compounded annually, use the formula:
    fv = principal * (1 + rrate) ** (termy)

    Example:
    I invest 1,000 today at 10% for 10 years compounded monthly.
    The future value of this amount is 2707.04.

* Present value is the value in today's dollars assigned to an amount of
money in the future, based on some estimate rate-of-return over the long-term.
In this analysis, rate-of-return is calculated based on monthly compounding.

Two cases of present value are discussed next.  Case 1 involves a single
sum that stays invested over time.  Case 2 involves a cash stream that is
paid regularly over time (e.g., rent payments), and requires that you also
calculate the effects of inflation.

Case 1a: Present value of money invested over time.  This tells you what a
         future sum is worth today, given some rate of return over the time
         between now and the future.  Another way to read this is that you
         must invest the present value today at the rate-of-return to have
         some future sum in some years from now (but this only considers the
         raw dollars, not the purchasing power).

         To compute the present value of an invested sum, the formula for
         interest that is compounded monthly is:
                  future-sum
     pv =  ----------------------------------
           (1 + rrate/12) ** (12 * termy)
     where
         future-sum = dollar value you want in termy years
         termy = term, in years
         rrate = annual rate of return that you can expect, in decimal

     Example:
         I need to have 10,000 in 5 years.  The present value of 10,000
         assuming an 8% monthly compounded rate-of-return is 6712.10.
         I.e., 6712 will grow to 10k in 5 years at 8%.

Case 1b: This formulation can also be used to estimate the effects of
     inflation; i.e., compute real purchasing power of present and
     future sums.  Simply use an estimated rate of inflation instead
     of a rate of return for the rrate variable in the equation.

     Example:
         In 30 years I will receive 1,000,000 (a gigabuck).  What is
         that amount of money worth today (what is the buying power),
         assuming a rate of inflation of 4.5%?  The answer is 259,895.65

Case 2:  Present value of a cash stream.  This tells you the cost in
     today's dollars of money that you pay over time.  Usually the
     payments that you make increase over the term.  Basically, the
     money you pay in 10 years is worth less than that which you pay
     tomorrow, and this equation lets you compute just how much.

     In this analysis, inflation is compounded yearly.  A reasonable
     estimate for long-term inflation is 4.5%, but inflation has
     historically varied tremendously by country and time period.

     To compute the present value of a cash stream, the formula is:
          month = 12*termy   paymt  * (1 + irate) ** int ((month - 1)/ 12)
     pv = SUM                ---------------------------------------------
          month = 1               (1 + rrate/12) ** (month - 1)
     where
         month = month number
         termy = term, in years
         paymt = monthly payment, in dollars
         irate = rate of inflation (increase in payment/year), in decimal
         rrate = rate of return on money that you can expect, in decimal
         int() function = keep integral part; compute yr nr from mo nr

     Example:
         You pay $500/month in rent over 10 years and estimate that
         inflation is 4.5% over the period (your payment increases with
         inflation.)  Present value is 49,530.57

Two small C programs for computing future and present value are available.
See the article "Software Archive" for more information.

-----------------------------------------------------------------------------

Subject: Getting Rich Quickly
Last-Revised: 18 Jul 1993
From: [e-mail]

Take this with a lot of :-) 's.

Legal methods:
  1. Marry someone who is already rich.
  2. Have a rich person die and will you their money.
  3. Strike oil.
  4. Discover gold.
  5. Win the lottery.

Illegal methods:
  6. Rob a bank.
  7. Blackmail someone who is rich.
  8. Kidnap someone who is rich and get a big ransom.
  9. Become a drug dealer.

For completeness sakes:
 10. "If you really want to make a lot of money, start your own religion."
                - L. Ron Hubbard

Hubbard made that statement when he was just a science fiction writer in
either the '30s or '40s.  He later founded the Church of Scientology.
I believe he also wrote Dianetics.

-----------------------------------------------------------------------------

Subject: Charles Givens
Last-Revised: 18 Nov 1993
From: [e-mail], [e-mail], [e-mail]

Charles J. Givens, born in 1941, is a self-styled investment guru who
regularly appears in info-mercials on late-night television to tell
the world about the fortunes he has made and lost, his free seminars
run by his associates, and the Charles J. Givens Organization.

Givens offers investment advice through his seminars and publications.
He has written several best-selling books:
    Wealth Without Risk (1988)
    Financial Self-Defense (1990)
    More Wealth Without Risk (1991)

Membership in his organization is offered for about $400 up front and
subsequent dues of $80 a year.  According to reference (2), a member
of his organization receives printed materials, videotapes, and audio
tapes which describe financial strategies.  The organization publishes
a monthly newsletter.  Telephone advice is also offered to members.

His advice is generally simplistic and sometimes contradictory.  All
examples are taken from Wealth Without Risk, as cited in Reference (4).
Simplistic:    number 210, don't buy bonds when interest rates are rising.
Contradictory:  number 206, do not put your money in vacant land;
        number 245, invest your IRA or Keogh money in vacant land.

Givens offers some helpful advice but contrary to the titles of his books,
his ideas can be extremely risky.  For example, some of his suggestions
about insurance, especially dropping uninsured motorist coverage from
one's automobile insurance, may leave people underinsured and vulnerable
in case of an accident unless they are very careful about reading their
policies and asking hard questions.  He also makes aggressive inter-
pretations of tax law, interpretations which might get one in trouble
with the IRS.  Prospective followers of Givens must, absolutely must,
read about recent successful lawsuits against Givens as well as his
criminal convictions and other disclosures about him and his organization.
See below for exact references.  In conclusion: his advice is simply
not appropriate for everyone.

References:

(1) _Smart Money_, August 1993.

(2) The Wall Street Journal, ``Pitching Dreams,'' 08/05/91, Page A1.

(3) The Wall Street Journal, ``Enterprise: Proliferating Get-Rich Shows
    Scrutinized,'' 04/19/90, Page B1.

(4) The Wall Street Journal, ``Double or Nothing,'' 02/15/90, Page A12.

(5) The Wall Street Journal, `` Tax Report: A Special Summary and Forecast
    Of Federal and State Tax Developments,'' 11/01/89.

-----------------------------------------------------------------------------

Subject: Goodwill
Last-Revised: 18 Jul 1993
From: [e-mail]

Goodwill is an asset that is created when one company acquires another.
It represents the difference between the price the acquiror pays and
the "fair market value" of the acquired company's assets.  For example,
if JerryCo bought Ford Motor for $15 billion, and the accountants
determined that Ford's assets (plant and equipment) were worth $13
billion, $2 billion of the purchase price would be allocated to goodwill
on the balance sheet.  In theory the goodwill is the value of the
acquired company over and above the hard assets, and it is usually
thought to represent the value of the acquired company's "franchise,"
that is, the loyalty of its customers, the expertise of its employees;
namely, the intangible factors that make people do business with the
company.

What is the effect on book value?  Well, book value usually tries to
measure the liquidation value of a company -- what you could sell it
for in a hurry.  The accountants look only at the fair market value of
the hard assets, thus goodwill is usually deducted from total assets
when book value is calculated.

For most companies in most industries, book value is next to meaningless,
because assets like plant and equipment are on the books at their old
historical costs, rather than current values.  But since it's an easy
number to calculate, and easy to understand, lots of investors (both
professional and amateur) use it in deciding when to buy and sell stocks.

-----------------------------------------------------------------------------

Subject: Hedging
Last-Revised: 11 Dec 1992
From: [e-mail]

Hedging is a way of reducing some of the risk involved in holding
an investment.  There are many different risks against which one can
hedge and many different methods of hedging.  When someone mentions
hedging, think of insurance.  A hedge is just a way of insuring an
investment against risk.

Consider a simple (perhaps the simplest) case.  Much of the risk in
holding any particular stock is market risk; i.e. if the market falls
sharply, chances are that any particular stock will fall too.  So if
you own a stock with good prospects but you think the stock market in
general is overpriced, you may be well advised to hedge your position.

There are many ways of hedging against market risk.  The simplest,
but most expensive method, is to buy a put option for the stock you own.
(It's most expensive because you're buying insurance not only against
market risk but against the risk of the specific security as well.)
You can buy a put option on the market (like an OEX put) which will
cover general market declines.  You can hedge by selling financial
futures (e.g. the S&P 500 futures).

In my opinion, the best (and cheapest) hedge is to sell short the
stock of a competitor to the company whose stock you hold.  For example,
if you like Microsoft and think they will eat Borland's lunch, buy MSFT
and short BORL. No matter which way the market as a whole goes, the
offsetting positions hedge away the market risk.  You make money as
long as you're right about the relative competitive positions of the
two companies, and it doesn't matter whether the market zooms or crashes.

-----------------------------------------------------------------------------

Subject: Instinet
Last-Revised: 11 May 1994
From: [e-mail],

Instinet is a professional stock trading system which is owned by
Reuters.  Institutions use the system to trade large blocks of shares
with each other without using the exchanges.  Commissions are slightly
negotiable but generally $1 per hundred shares.  Instinet also runs a
crossing network of the NYSE last sale at 6pm.  A "cross" is a trade
in which a buyer and seller interact directly with no assistance of a
market maker or specialist.  These buyer-seller pairs are commonly
matched up by a computer system such as Instinet.

-----------------------------------------------------------------------------

Subject: Investment Associations (AAII and NAIC)
Last-Revised: 30 Jul 1994
From: [e-mail], [e-mail], [e-mail]
    [e-mail], [e-mail] (Jay Hartley)

AAII:    American Association of Individual Investors
    625 North Michigan Avenue
    Chicago, IL 60611-3110
    [phone]

A summary from their brochure: AAII believes that individuals would
do better if they invest in "shadow" stocks which are not followed
by institutional investor and avoid affects of program trading.
They admit that most of their members are experienced investors with
substantial amounts to invest, but they do have programs for newer
investors also.  Basically, they don't manage the member's money,
they just provide information.

Membership costs $49 per year for an individual; with Computerized
Investing newsletter, $79.  A lifetime membership (including
Computerized Investing) costs $490.

They offer the AAII Journal 10 times a year, Individual Investor's guide
to No-Load Mutual Funds annually, local chapter membership (about 50
chapters), a year-end tax strategy guide, investment seminars and study
programs at extra cost (reduced for members), and a computer user'
newsletter for an extra $30.  They also operate a free BBS.

NAIC:    National Association of Investors Corp.
    711 West Thirteen Mile Road
    Madison Heights, MI 48071
    +1 810-583-NAIC

The NAIC is a nonprofit organization operated by and for the benefit
of member clubs.  The Association has been in existence since the 1950's
and has around 110,000 members.

Membership costs $32 per year for an individual, or $30 for a club and
$10.00 per each club member.  The membership provides the member with a
monthly newsletter, details of your membership and information on how to
start a investment club, how to analyze stocks, and how to keep records.

In addition to the information provided, NAIC operates "Low-Cost
Investment Plan", which allows members to invest in participating
companies such as AT&T, Kellogg, McDonald's, Mobil and Quaker Oats...
Most don't incur a commission although some have a nominal fee ($3-$5).

Of the 500 clubs surveyed in 1989, the average club had a compound
annual growth rate of 10.8% compared with 10.6% for the S&P 500 stock
index...It's average portfolio was worth $66,755.

-----------------------------------------------------------------------------

Subject: Initial Public Offering (IPO)
Last-Revised: 28 Sep 1993
From: [e-mail]

When a company whose stock is not publicly traded wants to offer
that stock to the general public, it usually asks an "underwriter"
to help it do this work.

The underwriter is almost always an investment banking company, and
the underwriter may put together a syndicate of several investment
banking companies and brokers.    The underwriter agrees to pay the
issuer a certain price for a minimum number of shares, and then must
resell those shares to buyers, often clients of the underwriting firm
or its commercial brokerage cousin.  Each member of the syndicate will
agree to resell a certain number of shares. The underwriters charge a
fee for their services.

For example, if BigGlom Corporation (BGC) wants to offer its privately-
held stock to the public, it may contact BigBankBrokers (BBB) to handle
the underwriting.   BGC and BBB may agree that 1 million shares of BGC
common will be offered to the public at $10 per share.   BBB's fee for
this service will be $0.60 per share, so that BGC receives $9,400,000.
BBB may ask several other firms to join in a syndicate and to help it
market these shares to the public.

A tentative date will be set, and a preliminary prospectus detailing
all sorts of financial and business information will be issued by the
issuer, usually with the underwriter's active assistance.

Usually, terms and conditions of the offer are subject to change up
until the issuer and underwriter agree to the final offer.  At that
point, the issuer releases the stock to the underwriter and the
underwriter releases the stock to the public.  It is now up to the
underwriter to make sure those shares get sold, or else the
underwriter is stuck with stock.

The issuer and the underwriting syndicate jointly determine the price
of a new issue.  The approximate price listed in the red herring (the
preliminary prospectus - often with words in red letters which say
this is preliminary and the price is not yet set) may or may not be
close to the final issue price.

Consider NetManage, NETM which started trading on NASDAQ on Tuesday,
21 Sep 1993.  The preliminary prospectus said they expected to release
the stock at $9-10 per share.  It was released at $16/share and traded
two days later at $26+.  In this case, there could have been sufficient
demand that both the issuer (who would like to set the price as high
as possible) and the underwriters (who receive a commission of perhaps
6%, but who also must resell the entire issue) agreed to issue at 16.
If it then jumped to 26 on or slightly after opening, both parties
underestimated demand.  This happens fairly often.

IPO Stock at the release price is usually not available to most of the
public.  You could certainly have asked your broker to buy you shares
of that stock at market at opening.  But it's not easy to get in on the
IPO.  You need a good relationship with a broker who belongs to the
syndicate and can actually get their hands on some of the IPO.  Usually
that means you need a large account and good business relationship with
that brokerage, and you have a broker who has enough influence to get
some of that IPO.

By the way, if you get a cold call from someone who has an IPO and wants
to make you rich, my advice is to hang up.   That's the sort of IPO that
gives IPOs a bad name.

Even if you that know a stock is to be released within a week, there is
no good way to monitor the release without calling the underwriters every
day.  The underwriters are trying to line up a few large customers to
resell the IPO to in advance of the offer, and that could go faster or
slower than predicted.  Once the IPO goes off, of course, it will start
trading and you can get in on the open market.

-----------------------------------------------------------------------------

Subject: Investment Jargon
Last-Revised: 29 Jul 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

Some common jargon is explained here briefly.  See other articles
in the faq for more detailed explanations on most of these terms.

bottom fishing:    purchasing of stock declining in value

broker:        The term was first used around 1622 to mean an agent in
        financial transactions.  Originally, it referred to wine
        retailers - those who broach (break) wine casks.

day order:    Order to buy/sell securities at a certain price that
        expires if not executed on the day it is placed.

elves index:    Louis Rukeyser's index of the opinions on the general stock
        market for the next 6 months.  He polls 10 analysts, the same
        ones every week, to ask what they think the general trend will
        be, namely bullish (+1), neutral (0), or bearish (-1).  The
        index range is -10 to +10.

going long:    Buying and holding stock

going short:    Selling stock short, i.e., borrowing and selling stock you
        do not own with the intention of buying it later for less.

GTC order:    Order to buy/sell securities at a certain price that is
        "Good Until Canceled", i.e., never expires.

overbought:     Judgemental adjective describing a market or stock implying
 [oversold]     That people have been wildly buying [selling] it and that
        there is very little chance of it moving upward [downward]
        in the near term.  Usually it applies to movement momentum
        rather than what the security should cost.

over valued, under valued, fairly valued: judgmental adjectives describing
        that a market or stock is over/under/fairly priced with
        respect to what people believe the security is really worth.

-----------------------------------------------------------------------------

Subject: Life Insurance
Last-Revised: 30 Mar 1994
From: [e-mail]

This is my standard reply to life insurance queries.  And, I think
many insurance agents will disagree with these comments.

First of all, decide WHY you want insurance.  Think of insurance as
income-protection, i.e., if the insured passes away, the beneficiary
receives the proceeds to offset that lost income.  With that comment
behind us, I would never buy insurance on kids, after all, they don't
have income and they don't work.  An agent might say to buy it on your
kids while its cheap - but run the numbers, the agent is usually
wrong, remember, agents are really salesmen/women and its in their
interest to sell you insurance.  Also - I am strongly against insurance
on kids on two counts.  One, you are placing a bet that you kid will
die and you are actually paying that bet in premiums.  I can't bet my
child will die.  Two, it sounds plausible, i.e., your kid will have a
nest egg when they grow up but factor inflation in - it doesn't look
so good.  A policy of face amount of $10,000, at 4.5% inflation and 30
years later is like having $2,670 in today's dollars - it's NOT a lot
of money.  So don't plan on it being worth much in the future to your
child as an investment.  In summary, skip insurance on your kids.

I also have some doubts about insurance as investments - it might be a
good idea but it certainly muddies the water.  Why not just buy your
insurance as one step and your investment as another step? - its a lot
simpler to keep them separate.

So by now you have decided you want insurance, i.e., to protect your
family against you passing away prematurely, i.e., the loss of income
you represent (your salary, commissions, etc.).

Next decide how LONG you want insurance for.  If you're around 60
years old, I doubt you want to get any at all.  Your income stream is
largely over and hopefully you have accumulated the assets you need
anyway by now.

If you are married and both work, its not clear you need insurance at
all if you pass on.  The spouse just keeps working UNLESS you need
both incomes to support your lifestyle (more common these days).
Then you should have one policy on each of you.

If you are single, its not clear you need life insurance at all.  You
are not supporting anyone so no one cares if you pass on, at least
financially.

If you are married and the spouse is not working, then the breadwinner
needs insurance UNLESS you are independently wealthy.  Some might argue
you should have insurance on your spouse, i.e., as homemaker, child
care provider and so forth.  In my oponion, I would get a SMALL policy
on the spouse, sufficient to cover the costs of burying them and also
sufficient to provide for child care for a few years or so.  Each case
is different but I would look for a small TERM policy on the order of
$50,000 or less.  Get the cheapest you can find, from anywhere.  It
should be quite cheap.  Skip any fancy policies - just go for term and
plan on keeping it until your child is own his/her own.  Then reduce
the insurance coverage on your spouse so it is sufficient to bury your
spouse.

If you are independently wealthy, you don't need insurance because you
already have the money you need.  You might want tax shelters and the
like but that is a very different topic.

Suppose you have a 1 year old child, the wife stays home and the
husband works.  In that case, you might want 2 types of insurance:
Whole life for the long haul, i.e., age 65, 70, etc., and Term until
your child is off on his/her own.  Once the child has left the stable,
your need for insurance goes down since your responsibilities have
diminished, i.e., fewer dependents, education finished, wedding
expenses done, etc

Mortgage insurance is popular but is it worthwhile? Generally not
because it is far too expensive.  Perhaps you want some sort of Term
during the duration of the mortgage - but remember that the mortgage
balance DECLINES over time.  But don't buy mortgage insurance itself -
much too expensive.  Include it in the overall analysis of what
insurance needs you might have.

What about flight insurance? Ignore it.  You are quite safe in
airplanes and flight insurance is incredibly expensive to buy.

Insurance through work? Many larger firms offer life insurance as part
of an overall benefits package.  They will typically provide a certain
amount of insurance for free and insurance beyond that minimum amount
is offered for a fee.  Although priced competitively, it may not be
wise to get more than the 'free' amount offered - why? Suppose you
develop a nasty health condition and then lose your job (and your
benefit-provided insurance)?  Trying to get reinsured elsewhere (with
a health condition) may be *very* expensive.  It is often wiser to have
your own insurance in place through your own efforts - this insurance
will stay with you and not the job.

Now, how much insurance?  One rule of thumb is 5x your annual income.
What agents will ask you is 'Will your spouse go back to work if you
pass away?' Many of us will think nobly and say NO.  But its actually
likely that your spouse will go back to work and good thing -
otherwise your insurance needs would be much larger.  After all, if
the spouse stays home, your insurance must be large enough to be
invested wisely to throw off enough return to live on.  Assume you
make $50,000 and the spouse doesn't work.  You pass on.  The Spouse
needs to replace a portion of your income (not all of it since you
won't be around to feed, wear clothes, drive an insured car, etc.).
Lets assume the Spouse needs $40,000 to live on.  Now that is BEFORE
taxes.  Lets say its $30,000 net to live on.  $30,000 is the annual
interest generated on a $600,000 tax-free investment at 5% per year
(e.g., munibonds).  So this means you need $600,000 of face value
insurance to protect your $50,000 current income.  These numbers will
vary, depending on interest rates at the time you do your analysis and
how much money you spouse will need, factoring in inflation.  But the
point is that you need at least another $600,000 of insurance to fund
if the survivng spouse doesn't and won't work.  Again, the amount will
vary but the concept is the same.

This is only one example of how to do it and income taxes, estate
taxes and inflation can complicate it.  But hopefully you get the
idea.

Which kind of insurance, in my humble opinion, is a function of how
long you need it for.  I once did an analysis of TERM vs WHOLE LIFE and
based on the assumptions at the time, WHOLE LIFE made more sense if I
held the insurance more than about 20-23 years.  But TERM was cheaper
if I held it for a shorter period of time.  How do you do the analysis
and why does the agent want to meet you?  Well, he/she will bring
their fancy charts, tables of numbers and effectively lead you into
thinking that the biggest, most expensive policy is the best for you
over the long term.  Translation: lots of commissions to the agent.
Whole life is what agents make their money on due to commissions.  The
agents typically gets 1/2 of your first year's commissions as his pay.
And he typically gets 10% of the next year's commissions and likewise
through year 5.  Ask him (or her) how they get paid.

If he won't tell you, ask him to leave.  In my opinion, its okay that
the agents get commissions but just buy what you need, don't buy some
huge policy.  The agent may show you compelling numbers on a $1,000,000
whole life policy but do you really need that much? They will make
lots of money on commissions on such a policy, but they will likely
have sold you the "Mercedes Benz" type of policy when a Ford Taurus or
a Saturn sedan model would also be just fine, at far less money.  Buy
the life insurance you need, not what they say.

What I did was to take their numbers, review their assumptions (and
corrected them when they were far-fetched) and did MY analysis.  They
hated that but they agreed my approach was correct.  They will show
you a 12% rate of return to predict the cash value flow.  Ignore that
- it makes them look too good and its not realistic.  Ask him/her
exactly what they plan to invest your premium money in to get 12%.
How has it done in the last 5 years? 10? Use a number between 4.5%
(for TBILL investments, quite conservative) and 8-10% (for growth
stocks, more risky), but not definitely not 12%.  I would try 8% and
insist it be done that way.

Ask each agent: 1)-what is the present value of the payment stream
represented by the premiums, using a discount rate of 4.5% per year
(That is the inflation average since 1940).  This is what the policy
costs you, in today's dollars.  Its very much like paying that single
number now instead of a series of payments over time.  If they disagree
with 4.5%, remind them that since 1926, inflation has averaged 3.5%
(Ibbotson Associates) and then suggest they use 3.5% instead.  They may
then agree with the 4.5% (!)  The lower the number, the more expensive
the policy is.  2)-what is the present value of the the cash value
earned (increasing at no more than 8% a year) and discounting it back
to today at the same 4.5%.  This is what you get for that money you
just paid, in cash value, expressed in today's dollars, i.e., as if you
got it today in the mail.  3)-What is the present value of the life
insurance in force over that same period, discounted back to today by
4.5%, for inflation.  That is the coverage in effect in today's
dollars.  4)-Pick an end date for comparing these - I use age 60 and
age 65.

With the above in hand from various agents, you can see fairly quickly
which is the better policy, i.e., which gives you the most for your
money.

By the way, inflation is slippery and sneaky.  All too often we see
$500,000 of insurance and it sounds great, but at 4.5% inflation and
30 years from now, that $500,000 then is like $133,500 now - truly!

Have the agent do your analysis, BUT you give him the rates to use,
don't use his.  Then you pick the policy that is the best value, i.e.,
you get more for your money.  Factor in any tax angles as well.  If
the agent refuses to do this analysis for you, get rid of him/her.

If the agent gets annoyed but cannot fault your analysis, then you
have cleared the snow away and gotten to the truth.  If they smile too
much, you may have missed something.  And that will cost you money.

Never agree to any policy unless you understand all the numbers and
all the terms.  Never 'upgrade' policies by cashing in a whole life
for another whole life.  That just depletes your cash value, real cash
available to you.  And the agent gets to pocket that money, literally,
through new commissions.  Its no different that just writing a personal
check, payable to the agent.

Check out the insurer by going to the reference section of a big
library.  Ask for the AM BEST guide on insurance.  Look up where the
issuer stands relative to the competition, on dividends, on cash
value, on cost of insurance per premium dollar.

Agents will usually not mention TERM since they work on commission and
get much more money for Whole Life than they do for term.  Remember,
The agents gets about 1/2 of your 1st years premium payments and 10%
or so for all the money you send in over the following 4 years.  Ask
them to tell you how they are paid- after all, its your money they are
getting.

Now why don't I like UNIVERSAL or VARIABLE?  Mainly because with Whole
Life and with TERM, you know exactly what you must pay because the
issuer must manage the investments to generate the appropriate returns
to provide you with the insurance (and with cash value if whole life).
With UNIVERSAL and VARIABLE, it becomes YOU who must decide how and
where to invest your premium income.  If you guess badly, you will
have to pay a higher premium to cover those bad decisions.  The
insurance companies invented UNIVERSAL and VARIABLE because interest
rates went crazy in the early 80's and they lost money.  Rather than
taking that risk again, they offered these new policies to transfer
that risk to you.  Of course, UNIVERSAL and VARIABLE will be cheaper
in the short term but BE CAREFUL - they can and often will increase
later on.

Okay, so what did I do?  I bought both term and whole life.  I plan to
keep the term until my son graduates from college and he is on his own.
That is about 10 years from now.  I also bought whole life (NorthWestern
Mutual Life, Milwaukee, WI) which I plan to keep forever, so to speak.
NWML is apparently the cheapest and best around according to A.M. BEST.
At this point, after 3 years with NWML, I make more in cash value each
year than I pay into the policy in premiums.  Thus, they are paying me
to stay with them.

Where do you buy term? Just buy the cheapest policy since you will
tend to renew the policy once a year and you can change insurers each
time.  Check your local savings bank as one source.

Suppose an agent approaches you about a new policy and wishes to
update your old ones and switch you into the new policy or new
financial product they are offering?  BE CAREFUL: When you switch
policies, you close out the old one, take out its cash value and buy a
new one.  But very often you must start paying those hidden commissions
all over again.  You won't see it directly but look carefully at how
the cash value grows in the first few years.  It won't grow much
because the 'cash' is usually paying the commissions again.  Bottom
line: You usually pay commissions twice - once on the old policy and
again on the new policy - for generally the same insurance.  Thus you
paid twice for the same product.  Again - be careful and make sure it
makes sense to switch policies.

A hard thing to factor in is that one day you may become uninsurable
just when you need it, i.e., heart attack, cancer and the like.  I
would look at getting cheap term insurance but add in the options of
'guaranteed convertible' (to whole life) and 'guarranteed renewable'
(they must provide the insurance).  It will add somewhat to the cost of
the insurance.

Last thought.  I'll bet you didn't you know that you are 3x more
likely to become disabled during your working career than you to die
during your working career.  How is your short term disability
insurance looking?  Get a policy that has a waiting period before it
kicks in.  This will keep it cheaper.  Look at the exclusions, if any.

These comments are MY opinion and not my employers.  All the usual
disclaimers apply and your mileage may vary depending on individual
circumstances.

-----------------------------------------------------------------------------

Subject: Money-Supply Measures M1, M2, and M3
Last-Revised: 11 Dec 1992
From: [e-mail]

M1: Money that can be spent immediately.  Includes cash, checking accounts,
    and NOW accounts.

M2: M1 + assets invested for the short term.  These assets include money-
    market accounts and money-market mutual funds.

M3: M2 + big deposits.  Big deposits include institutional money-market
    funds and agreements among banks.

"Modern Money Mechanics," which explains M1, M2, and M3 in gory detail,
is available free from:
        Public Information Center
        Federal Reserve Bank of Chicago
        P.O. Box 834
        Chicago, Illinois 60690

-----------------------------------------------------------------------------

Subject: Market Makers and Specialists
Last-Revised: 28 Jan 1994
From: [e-mail]

Both Market Makers (MMs) and Specialists (specs) make market in stocks.
MMs are part of the National Association of Securities Dealers market
(NASD), sometimes called Over The Counter (OTC), and specs work on the
New York Stock Exchange (NYSE).  These people serve a similar function
but MMs and specs have a number of differences.  NASDAQ stands for the
National Association of Securities Dealers Automated Quotation system.

NASDAQ is a dealer system.  A firm can become a market maker (MM) on
NASDAQ by applying.  The requirements are relatively small, including
certain capital requirements, electronic interfaces, and a willingness
to make a two-sided market.  You must be there every day.  If you don't
post continuous bids and offers every day you can be penalized and not
allowed to make a market for a month.  The best way to become a MM is
to go to work for a firm that is a MM.  MMs are regulated by the NASD
which is overseen by the SEC.

The NYSE uses an agency auction market system which is designed to
allow the public to meet the public as much as possible.  The majority
of volume (approx 88%) occurs with no intervention from the dealer.
The responsibility of a spec is to make a fair and orderly market in
the issues assigned to them.  They must yield to public orders which
means they may not trade for their own account when there are public
bids and offers.  The spec has an affirmative obligation to eliminate
imbalances of supply and demand when they occur.  The exchange has
strict guidelines for trading depth  and continuity that must be
observed.  Specs are subject to fines and censures if they fail to
perform this function.

There are 1366 NYSE members.  Approximately 450 are specialists
working for 38 specialists firms.  As of 11/93 there are 2283 common
and 597 preferred stocks listed on the NYSE.  Each individual spec
handles approximately 6 issues.  The very big stocks will have a spec
devoted solely to them.  NYSE specs have large capital requirements
and are overseen by Market Surveillance at the NYSE.

Every listed stock has one firm assigned to it on the floor.  Most
stocks are also listed on regional exchanges in LA, SF, Chi., Phil.,
and Bos.  All NYSE trading (approx 80% of total volume) will occur at
that post on the floor of the specialist assigned to it.  To become a
NYSE spec the normal route is to go to work for a specialist firm as a
clerk and eventually to become a broker.

In the OTC public almost always meets dealer which means it is nearly
impossible to buy on the bid or sell on the ask.  The dealers can buy
on the bid even though the public is bidding.  Both spec and MM are
required to make a continuous market but in the case of MM's their is
no one firm who has to take the responsibility if trading is not fair
or orderly.  During the crash the NYSE performed much better than
NASDAQ.  This was in spite of the fact that some stocks have 30+ MMs.
Many OTC firms simply stopped making markets or answering phones until
the dust settled.

As you can see there are a similarities and differences.  Most academic
literature shows NYSE stocks trade better (in tighter ranges, less
volatility, less difference in price between trades).  On the NYSE 93%
of trades occur at no change or 1/8 of a point difference.

It is counterintuitive that one spec could make a better market than
20 MMs.  The spec operates under an entirely different system.  This
system requires exposure of public orders to the auction and the
opportunity for price improvement and to trade ahead of the dealer.
The system on  the NYSE is very different than NASDAQ and has been
shown to create a better market for the stocks listed there.  This is
why 90% of US stocks that are eligible for NYSE listing have listed.

-----------------------------------------------------------------------------

Subject: NASD Public Disclosure Hotline
Last-Revised: 15 Aug 1993
From: [e-mail], [e-mail]

The number for the NASD Public Disclosure Hotline is [phone].
They will send you information about cases in which a broker was
found guilty of violating the law.

I believe that the information that the NASD provides has been
enhanced to include pending cases.  In the past, they could
only mention cases in which the security dealer was found
guilty.   (Of course, "enhanced" is in the eye of the beholder.)

-----------------------------------------------------------------------------

Subject: One-Letter Ticker Symbols
Last-Revised: 11 Jun 1993
From: [e-mail]

Not all of the one-letter symbols are obvious, nor does a one-letter
symbol mean the stock is a blue chip or even well known.  Most, but
not all, trade on the NYSE.  The current list of one-letter symbols
follows.  I'm not sure about "H" - has that been reassigned recently?
Also "M" might have been reassigned.

A  Attwoods plc
B  Barnes Group
C  Chrysler Corporation
D  Dominion Resources
E  Transco Energy
F  Ford Motor Company
G  Gillette
H  Harcourt General (formerly General Cinema; H used to be Helm Resources)
I  First Interstate Bancorp
J  Jackpot Enterprises
K  Kellogg
L  Loblaw Companies
M  M-Corp ( defunct - absorbed by BancOne )
N  Inco, Ltd.
O  Odetics  (O.A & O.B  - no "O")
P  Phillips Petroleum
R  Ryder Systems
S  Sears, Roebuck & Company
T  AT&T
U  US Air
V  Vivra Inc
W  Westvaco
X  US Steel
Y  Alleghany Corp.
Z  Woolworth

-----------------------------------------------------------------------------

Subject: One-Line Wisdom
Last-Revised: 22 Aug 1993
From: [e-mail]

This is a collection of one-line pieces of investment wisdom, with brief
explanations.  Use and apply at your own risk or discretion.  They are
not in any particular order.

1.  Hang up on cold calls.

    While it is theoretically possible that someone is going to offer
    you the opportunity of a lifetime, it is more likely that it is some
    sort of scam.  Even if it is legitimate, the caller cannot know your
    financial position, goals, risk tolerance, or any other parameters
    which should be considered when selecting investments.  If you can't
    bear the thought of hanging up, ask for material to be sent by mail.

2.  Don't invest in anything you don't understand.

    There were horror stories of people who had lost fortunes by being
    short puts during the 87 crash.  I imagine that they had no idea of
    the risks they were taking.  Also, all the complaints about penny
    stocks, whether fraudulent or not, are partially a result of not
    understanding the risks and mechanisms.

3.  If it sounds too good to be true, it probably is [too good to be true].
3a. There's no such thing as a free lunch (TNSTAAFL).

    Remember, every investment opportunity competes with every other
    investment opportunity.  If one seems wildly better than the others,
    there are probably hidden risks or you don't understand something.

4.  If your only tool is a hammer, every problem looks like a nail.

    Someone (possibly a financial planner) with a very limited selection
    of products will naturally try to jam you into those which s/he sells.
    These may be less suitable than other products not carried.

5.  Don't rush into an investment.

    If someone tells you that the opportunity is closing, filling up fast,
    or in any other way suggests a time pressure, be *very* leery.

6.  Very low priced stocks require special treatment.

    Risks are substantial, bid/asked spreads are large, prices are
    volatile, and commissions are relatively high.  You need a broker
    who knows how to purchase these stocks and dicker for a good price.

-----------------------------------------------------------------------------

Subject: Option Symbols
Last-Revised: 12 Sep 1993
From: [e-mail]

    Month  Call    Put
    -----  ----    ---
    Jan    A    M
    Feb    B    N
    Mar    C    O
    Apr    D    P
    May    E    Q
    Jun    F    R
    Jul    G    S
    Aug    H    T
    Sep    I    U
    Oct    J    V
    Nov    K    W
    Dec    L    X

   Price Code    Price
   ----------    -----
    A    x05
    U    7.5
    B    x10
    V    12.5
    C    x15
    W    17.5
    D    x20
    X    22.5
    E    x25
    F    x30
    G    x35
    H    x40
    I    x45
    J    x50
    K    x55
    L    x60
    M    x65
    N    x70
    O    x75
    P    x80
    Q    x85
    R    x90
    S    x95
    T    x00

-----------------------------------------------------------------------------

Subject: Options on Stocks
Last-Revised: 24 Feb 1993
From: [e-mail]

An option is a contract between a buyer and a seller.  The option
is connected to something, such as a listed stock, an exchange index,
futures contracts, or real estate.  For simplicity, I will discuss
only options connected to listed stocks.

The option is designated by:
    - Name of the associated stock
    - Strike price
    - Expiration date
    - The premium paid for the option, plus brokers commission.

The two most popular types of options are Calls and Puts.

    Example:  The Wall Street Journal might list an
                IBM Oct 90 Call @ $2.00

    Translation:  This is a Call Option

    The company associated with it is IBM.
    (See also the price of IBM stock on the NYSE.)

    The strike price is $90.00  If you own this option,
    you can buy IBM @ $90.00, even if it is then trading on
    the NYSE @ $100.00 (I should be so lucky!)

    The option expires on the third Saturday following
    the third Friday of October, 1992.
    (an option is worthless and useless once it expires)

    If you want to buy the option, it will cost you $2.00
    plus brokers commissions.   If you want to sell the option,
    you will get $2.00 less commissions.

In general, options are written on blocks of 100s of shares.  So when
you buy "1" IBM Oct 90 Call @ $2.00 you actually are buying a contract
to buy 100 shares of IBM @ $90 per share ($9,000) on or before the
expiration date in October.   You will pay $200 plus commission to buy
the call.

If you wish to exercise your option you call your broker and say you
want to exercise your option.  Your broker will arrange for the person
who sold you your option (a financial fiction:  A computer matches up
buyers with sellers in a magical way) to sell you 100 shares of IBM for
$9,000 plus commission.

If you instead wish to sell (sell=write) that option you instruct your
broker that you wish to write 1 Call IBM Oct 90s, and the very next day
your account will be credited with $200 less commission.

If IBM does not reach $90 before the call expires, the option writer
gets to keep that $200 (less commission)   If the stock does reach above
$90, you will probably be "called."

If you are called you must deliver the stock.  Your broker will sell
your IBM stock for $9000 (and charge commission).  If you owned the
stock, that's OK. If you did not own the stock your broker will buy
the stock at market price and immediately sell it at $9000.  You pay
commissions each way.

If you write a Call option and own the stock that's called "Covered
Call Writing."  If you don't own the stock it's called "Naked Call
Writing."   It is quite risky to write naked calls, since the price of
the stock could zoom up and you would have to buy it at the market price.

My personal advice for new options people if to begin by writing
covered call options for stocks currently trading below the strike
price of the option (write out-of-the-money covered calls).

When the strike price of a call is above the current market price of
the associated stock, the call is "out of the money," and when the
strike price of a call is below the current market price of the
associated stock, the call is "in the money."

Most regular folks like you and me do not exercise our options; we
trade them back, covering our original trade.  Saves commissions and
all that.

The other common option is the PUT.  If you buy a put from me, you
gain the right to sell me your stock at the strike price on or before
the expiration date.  Puts are almost the mirror-image of calls.

-----------------------------------------------------------------------------

Subject: P/E Ratio
Last-Revised: 22 Jan 1993
From: [e-mail], [e-mail]

P/E is shorthand for Price/Earnings Ratio.  The price/earnings ratio is
a tool for determining the value the market has placed on a common stock.
A lot can be said about this little number, but in short, companies
expected to grow and have higher earnings in the future should have a
higher P/E than companies in decline.  For example, if Amgen has a lot
of products in the pipeline, I wouldn't mind paying a large multiple of
its current earnings to buy the stock.  It will have a large P/E.  I am
expecting it to grow quickly.

P/E is determined by dividing the current market price of one share
of a company's stock by that company's per-share earnings (after-tax
profit divided by number of outstanding shares).  For example, a company
that earned $5M last year, with a million shares outstanding, had
earnings per share of $5.  If that company's stock currently sells for
$50/share, it has a P/E of 10.  Investors are willing to pay $10 for
every $1 of last year's earnings.

P/Es are traditionally computed with trailing earnings (earnings from
the year past, called a trailing P/E) but are sometimes computed with
leading earnings (earnings projected for the year to come, called a
leading P/E).  Like other indicators, it is best viewed over time,
looking for a trend.  A company with a steadily increasing P/E is being
viewed by the investment community as becoming more and more speculative.

PE is a much better comparison of the value of a stock than the price.
A $10 stock with a PE of 40 is much more "expensive" than a $100 stock
with a PE of 6.  You are paying more for the $10 stock's future earnings
stream.  The $10 stock is probably a small company with an exciting product
with few competitors.  The $100 stock is probably pretty staid - maybe a
buggy whip manufacturer.

-----------------------------------------------------------------------------

Subject: Pink Sheet Stocks
Last-Revised: 27 Oct 1993
From: [e-mail], [e-mail]

A company whose shares are traded on the so-called "pink sheets" is
commonly one that does not meet the minimal criteria for capitalization
and number of shareholders that are required by the NASDAQ and OTC and
most exchanges to be listed there.  The "pink sheet" designation is a
holdover from the days when the quotes for these stocks were printed
on pink paper.  "Pink Sheet" stocks have both advantages and disadvantages.

Disadvantages:
1) Thinly traded.  Can make it tough (and expensive) to buy or sell shares.
2) Bid/Ask spreads tend to be pretty steep.  So if you bought today the
   stock might have to go up 40-80% before you'd make money.
3) Market makers may be limited.  Much discussion has taken place in this
   group about the effect of a limited number of market makers on thinly
   traded stocks.  (They are the ones who are really going to profit).
4) Can be tough to follow.  Very little coverage by analysts and papers.

Advantages:
1) Normally low priced.  Buying a few hundred share shouldn't cost a lot.
2) Many companies list in the "Pink Sheets" as a first step to getting
   listed on the National Market.  This alone can result in some price
   appreciation, as it may attract buyers that were previously wary.

In other words, there are plenty of risks for the possible reward,
but aren't there always?

-----------------------------------------------------------------------------

Subject: Portfolio-Tracking Software
Last-Revised: 5 Jun 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

The following software packages help an investor track his portfolio.
A far more comprehensive guide to these packages appears in a yearly
compendium that is part of AAII's Computerized Investing Newsletter.
Note that these programs change versions quite quickly.

Product:    Quicken
Company:    Intuit, [phone]
Platform:    DOS, Windows, Macintosh
Price:        $39
Features:    Manages budget, checkbook, and tracks portfolio; generates
        graphs and tables that reflect changes in the portfolio.

Product:    Managing Your Money
Company:    MECA
Platforms:    ?
Price:        ?
Features:    A personal finance program with solid portfolio support.
        Tracks both cash flow and assets, but it lacks annualized
        return information for individual asset when dollar cost
        averaging and reinvesting both dividends and capital gains.

Product:    PFROI / Captool
Company:    ?
Platforms:    ?
Price:        PFROI is shareware, Captool is the commercial, extended version
Features:    ?

Product:    OWL Personal Portfolio Manager
Company:    Otto-Williams Ltd, PO Box 794, Lanham MD 20703, [phone],
        [e-mail]
Platforms:    IBM
Price:        shareware; search for OPPM50.ZIP, OPPL*.ZIP
Features:    Tracks stock, bond and mutual fund transactions, computes
        capital gains and losses, tracks cash accounts, liabilities,
        and payments of interest, dividends, rents, and royalties.
        Produces charts and will import data from data services.

Product:    Wall Street Direct CD-ROM
Company:    W.S. Software Digest, 11664 National Blvd #128, LA CA 90064,
        [phone], [e-mail]
Platforms:    IBM
Price:        not yet announced; CD available Fall 1994.
Features:    Back issues of the Wall Street Software Digest with its
        product reviews and descriptions, and over 100 executable
        demos of investment- and portfolio-management software.

-----------------------------------------------------------------------------

Subject: Renting vs. Buying a Home
Last-Revised: 28 Jan 1994
From: [e-mail], [e-mail]

This note will explain one way to compare the monetary costs of renting
vs. buying a home.  It is extremely predjudiced towards the US system.
A few small C programs for computing future value, present value, and
loan amortization schedules (used to write this article) are available.
See the article "Software Archive" for more information.

SUMMARY:
 - If you are guaranteed an appreciation rate that is a few points above
   inflation, buy.
 - If the monthly costs of buying are basically the same as renting, buy.
 - The shorter the term, the more advantageous it is to rent.
 - Tax consequences in the US are fairly minor in the long term.


The three important factors that affect the analysis the most:
    1) Relative cash flows; e.g., rent compared to monthly ownership expenses
    2) Length of term
    3) Rate of appreciation

The approach used here is to determine the present value of the money
you will pay over the term for the home. In the case of buying, the
appreciation rate and thereby the future value of the home is estimated.
This analysis neglects utility costs because they can easily be the
same whether you rent or buy.  However, adding them to the analysis
is simple; treat them the same as the costs for insurance in both cases.

Opportunity costs of buying are effectively captured by the present value.
For example, pretend that you are able to buy a house without having to
have a mortgage.  Now the question is, is it better to buy the house with
your hoard of cash or is it better to invest the cash and continue to rent?
To answer this question you have to have estimates for rental costs and
house costs (see below), and you have a projected growth rate for the cash
investment and projected growth rate for the house.  If you project a 4%
growth rate for the house and a 15% growth rate for the cash then holding
the cash would be a much better investment.


Renting a Home.

* Step 1: Gather data. You will need:
    - monthly rent
    - renter's insurance     (usually inexpensive)
    - term             (period of time over which you will rent)
    - estimated inflation rate to compute present value (historically 4.5%)
    - estimated annual rate of increase in the rent (can use inflation rate)

* Step 2: Compute the present value of the cash stream that you will pay over
the term, which is the cost of renting over that term.  This analysis assumes
that there are no tax consequences (benefits) associated with paying rent.

Long-term example:
    Rent          =  990 / month
    Insurance         =  10 / month
    Term        =  30 years
    Rent increases    =  4.5% annually
    Inflation         =  4.5% annually
    For this cash stream, present value = 348,137.17.

Short-term example:
    Same numbers, but just 2 years.  Present value = 23,502.38


Buying a Home.

* Step 1: Gather data. You need a lot to do a fairly thorough analysis:
    - purchase price
    - down payment & closing costs
    - other regular expenses, such as condo fees
    - amount of mortgage
    - mortgage rate
    - mortgage term
    - mortgage payments (this is tricky for a variable-rate mortgage)
    - property taxes
    - homeowner's insurance
    - your tax bracket
    - the current standard deduction you get
  Other values have to be estimated, and they affect the analysis critically:
    - continuing maintenance costs (I estimate 1/2 of PP over 30 years.)
    - estimated inflation rate to compute present value (historically 4.5%)
    - rate of increase of property taxes, maintenance costs, etc. (infl. rate)
    - appreciation rate of the home (THE most important number of all)

* Step 2: compute the monthly expense.  This includes the mortgage payment,
fees, property tax, insurance, and maintenance.  The mortgage payment is
fixed, but you have to figure inflation into the rest.  Then compute the
present value of the cash stream.

* Step 3: compute your tax savings.  This is different in every case, but
roughly you multiply your tax bracket times the amount by which your interest
plus other deductible expenses (e.g., property tax, state income tax) exceeds
your standard deduction.  No fair using the whole amount because everyone
gets the standard deduction for free.  Must be summed over the term because
the standard deduction will increase annually, as will your expenses.  Note
that late in the mortgage your interest payments will be be well below the
standard deduction.  I compute savings of about 5% for 33% tax bracket.

* Step 4: compute the future value of the home based on the purchase
price, estimated appreciation rate, and the term.  Once you have the
future value, compute the present value of that sum based on the
inflation rate you estimated earlier and the term you used to compute
future value.   If appreciation > inflation, you win.  Else you lose.

* Step 5: Compute final cost.  All numbers must be in present value.
    Final-cost = Down-payment + S2 (expenses) - S3 (tax sav) - S4 (prop value)

Long-term example #1:

* Step 1 - the data:
    Purchase price   =  145,000
    Down payment etc =  10,000
    Mortgage amount  =  140,000
    Mortgage rate    =  8.00%
    Mortgage term    =  30 years
    Mortgage payment =  1027.27 / mo
    Property taxes   =  about 1% of valuation; I'll use 1200/yr = 100/mo
            (which increases same as inflation, we'll say)
    Homeowner's ins  =  50 / mo
    Condo fees etc   =  0
    Tax bracket         =  33%
    Standard ded     =  5600
  Estimates:
    Maintenance      =  1/2 PP is 72,500, or 201/mo; I'll use 200/mo
    Inflation rate   =  4.5% annually
    Prop taxes incr  =  4.5% annually
    Home appreciates =  6% annually (the NUMBER ONE critical factor)

* Step 2 - the monthly expense, both fixed and changing components:
Fixed component is the mortgage at 1027.27 monthly.  Present value = 203,503.48
Changing component is the rest at   350.00 monthly.  Present value = 121,848.01
Total from Step 2: 325,351.49

* Step 3 - the tax savings.
I use my loan program to compute this.  Based on the data given above,
I compute the savings: Present value = 14,686.22.  Not much at all.

* Step 4 - the future and present value of the home.
See data above.  Future value = 873,273.41 and present value = 226,959.96
(which is larger than 145k since appreciation > inflation)
Before you compute present value, you should subtract reasonable closing
costs for the sale; for example, a real estate brokerage fee.

* Step 5 - the final analysis for 6% appreciation.
Final = 10,000 + 325,351.49 - 14,686.22 - 226,959.96
      = 93,705.31

So over the 30 years, assuming that you sell the house in the 30th year for
the estimated future value, the present value of your total cost is 93k.
(You're 93k in the hole after 30 years ~~ you only paid 260.23/month.)

Long-term example #2:  all numbers the same BUT the home appreciates 7%/year.
Step 4 now comes out FV=1,176,892.13 and PV=305,869.15
Final = 10,000 + 325,351.49 - 14,686.22 - 305,869.15
      = 14796.12
So in this example, 7% was an approximate break-even point in the absolute
sense; i.e., you lived for 30 years at near zero cost in today's dollars.

Long-term example #3:  all numbers the same BUT the home appreciates 8%/year.
Step 4 now comes out FV=1,585,680.80 and PV=412,111.55
Final = 10,000 + 325,351.49 - 14,686.22 - 412,111.55
      = -91,446.28
The negative number means you lived in the home for 30 years and left it in
the 30th year with a profit; i.e., you were paid to live there.

Long-term example #4: all numbers the same BUT the home appreciates 2%/year.
Step 4 now comes out FV=264,075.30 and PV=68,632.02
Final = 10,000 + 325,351.49 - 14,686.22 - 68,632.02
      = 252,033.25
In this case of poor appreciation, home ownership cost 252k in today's money,
or about 700/month.  If you could have rented for that, you'd be even.

Short-term example #1:  all numbers the same as Long-term example #1, but you
sell the home after 2 years.  Future home value in 2 years is 163,438.17
Cost  = down&cc + all-pymts - tax-savgs - pv(fut-home-value - remaining debt)
      = 10,000  + 31,849.52 - 4,156.81  - pv(163,438.17 - 137,563.91)
      = 10,000  + 31,849.52 - 4,156.81  - 23,651.27
      = 14,041.44

Short-term example #2:  all numbers the same as Long-term example #4, but you
sell the home after 2 years.  Future home value in 2 years is 150,912.54
Cost  = down&cc + all-pymts - tax-savgs - pv(fut-home-value - remaining debt)
      = 10,000  + 31,849.52 - 4,156.81  - pv(150912.54 - 137,563.91)
      = 10,000  + 31,849.52 - 4,156.81  - 12,201.78
      = 25,490.93


Some closing comments:

Once again, the three important factors that affect the analysis the most
are cash flows, term, and appreciation.  If the relative cash flows are
basically the same, then the other two factors affect the analysis the most.

The longer you hold the house, the less appreciation you need to beat renting.
This relationship always holds, however, the scale changes.  For shorter
holding periods you also face a risk of market downturn.  If there is a
substantial risk of a market downturn you shouldn't buy a house unless you
are willing to hold the house for a long period.

If you have a nice cheap rent controlled appartment, then you should probably
not buy.

There are other variables that affect the analysis, for example, the inflation
rate.  If the inflation rate increases, the rental scenario tends to get much
worse, while the ownership scenario tends to look better.

Question:  Is it true that you can usually rent for less than buying?

Answer 1:  It depends.  It isn't a binary state.  It is a fairly complex set
of relationships.

In large metropolitan areas, where real estate is generally much more expensive
then it is usually better to rent, unless you get a good appreciation rate or
if you are going to own for a long period of time.  It depends on what you can
rent and what you can buy.  In other areas, where real estate is relatively
cheap, I would say it is probably better to own.

On the other hand, if you are currently at a market peak and the country is
about to go into a recession it is better to rent and let property values and
rent fall.  If you are currently at the bottom of the market and the economy
is getting better then it is better to own.

Answer 2:  When you rent from somebody, you are paying that person to assume
the risk of homeownership.  Landlords are renting out property with the long
term goal of making money.  They aren't renting out property because they want
to do their renters any special favors.  This suggests to me that it is
generally better to own.

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Subject: Retirement Plan - 401(k)
Last-Revised: 5 Aug 1994
From: [e-mail], [e-mail]

A 401(k) plan is an employee-funded, retirement savings plan.  It
takes its name from the section of the Internal Revenue Code of
1986 which created these plans.  An employer will typically match
a certain percent of the amount contributed to the plan by the
employee, up to some maximum.  Note: I have been looking at my 401(k)
in pretty good detail lately, but this article is subject to my
standard disclaimer that I'm not responsible for errors or poor advice.

Example: the employee can contribute up to 7% of gross pay to the
     fund, and the company matches this money at 50%.  Total
     contribution to the plan is 10.5% of the employee's salary.

Pre-tax contributions: Employees have the option of making all or part
of their contributions from pre-tax (gross) income.  This has the added
benefit of reducing the amount of tax paid by the employee from each
check now and deferring it until you take this pre-tax money out of
the plan.  Both the employer contribution (if any) and any growth of
the fund compound tax-free until age 59-1/2, when the employee is
eligible to receive distributions from the plan.

Pre-tax note: Current law allows up to a maximum of 15% to be deducted
from your pay before federal income and (in most places) state or local
income taxes are calculated.  There are IRS rules which regulate
withdrawals of pre-tax contributions and which place limits on pre-tax
contributions; these affect how much you can save.

After-tax contributions: If you elect to save any of your contributions
on an after-tax basis, the contribution comes out of your pay after
taxes are deducted.  While it doesn't help your current tax situation,
these funds may be easier to withdraw since they are not subject to the
strict IRS rules which apply to pre-tax contributions.  Later, when
you receive a distribution from the 401(k), you pay no tax on the
portion of your distribution attributed to after-tax contributions.

Contribution limits: IRS rules won't allow contributions on pay over
a certain amount (limit was $228,860 in 1992, and is subject to change).
The IRS also limits how much total pre-tax pay you can contribute
(limit was $8,728 in pre-tax money in 1992, and is subject to change).
Employees who are defined as "highly compensated" by the IRS (salary
over $60,535 in 1992 - again, subject to change) may not be allowed to
save at the maximum rates.  Your benefits department should notify you
if you are affected.  Finally, the IRS limits the total amount contributed
to your 401(k) and pension plans each year to the lesser of some amount
($30,000 in 1992, and subject to change of course) or 25% of your annual
compensation.  This is generally taken to mean the amount of taxable
income reported on your W-2 form(s).

Advantages: Since the employee is allowed to contribute to his/her
401(k) with pre-tax money, it reduces the amount of tax paid out of
each pay check.  All employer contributions and fund gains (or losses)
grow tax-free until age 59-1/2.  The employee can decide where to
direct future contributions and/or current savings.  If your company
matches your contributions, it's like getting extra money on top of
your salary.  The compounding effect of consistent periodic contributions
over the period of 20 or 30 years is quite dramatic.  Because the
program is a personal investment program for you, the benefits may
not be used as security for loans outside the program.  This includes
the additional protection of the funds from garnishment or attachment
by creditors or assigned to anyone else except in the case of domestic
relations court cases dealing with divorce decree or child support
orders.  While the 401(k) is similar in nature to an IRA, an IRA won't
enjoy any matching company contributions and personal IRA contributions
are only tax deductible if your gross income is under some limit (limit
phases in at $40,000 in 1992).

Disadvantages: It is "difficult" (or at least expensive) to access
your 401(k) savings before age 59-1/2 (see next section).  401(k) plans
don't have the luxury of being insured by the Pension Benefit Guaranty
Corporation (PBGC).  (But then again, some pensions don't enjoy this
luxury either.)

Investments: A 401(k) should have available different investment
options.  These funds usually include a money market, bond funds of
varying maturities (short, intermediate, long term), company stock,
mutual fund, US Series EE Savings Bonds, and others.  The employee
chooses how to invest the savings and is typically allowed to change
where current savings are invested and/or where future contributions
will go a specific number of times a year.  This may be quarterly,
bi-monthly, or some similar time period.  The employee is also
typically allowed to stop contributions at any time.

Accessing savings before age 59-1/2: It is legal to take a loan from
your 401(k) before age 59-1/2 for certain reasons including hardship
loans, buying a house, or paying for education.  When a loan is obtained,
you must pay the loan back with regular payments (these can be set up
as payroll deductions) but you are, in effect, paying yourself back
both the principal and the interest, not a bank.  If you take a
withdrawal from your 401(k) as money other than a loan, not only must
you pay tax on any pre-tax contributions and on the growth, you must
also pay an additional 10% penalty to the government.  In short, you
can get the money out of your 401(k) before age 59-1/2 for something
other than a loan, but it is expensive to do so.

Accessing savings after age 59-1/2: At age 59-1/2 you are allowed to
access your 401(k) savings.  This can be done as a lump sum distribution
or as annual installments.  If you choose the latter, money not withdrawn
from the 401(k) can continue to grow in the fund.  401(k) distributions
are separate from pension funds.

Changing jobs: Since a 401(k) is a company administered plan, if you
change or lose jobs, this can affect your savings.  Different companies
handle this situation in different ways.  Some will allow you to keep
your savings in the program until age 59-1/2.  This is the simplest
idea. Others will require you to take the money out.  Things get more
complicated here.  Your new company may allow you to make a "rollover"
contribution to its 401(k) which would let you take all the 401(k)
savings from your old job and put them into your new company's plan.
If this is not a possibility, you may have to look into an IRA or other
retirement account to put the funds.

Whatever you do regarding rollovers, BE EXTREMELY CAREFUL!!  This can
not be emphasized enough.  Recent legislation by Congress has added a
twist to the rollover procedures.  It used to be that you could receive
the rollover money in the form of a check made out to you and you had
a period of time (60 days) to roll this cash into a new retirement
account (either 401(k) or IRA).  Now, however, employees taking a
withdrawal have the opportunity to make a "direct rollover" of the
taxable amount of a 401(k) to a new plan.  This means the check goes
directly from your old company to your new company (or new plan).
If this is done (ie. you never "touch" the money), no tax is withheld
or owed on the direct rollover amount.

If the direct rollover option is not chosen, i.e., a check goes through
your grubby little hands, the withdrawal is immediately subject to a
mandatory tax withholding of 20% of the taxable portion, which the old
company is required to ship off to the IRS.  The remaining 80% must be
rolled over within 60 days to a new retirement account or else is is
subject to the 10% tax mentioned above.  The 20% mandatory withholding
is supposed to cover possible taxes on your withdrawal, and can be
recovered using a special form filed with your next tax return to the IRS.
If you forget to file that form, however, the 20% is lost.  Naturally,
there is a catch.  The 20% withheld must *also* be rolled into a new
retirement account within 60 days, out of your own pocket, or it will be
considered withdrawn and subject to the 10% tax.  Check with your benefits
department if you choose to do any type of rollover of your 401(k) funds.

Here's an example to clarify an indirect rollover.  Let us suppose that you
have $10,000 in a 401k, and that you withdraw the money with the intention
of rolling it over - no direct transfer.  Under current law you will receive
$8,000 and the IRS will receive $2,000 against possible taxes on your
withdrawal.  To maintain tax-exempt status on the money, $10,000 has to
be put into a new retirement plan within 60 days.  The immediate problem is
that you only have $8,000 in hand, and can't get the $2,000 until you file
your taxes next year. What you can do is:
  1.  Find $2,000 from somewhere else.  Maybe sell your car.
  2.  Roll over $8,000.  The $2,000 then loses its tax status and you
      will owe income tax and the 10% tax on it.

Epilogue: If you have been in an employee contributed retirement plan
since before 1986, some of the rules may be different on those funds
invested pre-1986.  Consult your benefits department for more details,

Expert (sic) opinions from financial advisors typically say that
the average 401(k) participant is not aggressive enough with their
investment options.  Historically, stocks have outperformed all other
forms of investment and will probably continue to do so.  Since the
investment period of 401(k) savings is relatively long - 20 to 40
years - this will minimize the daily fluctuations of the market and
allow a "buy and hold" strategy to pay off.  As you near retirement,
you might want to switch your investments to more conservative funds
to preserve their value.

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Subject: Retirement Plan - IRA
Last-Revised: 17 Aug 1994
From: [e-mail]

An individual retirement arrangement (IRA) is a plan that allows a
person, whether covered by a pension plan or not, to save towards
his/her retirement while allowing the savings to grow tax-free.
Funds in an IRA may be invested in a broad variety of vehicles
(stocks, bonds, etc.) but there are limitations on investments
(no options trading or buying land).

Contributions are limited, and the limits are quite low in comparison
to other retirement plans such as a 401(k).  Depending on a person's
income and coverage by a retirement plan, the IRA contributions may
additionally be deducted from one's gross income, thereby reducing
the amount of income subject to taxation.

Limits on contribution: Each individual may contribute the *lesser*
of US$2,000 or the amount of wage income from US sources.  Married
couples with only one wage earner may contribute to a second IRA
account called a "spousal IRA."  The limit on contributions to both
the primary and spousal accounts is US$2,250 total, and naturally
the US$2,000 ceiling still applies (e.g., $1 & $2,249 is not allowed).

Limits on deduction: You may be able to deduct your entire IRA
contribution, but this depends on your gross income and whether you
*or* your spouse are/is covered by a pension plan at work.  These
are the 1993 limits for a married couple filing jointly:

Neither spouse covered by a retirement plan: fully deductible.

One or both are covered by a retirement plan:
        Income   <40k: fully deductible
           40-50k: partially deductible
         >50k: not deductible

The IRS is pretty bone-headed about their definition of being
"covered" by a pension plan.  If you work for a company for just
one day in a tax year, and that company offers its employees a
pension plan, then even if you were not vested in that plan, did not
contribute, and will never see a penny from them, the IRS considers
you to be covered by a pension plan in that tax year.

The US Congress has been toying for years with various proposals to
loosen IRA restrictions.  Among other things, they have mentioned
using IRA monies to pay for college, to finance a first-time home
purchase, etc.  However, as of this writing, none of those proposals
are law.

There is currently a 10% penalty on withdrawals before age 59 1/2.
There are various provisions for excess contributions and other
problems.  Withdrawals from an IRA must begin by age 70 1/2.
Order IRS Publication 590 for complete information.

-----------------------------------------------------------------------------

Subject: Retirement Plan - SEP-IRA
Last-Revised: 30 Mar 1994
From: [e-mail]

A simplified employee pension (SEP) IRA is a written plan that allows an
employer to make contributions toward his or her own (if self-employed)
or employees' retirement, without becoming involved in more complex
retirement plans (such as Keoghs).

Contributions are deductible from income in the year paid or for the
prior year up until the tax return deadline, including extensions.  The
contribution limit is 15% of net earnings, or $30,000, whichever is
less.  However, for self-employed persons the deduction affects the
income and thus only 13.0435% (15%/115%) may be contributed.  A
nondeductible penalty tax of 6% of the excess amount contributed will
be incurred for each year in which the excess contribution remains in
your SEP-IRA.

A SEP-IRA is established much like a regular IRA through stock brokers
or mutual funds and may be invested in the same manner as an individual
IRA.  See IRS Publication 560 for additional information.

-----------------------------------------------------------------------------

Subject: Round Lots of Shares
Last-Revised: 23 Apr 1993
From: [e-mail]

There are some advantages to buying round lots (usually 100 shares)
but if they don't apply to you, then don't worry about it.  Possible
limitations on non-round-lots are:

 - The broker might add 1/8 of a point to the price -- but usually
   the broker will either not do this, or will not do it when you
   place your order before the market opens or after it closes.

 - Some limit orders might not be accepted for odd lots.

 - If these shares cover short calls, you usually need a round lot.

-----------------------------------------------------------------------------

Subject: Savings Bonds (from US Treasury)
Last-Revised: 10 Feb 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail]

Series EE Savings bonds currently pay better than bank C/D rates,
and are exempt from State and local income taxes.  You can buy up
to $15,000 per year in US Savings Bonds.  Many employers have an
employee bond purchase/payroll deduction plan, and most commercial
banks act as agents for the Treasury and will let you fill out the
purchase forms and forward them to the Treasury.  You will receive
the bonds in the mail a few weeks later.

Series EE bonds cost half their face value.  So you would purchase
a $100 bond for $50.  The interest rate is set by the Treasury.
Currently the interest rate is set every November and May for a
period of 6 months, and is credited each month until the 30th month,
and credited every 6 months thereafter.  The periodic rates are set
at 85% of 5-year US Treasuries.  However, the Treasury Dept currently
guarantees that the minimum interest rate for bonds held at least 5
years is 6% [ but see below for updated information ].  Bonds can be
cashed anytime after 6 months, and must be cashed before they expire,
which for current bonds is 30 years after issue date.  Since rates
change every 6 months, it is not too meaningful to ask when a bond
will be worth its face value.

A bond's issue date is the first day of the month of purchase, and
when you cash it in the interest is calculated to the first day of
the month you cash it in (up to 30 months, and to the previous 6
month interval after).  So it is advantageous to purchase bonds near
the end of a month, and to cash it near the beginning of a month
that it credits interest (each month between month 6 through 30,
and every 6 months thereafter.)

Series E bonds were issued before 1980, and are very similar to EE
bonds except they were purchased at 75% of face value.  Everything
else stated here about EE bonds applies also to E bonds.

Interest on an EE/E bond can be deferred until the bond is cashed
in, or if you prefer, can be declared on your federal tax return as
earned each year.

When you cash the bond you will be issued a Form 1099-INT and would
normally declare as interest all funds received over what you paid
for the bond (and have not yet declared).  However, you can choose
to defer declaring the interest on the EE bonds and instead use the
proceeds from cashing in an EE bond to purchase an HH Savings bond
(prior to 1980, H Bonds).  You can purchase HH Bonds in multiples of
$500 from the proceeds of EE bonds.  HH Bonds pay interest every 6
months and you will receive a check from the Treasury.

When the HH bond matures, you will receive the principal, and a
1099-INT for that deferred EE interest.

Savings Bonds are not negotiable instruments, and cannot be transferred
to anyone at will.  They can be transferred in limited circumstances,
and there could be tax consequences at the time of transfer.

Using Savings Bonds for College Tuition:  EE  bonds purchased in your
name after December 31, 1989 can be used to pay for college tuition
for your children or for you, and the interest may not be taxable.
They have to have been issued while you were at least 24 years old.
There are income limits:  To use the full interest benefit your
adjusted gross income must be less than  (for 1992 income) $44,150
single, and 66,200 married, and phases out entirely at $59,150 single
and $96,200 married.  Use Form 8815 to exclude interest for college
tuition.  (This exclusion is not available for taxpayers who file as
Married Filing Separately.)

Effective March 1, 1993, the guaranteed interest rates were lowered
to 4% for EE bonds bought on March 1, 1993 or later and held at least
5 years.  The 4% rate is currently guaranteed as the minimum rate for
18 years.  EE bonds will earn a flat 4% through the first 5 years rather
than a graduated rate, and the interest will accrue monthly through the
life of the bond after the initial six months, rather than semiannually
after 30 months.  So, all EE bonds issued since 3/93 will yield 4%, even
if cashed in before 5 years have passed.

The former rate -- 6% -- had been guaranteed for 12 years -- and continues
for bonds bought when the 6% guarantee was in effect.  Prior to the 6%
rate, the guaranteed rate had been 7.5%.

You can call the Federal Reserve Bank of Kansas City to request redemp-
tion tables for US Savings Bonds.  The number is [phone], but is
unfortunately not reachable from the entire US (direct dial not given).
Hours are 6AM to 3PM PST Monday through Friday.  Or request the tables
from The Bureau of Public Debt, Bonds Div., Parkersburg, WV 26106-1328.

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Subject: Securities and Exchange Commission (U.S.)
Last-revised: 4 Jun 1994
From: [e-mail]

Just in case you want to ask questions, complain about your broker,
or whatever, here's the vital information:

    Securities and Exchange Commission
    450 5th Street, N. W.
    Washington, DC 20549

Office of Public Affairs:   [phone]
Office of Consumer Affairs: [phone]

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Subject: Shorting Stocks
Last-Revised: 29 Jul 1994
From: [e-mail]

Shorting means to sell something you don't own.

If I do not own shares of IBM stock but I ask my broker to sell short
100 shares of IBM I have committed shorting.  In broker's lingo, I
have established a short position in IBM of 100 shares.  Or, to really
confuse the language, I hold 100 shares of IBM short.

Why would you want to short?

Because you believe the price of that stock will go down, and you can
soon buy it back at a lower price than you sold it at.  When you buy
back your short position, you "close your short position."

The broker will effectively borrow those shares from another client's
account or from the broker's own account, and effectively lend you
the shares to sell short.  This is all done with mirrors; no stock
certificates are issued, no paper changes hands, no lender is identified
by name.

My account will be credited with the sales  price of 100 shares of IBM
less broker's commission.  But the broker has actually lent me the stock
to sell; no way is he going to pay interest on the funds from the short
sale. (Exception:  Really big spenders sometimes negotiate a full or
partial payment of interest on short sales funds provided sufficient
collateral exists in the account and the broker doesn't want to lose
the client.  If you're not a really big spender, don't expect to receive
any interest on the funds obtained from the short sale.)  Also expect
the broker to make you put up additional collateral.  Why?

Well, what happens if the stock price goes way up?  You will have to
assure the broker that if he needs to return the shares whence he got
them (see "mirrors" above) you will be able to purchase them and "close
your short position."  If the price has doubled, you will have to spend
twice as much as you received. So your broker will insist you have
enough collateral in your account which can be sold if needed to close
your short position.  More lingo: Having sufficient collateral in your
account that the broker can glom onto at will, means you have "cover"
for your short position. As the price goes up you must provide more cover.

Since you borrowed these shares, if dividends are declared, you will be
responsible for paying those dividends to the fictitious person from
whom you borrowed.  Too bad.

Even if you hold you short position for over a year, your capital
gains are short term.

A short squeeze can result when the price of the stock goes up.  When
the people who have gone short buy the stock to cover their previous
short-sales, this can cause the price to rise further.  It's a death
spiral - as the price goes higher, more shorts feel driven to cover
themselves, and so on.

You can short other securities besides stock.  For example, every time
I write (sell) an option I don't already own long, I am establishing a
short position in that option. The collateral position I must hold in
my account generally tracks the price of the underlying stock and not
the price of the option itself.  So if I write a naked call option on
IBM November 70s and receive a mere $100 after commissions, I may be
asked to put up collateral in my account of $3,500 or more!  And if
in November IBM has regained ground and is at $90 [ I should be so
lucky ], I would be forced to buy back (close my short position in
the call option) at a cost of about $2000, for a big loss.

Selling short is seductively simple.  Brokers get commissions by
showing you how easy it is to generate short term funds for your
account, but you really can't do much with them.  My personal advice
is if you are strongly convinced a stock will be going down, buy the
out-of-the-money put instead, if such a put is available.

A put's value increases as the stock price falls (but decreases sort
of linearly over time) and is strongly leveraged, so a small fall in
price of the stock translates to a large increase in value of the put.

Let's return to our IBM, market price of 66 (yuck.) Let's say I strongly
believe that IBM will fall to, oh,  58 by mid-November.  I could short-sell
IBM stock at 66, buy it back at 58 in mid-November if I'm right, and make
about net $660.  If instead it goes to 70, and I have to buy at that price,
then I lose net $500 or so.  That's a 10% gain or an 8% loss or so.

Now, I could buy the IBM November 65 put for maybe net $200.  If it
goes down to 58 in mid November, I sell (close my position) for about
$600, for a 300% gain.  If it doesn't go below 65, I lose my entire
200 investment. But if you strongly believe IBM will go way way down,
you should shoot for the 300% gain with the put and not the 10% gain
by shorting the stock itself.  Depends on how convinced you are.

Having said this, I add a strong caution:  Puts are very risky, and
depend very much on odd market behavior beyond your control, and you
can easily lose your entire purchase price fast.  If you short options,
you can lose even more than your purchase price!

One more word of advice.  Start simply.  If you never bought stock
start by buying some stock.  When you feel like you sort of understand
what you are doing, when you have followed several stocks in the
financial section of the paper and watched what happens over the course
of a few months, when you have read a bit more and perhaps seriously
tracked some important financials of several companies, you might --
might -- want to expand your investing choices beyond buying stock.
If you want to get into options (see FAQ on options) start with writing
covered calls.  I would place selling stock short or writing or buying
other options lower on the list -- later in time.

-----------------------------------------------------------------------------

Subject: SIPC, or How to Survive a Bankrupt Broker
Last-Revised: 1 Sep 1994
From: [e-mail], [e-mail]

The U.S. Securities Investor Protection Corporation (SIPC) is a federally
chartered private corporation whose job is to insure shareholders against
the situation of a U.S. stock-broker going bankrupt.

The National Association of Security Dealers requires all of their
member brokers to have SIPC insurance.   Many brokers supplement the
limits that SIPC insures ($100,000 cash and $500,000 total, I think--
I could be wrong here) with additional policies so you are covered up
to $1 million or more.

If you deal with discount houses, all brokerages, their clearing agents,
and any holding companies they have which can be holding your assets
in street-name had better be insured with the S.I.P.C.  You're going
to be paying an SEC tax (about US$3.00) on any trade you make anywhere,
so make sure your getting the benefit; if a broker goes bankrupt it's
the only thing that prevents a total loss.  Investigate thoroughly!

The bottom line is that you should not do business with any broker who
is not insured by the SIPC.

-----------------------------------------------------------------------------

Subject: Software Archives for Investment-Related Programs
Last-Revised: 19 Jul 1994
From: [e-mail]

1.  The compiler of this FAQ maintains an archive of source code for a
    number of investment-related programs.  All are written in C and
    depend, more or less heavily, on UNIX.  The programs include:

    401-calc:       compute value of a 401(k) plan over time
    commis:         compute commisions for trades at selected discount brokers
    fv:             compute future value
    irr:            compute rate of return of a portfolio
    loan:           calculate loan amortization schedule
    prepay:         analyze prepayments of a mortgage loan
    pv:             calculate present value
    returns:        analyze total return of a mutual fund
    roi:            compute return on investment for mutual funds

    To fetch these programs, simply mail a note with any subject and any
    contents to the following address:  lott=[e-mail]

2.  Ed Savage maintains an archive of programs which are available via
    anonymous ftp:
    host: dg-rtp.dg.com
    path: /pub/misc.invest/programs/

-----------------------------------------------------------------------------

Subject: Stock Basics
Last-Revised: 26 Aug 1994
From: [e-mail], [e-mail]

Perhaps we should start by looking at the basics:  What is stock?
Why does a company issue stock?  Why do investors pay good money
for little pieces of paper called stock certificates?  What do
investors look for?  What about Value Line ratings and what about
dividends?

To start with, if a company wants to raise capital (money) one of
its options is to issue stock.  It has other methods, such as
issuing bonds and getting a loan from the bank.  But stock raises
capital without creating debt, without creating a legal obligation
to repay those funds.

What do they buyers of the stock -- the new owners of the company --
expect for their investment?  The popular answer, the answer many
people would give is: they expect to make lots of money, they expect
other people to pay them more than they paid themselves.  Well, that
doesn't just happen randomly or by chance (well, maybe sometimes it
does, who knows?)

The less popular, less simple answer is: shareholders -- the
company's owners -- expect their investment to earn more, for
the company, than other forms of investment.  If that happens, if
the return on investment is high, the price tends to increase.  Why?

Who really knows?  But it is true that within an industry the
Price/Earnings ratio tends to stay within a narrow range over any
reasonable period of time -- measured in months or a year or so.

So if the earnings go up, the price goes up.  And investors look for
companies whose earnings are likely to go up.  How much?

There's a number -- the accountants call it Shareholder Equity --
that in some magical sense represents the amount of money the
investors have invested in the company.  I say magical because while
it translates to (Assets - Liabilities) there is often a lot of
accounting trickery that goes into determining Assets and
Liabilities.

But looking at Shareholder Equity, (and dividing that by the number
of shares held to get the book value per share) if a company is
able to earn, say,  $1.50 on a stock  whose book value is $10,
that's a 15% return.  That's actually a good return these days, much
better than you can get in a bank or C/D or Treasury bond, and so
people might be more encouraged to buy, while sellers are anxious to
hold on.  So the price might be bid up to the point where sellers
might be persuaded to sell.

What about dividends?  Dividends are certainly more tangible income
than potential earnings increases and stock price increases, so what
does it mean when a dividend is non-existent or very low?  And what
do people mean when they talk about a stock's yield?

To begin with the easy question first, the yield is the annual dividend
divided by the stock price.  For example, if company XYZ is paying $.25
per quarter ($1.00 per year) and XYZ is trading at $10 per share, the
yield is 10%.

A company paying no or low dividends (zero or low yield) is really
saying to its investors -- its owners, "We believe we can earn more,
and return more value to shareholders by retaining the earnings, by
putting that money to work, than by paying it out and not having it
to invest in new plant or goods or salaries."   And having said that,
they are expected to earn a good return on not only their previous
equity, but on the increased equity represented by retained earnings.

So a company whose book value last year was $10 and who retains its
entire $1.50 earnings, increases its book value to 11.50 less
certain expenses.  That increased book value - let's say it is now
$11 -- means the company must earn at least $1.65 this year just
to keep up with its 15% return on equity.  If the company earns
$1.80, the owners have indeed made a good investment, and other
investors, seeking to get in on a good thing, bid up the price.

That's the theory anyway.  In spite of that, many investors still
buy or sell based on what some commentator says or on announcement
of a new product or on the hiring (or resignation) of a key officer,
or on general sexiness of the company's products.  And that will
always happen.

What is the moral of all this:  Look at a company's financials,
look at the Value Line and S&P charts and recommendations, do some
homework before buying.

Does Value Line and S&P take the actual dividend into account
when issuing its "Timeliness" and "Safety" ratings?  Not exactly.
They report it, but their ratings are primarily based on earnings
potential, performance in their industry, past history, and a few
other factors.  (I don't think anyone knows all the other factors.
That's why people pay for the ratings.)

Can a stock broker be relied on to provide well-analyzed, well
thought out information and recommendations?  Yes and no.

On the one hand, a stock broker is in business to sell you stock.
Would you trust a used-car dealer to carefully analyze the
available cars and sell you the best car for the best price?
Then why would you trust a broker to do the same?

On the other hand, there are people who get paid to analyze company
financial positions and make carefully thought out recommendations,
sometimes to buy or to hold or to sell stock.  While many of these
folks work in the "research" departments of full-service brokers,
some work for Value Line, S&P etc, and have less of an axe to grind.
Brokers who rely on this information really do have solid grounding
behind their recommendations.

Probably the best people to listen to are those who make investment
decisions for the largest of Mutual Funds, although the investment
decisions are often after the fact, and announced 4 times a year.

An even better source would be those who make investment decisions
for the very large pension funds, which have more money invested
than most mutual funds.  Unfortunately that information is often
less available.  If you can catch one of these people on CNN for
example, that could be interesting.

-----------------------------------------------------------------------------

Subject: Stock Index Types
Last-Revised: 11 Dec 1992
From: [e-mail]

There are three major classes of indices in use today in the US.  They are:

A - equally weighted price index
    (an example is the Dow Jones Industrial Average)
B - market-capitalization-weighted index
        (an example is the S&P Industrial Average)
C - equally-weighted returns index
        (the only one of its kind is the Value-Line index)

Of these, A and B are widely used.  All my profs in the business school
claim that C is very weird and don't emphasize it too much.

+ Type A index:  As the name suggests, the index is calculated by taking the
average of the prices of a set of companies:

            Index =  Sum(Prices of N companies) / divisor

In this calculation, two questions crop up:

1. What is "N"?  The DJIA takes the 30 large "blue-chip" companies.  Why 30?
I think it's more a historical hangover than any thing else.  One rationale
for 30 might be that a large fraction of market capitalization is often
clustered in largest 50 companies or so.

Does the set of N companies change across time?  If so, how often is the
list updated (wrt companies)?  I suspect these decisions are quite
judgemental and hence not readily replicable.

If the DJIA only has 30 companies, how do we select these 30?  Why should
they have equal weights?  These are real criticisms of the DJIA type index.

2. The divisor is not always equal to N for N companies.  What happens to
the index when there is a stock issue by one of the companies in the set?
The price drops, but the number of shares have increased to leave the market
capitalization of the shares the same. Since the index does not take the
latter into account, it has to compensate for the drop in price by tweaking
the divisor.  For examples on this, look at pg. 61 of Bodie, Kane, & Marcus,
_Investments_ (henceforth, BKM).

Historically, this index format was computationally convenient.  It doesn't
have a very sound economic basis to justify it's existence today.  The DJIA
is widely cited on the evening news, but not used by real finance folks.

I have an intuition that the DJIA type index will actually be BAD if the
number of companies is very large.  If it's to make any sense at all, it
should be very few "brilliantly" chosen companies.

+ Type B index:  In this index, each of the N company's price is weighted by
the market capitalization of the company.

        Sum (Company market capitalization * Price) over N companies
Index = ------------------------------------------------------------
        Market capitalisation for these N companies

Here you do not take into account the dividend data, so effectively you're
tracking the short-run capital gains of the market.

Practical questions regarding this index:

1. What is "N"?  I would use the largest N possible to get as close to the
"full" market as possible.   BTW in the US there are companies who make a
living on only calculating extremely complete value-weighted indexes for
the NYSE and foreign markets.  CMIE should sell a very-complete value-weighted
index to some such folks.

Why does S&P use 500? Once again, I'm guessing that it's for historical
reasons when computation over 20,000 companies every day was difficult and
because of the concentration of market capitalization in the largest lot
of companies.  Today, computation over 20k companies for a Sun workstation
is no problem, so the S&P idea is obsolete.

2.  How to deal with companies entering and exiting the index?  If we're
doing an index containing "every single company possible" then the answer
to this question is easy -- each time a company enters or exits we recalculate
all weights.  But if we're a value-weighted index like the S&P500 (where there
are only 500 companies) it's a problem.  Recently Wang went bankrupt and S&P
decided to replace them by Sun -- how do you justify such choices?

The value weighted index is superior to the DJIA type index for deep reasons.
Anyone doing modern finance will not use the DJIA type index.  A glimmer of
the reasoning for this is as follows:  If I held a portfolio with equal number
of shares of each of the 30 DJIA companies then the DJIA index would accurately
reflect my capital gains.  BUT we know that it is possible to find a portfolio
which has the same returns as the DJIA portfolio but at a smaller risk.
(This is a mathematical fact).

Thus, by definition, nobody is ever going to own a DJIA portfolio.  In
contrast, there is a extremely good interpretation for the value weighted
portfolio -- it's the highest returns you can get for it's level of risk.
Thus you would have good reason for owning a value-weighted market portfolio,
thus justifying it's index.

Yet another intuition about the value-weighted index -- a smart investor is
not going to ever buy equal number of shares of a given set of companies,
which is what index type a. tracks.  If you take into consideration that the
price movements of companies are correlated with others, you are going to
hedge your returns by buying different proportions of company shares.  This
is in effect what the index type B does and this is why it is a smarter index
to follow.

One very neat property of this kind of index is that it is readily applied to
industry indices.  Thus you can simply apply the above formula to all machine
tool companies, and you get a machine tool index.  This industry-index is
conceptually sound, with excellent interpretations.  Thus on a day when the
market index goes up 6%, if machine tools goes up 10%, you know the market
found some good news on machine tools.

+ Type C index:  Here the index is the average of the returns of a certain
set of companies. Value Line publishes two versions of it:

  * the arithmetic index :  (VLAI/N) =  1  * Sum(N returns)
  * the geometric index :  VLGI  = {Product(1 + return) over N}^{1/n},
    which is just the geometric mean of the N returns.

Notice that these indices imply that the dollar value on each company has
to be the same.  Discussed further in BKM, pg 66.

-----------------------------------------------------------------------------

Subject: Stock Index - The Dow
Last-Revised: 11 Dec 1992
From: [e-mail], [e-mail]

The Dow Jones Industrial Average is computed from the following stocks:

Ticker  Name
------  ----
AA    Alcoa
ALD    Allied Signal
AXP    American Express
BA    Boeing
BS    Bethlehem Steel
CAT    Caterpillar
CHV    Chevron
DD    Du Pont
DIS    Disney
EK    Eastman Kodak
GE    General Electric
GM    General Motors
GT    Goodyear Tire
IBM    International Business Machines
IP    International Paper
JPM    JP Morgan Bank
KO    Coca Cola
MCD    McDonalds
MMM    Minnesota Mining and Manufacturing (3M)
MO    Philip Morris
MRK    Merck
PG    Procter and Gamble
S    Sears, Roebuck
T    AT&T
TX    Texaco
UK    Union Carbide
UTX    United Technologies
WX    Westinghouse
XON    Exxon
Z    Woolworth

The Dow Jones averages are computed by summing the prices of the stocks
in the average and then dividing by a constant called the "divisor".  The
divisor for the industrial average is adjusted periodically to reflect
splits in the stocks making up the average; the divisor was originally 30
but has been reduced over the years to 0.462685 (as of 92-10-31).  The
current value of the divisor can be found in the Wall Street Journal
and Barron's.

-----------------------------------------------------------------------------

Subject: Stock Indexes - Others
Last-Revised: 29 Jul 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail]

US Indexes:
-----------

AMEX Composite
    A capitalization-weighted index of all stocks trading on the ASE.
NASDAQ 100
    The 100 largest non-financial stocks on the NASDAQ exchange.
NASDAQ Composite
    Midcap index made up of all the OTC stocks that trade on the Nasdaq
    Market System. 15% of the US market.
NYSE Composite
    A capitalization-weighted index of all stocks trading on the NYSE.
Russell 1000
    ?
Russell 2000
    Designed to be a comprehensive representation of the U.S. small-cap
    equities market.  The index consists of the smallest 2000 companies
    out of the top 3000 in domestic equity capitalization.   The stocks
    range from $40M to $456M in value of outstanding shares.  This index
    is capitalization weighted; i.e., it gives greater weight to stocks
    with greater market value (i.e., shares * price).
Russell 3000
    The 3000 largest U.S. companies.
Standard & Poor's 500
    Made up of 400 industrial stocks, 20 transportation stocks, 40 utility,
    and 40 financial.  Market value (#of common shares * price per share)
    weighted.  Dividend returns not included in index. Represents about
    70% of US stock market.  Cap range 73 to 75,000.
Standard & Poor's 400 (aka S&P Midcap)
    Tracks 400 industrial stocks. Cap range: 85 million to 6.8 billion.
Standard & Poor's 100 (and OEX)
    The S&P 100 is an index of 100 stocks.  The "OEX" is the option on
    this index, one of the most heavily traded options around.
Value Line Composite
    See Martin Zweig's Winning on Wall Street for a good description.
    It is a price-weighted index as opposed to a capitalization index.
    Zweig (and others) think this gives better tracking of investment
    results, since it is not over-weighted in IBM, for example, and
    most individuals are likewise not weighted by market cap in their
    portfolios (unless they buy index funds).
Wilshire 5000
    All U.S. exchange-traded stocks. Contains over 6000 US stocks on NYSE,
    Amex, and NASDAQ. Includes the S&P 500.  Considered by some a good
    measure of market as a whole because it includes smaller companies.
Wilshire 4500
    The Wilshire 5000 minus the S&P500. About 29% of the total stock market.
    Cap range: 1 to 23,000.

Non-US Indexes:
--------------

CAC-40 (France)
    This is 40 stocks on the Paris Stock Exchange formed into an
    index.  The futures contract on this index is probably the most
    heavily traded futures contract in the world.
DAX (Germany)
    ?
FTSE-100 (Great Britain)
    Commonly known as 'footsie'.  Consists of a weighted arithmetical
    index of 100 leading UK equities by market capitalization.  Calculated
    on a minute-by-minute basis.  The footsie basically represents the bulk
    of the UK market activity.
Europe, Australia, and Far-East (EAFE)
    Compiled by Morgan Stanley.
Nikkei Dow (Japan)
    I believe "Dow" is a misnomer.  It is called the Nikkei index (or
    the Nikkei-xx, where xx is the number of shares in it, which I
    can't quote to you out of my head).  "Dow" comes from Dow Jones &
    Company, which publishes DJIA numbers.  Nikkei is considered the
    "Japanese Dow," in that it is the most popular and commonly quoted
    Japanese market index, but I don't think Dow Jones owns it.

 [ Compiler's note: a few explanations are still missing.
   I would very much like to complete this article, please help! ]

-----------------------------------------------------------------------------

Subject: Stock Splits
Last-Revised: 1 Mar 1993
From: [e-mail], [e-mail], [e-mail]

Ordinary splits occur when the company distributes more stock to holders
of existing stock.  A stock split, say 2-for-1, is when a company simply
issues one additional share for every one outstanding.  After the split,
there will be two shares for every one pre-split share. (So it is called
a "2-for-1 split.")  If the stock was at $50 per share, after the split,
each share is worth $25, because the company's net assets didn't increase,
only the number of outstanding shares.

Sometimes an ordinary split is referred to as a percent.  A 2:1 split is
a 100% stock split (or 100% stock dividend).   A 50% split would be a 3:2
split (or 50% stock dividend).  You will get 1 more share of stock for
every 2 shares you owned.

Reverse splits occur when a company wants to raise the price of their
stock, so it no longer looks like a "penny stock" but looks more like a
self-respecting stock.  Or they might want to conduct a massive reverse
split to eliminate small holders.  If a $1 stock is split 1:10 the new
shares will be worth $10.  Holders will have to trade in their 10 Old
Shares to receive 1 New Share.

Often a split is announced long before the effective date of the split,
along with the "record date."   Shareholders of record on the record
date will receive the split shares on the effective date (distribution
date). Sometimes the split stock begins trading as "when issued" on or
about the record date.   The newspaper listing will show both the pre-
split stock as well as the when-issued split stock with the suffix "wi."
(Stock dividends of 10% or less will generally not trade wi.)

Theoretically a stock split is a non-event.  The fraction of the company
each of your shares represents is reduced, but you are given enough
shares so that your total fraction of the company owned remains the same.
On the day of the split, the value of the stock is also adjusted so that
the total capitalization of the company remains the same.

In practice, an ordinary split often drives the new price per share up,
as more of the public is attracted by the lower price.  A company might
split when it feels its per-share price has risen beyond what an individual
investor is willing to pay, particularly since they are usually bought
and sold in 100's.  They may wish to attract individuals to stabilize the
price, as institutional investors buy and sell more often than individuals.

-----------------------------------------------------------------------------

Subject: Technical Analysis
Last-Revised: 12 Feb 1994
From: [e-mail]

The following material introduces technical analysis and is intended to
be educational.  If you are intrigued, do your own reading.  The answers
are brief and cannot possibly do justice to the topics.  The references
provide a substantial amount of information.  The contributions of the
reviewers is appreciated.

First, the references:

  1. Technical Analysis of the Futures Markets, by John J. Murphy.
     New York Institute of Finance.

  2. Technical Analysis Explained, by Martin Pring.
     McGraw Hill.

  3. Stan Weinstein's Secrets for Profiting in Bull and Bear Markets, by
     Stan Weinstein.  Dow Jones-Irwin.

Next, the discussion:

1.  What is technical analysis?

Technical analysis attempts to use *past* stock price and volume
information to predict *future* price movements.  Note the emphasis.
It also attempts to time the markets.

2.  Does it have any chance of working, or is it just like reading tea leaves?

There are a couple of plausibility arguments.  One is that the chart
patterns represent the past behavior of the pool of investors.  Since
that pool doesn't change rapidly, one might expect to see similar chart
patterns in the future.  Another argument is that the chart patterns
display the action inherent in an auction market.  Since not everyone
reacts to information instantly, the chart can provide some predictive
value.  A third argument is that the chart patterns appear over and over
again.  Even if I don't know why they happen, I shouldn't trade or invest
against them.  A fourth argument is that investors swing from overly
optimistic to excessively pessimistic and back again.  Technical analysis
can provide some estimates of this situation.

A contrary view is that it is just coincidence and there is little, if
any, causality present.  Or that even if there is some sort of causality
process going on, it isn't strong enough to trade off of.

A very contrary view:  The past and future performance of a stock may
be correlated, but that does not mean or imply causality. So, relying
on technical analysis to buy/sell a stock is like relying on the position
of the stars in the atmosphere or the phases of the moon to decide whether
to buy or sell.

3.  I am a fundamentalist.  Should I know anything about technical analysis?

Perhaps.  You should consider delaying purchase of stocks whose chart
patterns look bad, no matter how good the fundamentals.  The market is
telling you something is still awry.  Another argument is that the
technicians won't be buying and they will not be helping the stock move
up.  On the other hand (as the economists say), it makes it easy for
you to buy in front of them.  And, of course, you can ignore technical
analysis viewpoints and rely solely on fundamentals.

4.  What are moving averages?

Observe that a period can be a day, a week, a month, or as little as 1
minute.  Stock and mutual fund charts normally are daily postings or
weekly postings.  An N period (simple) moving average is computed by
summing the last N data points and dividing by N.  Moving averages are
normally simple unless otherwise specified.

An exponential moving average is computed slightly differently.  Let
X[i] be a series of data points.  Then the Exponential Moving Average
(EMA) is computed by

    EMA[i] = (1 - sm) * EMA[i-1] + sm * X[i]

    where sm = 2/(N+1), and EMA[1] = X[1].

"sm" is the smoothing constant for an N period EMA.  Note that the EMA
provides more weighting to the recent data, less weighting to the old data.

4a.  What is Stage Analysis?

Stan Weinstein [Ref 3] developed a theory (based on his observations)
that stocks usually go through four stages in order.  Stage 1 is a time
period where the stock fluctuates in a relatively narrow range.  Little
or nothing seems to be happening and the stock price will wander back
and forth across the 200 day moving average.  This period is generally
called "base building".  Stage 2 is an advancing stage characterized by
the stock rising above the 200 and 50 day moving averages.  The stock
may drop below the 50 day average and still be considered in Stage 2.
Fundamentally, Stage 2 is triggered by a perception of improved conditions
with the company.  Stage 3 is a "peaking out" of the stock price action.
Typically the price will begin to cross the 200 day moving average, and
the average may begin to round over on the chart.  This is the time to
take profits.  Finally, the Stage 4 decline begins.  The stock price drops
below the 50 and 200 day moving averages, and continues down until a new
Stage 1 begins.  Take the pledge right now:  hold up your right hand and
say "I will never purchase a stock in Stage 4".  One could have avoided
the late 92-93 debacle in IBM by standing aside as it worked its way
through a Stage 4 decline.

5.  What is a whipsaw?

This is where you purchase based on a moving average crossing (or some
other signal) and then the price moves in the other direction giving a
sell signal shortly thereafter, frequently with a loss.  Whipsaws can
substantially increase your commissions for stocks and excessive mutual
fund switching may be prohibited by the fund manager.

5a.  Why a 200 day moving average as opposed to 190 or 210?

Moving averages are chosen as a compromise between being too late to
catch much move after a change in trend, and getting whipsawed.  The
shorter the moving average, the more fluctuations it has.  There are
considerations regarding cyclic stock patterns and which of those are
filtered out by the moving average filter.  A discussion of filters is
far beyond the scope of this FAQ.  See Hurst's book on stock
transactions for some discussion.

6.  Explain support and resistance levels, and how to use them.

Suppose a stock drops to a price, say 35, and rebounds.  And that this
happens a few more times.  Then 35 is considered a "support" level.
The concept is that there are buyers waiting to buy at that price.
Imagine someone who had planned to purchase and his broker talked him
out of it.  After seeing the price rise, he swears he's not going to
let the stock get away from him again.  Similarly, an advance to a
price, say 45, which is repeatedly followed by a pullback to lower
prices because a "resistance" level.  The notion is that there are
buyers who purchased at 45 and have watched a deterioration into a loss
position.  They are now waiting to get out even.  Or there are sellers
who consider 45 overvalued and want to take their profits.

One strategy is to attempt to purchase near support and take profits near
resistance.  Another is to wait for an "upside breakout" where the stock
penetrates a previous resistance level.  Purchase on anticipation of a
further move up.  [See references for more details.]

The support level (and subsequent support levels after rises) can provide
information for use in setting stops.  See the "About Stocks" section of
the FAQ for more details.

6a.  What would cause these levels to be penetrated?

Abrupt changes in a company's prospects will be reacted to in the stock
market almost immediately.  If the news is extreme enough, the reaction
will appear as a jump or gap in prices.  More modest changes will
result, in general, in more modest changes in price.

6b.  What is an "upside breakout"?

If a stock has traded in a narrow range for some time (i.e. built a
base) and then advances above the resistance level, this is said to be an
"upside breakout".  Breakouts are suspect if they do not occur on high
volume (compared to average daily volume).  Some traders use a "buy stop"
which calls for purchase when a stock rises above a certain price.

6c.  Is there a "downside breakout"?

Not by that name -- the opposite of upside breakout is called
"penetration of support" or "breakdown".  Corresponding to "buy stops,"
a trader can set a "sell stop" to exit a position on breakdown.

7.  Explain breadth measurements and how to use them.

A breadth measurement is something taken across a market.  For example,
looking at the number of advancing stocks compared to declining stocks
on the NYSE is a breadth measurement.  Or looking at the number of stocks
above their 200 day moving average.  Or looking at the percentage of stocks
in Stage 1 and 2 configurations.  In general, a technically healthy market
should see a lot of stocks advancing, not just the Dow 30.  If the breadth
measurements are poor in an advancing sense and the market has been
advancing for some time, then this can indicate a market turning point
(assuming that the advancing breadth is declining) and you should consider
taking profits, not entering new long positions, and/or tightening stops.
(See the divergence discussion.)

7a.  What is a divergence?  What is the significance?

In general, a divergence is said to occur when two readings are not
moving generally together when they would be expected to.  For example,
if the DJIA moves up a lot but the S&P 500 moves very little or even
declines, a divergence is created.  Divergences can signify turning
points in the market.  At a major market low, the "blue chip" stocks
tend to move up first as investors becoming willing to purchase quality.
Hence the S&P 500 may be advancing while the NYSE composite is moving
very little.  Divergences, like everything else, are not 100 per cent
reliable.  But they do provide yellow or red alerts.  And the bigger the
divergence, the stronger the signal.  Divergence and breadth are related
concepts.  (See the breadth discussion.)

8.  How much are charting services and what ones are available?

They aren't cheap.  Daily Graphs (weekly charts with daily prices) is
$465 for the NYSE edition, $432 for the AMEX/OTC edition.  Somewhat
cheaper for biweekly or monthly.  Mansfield charts are weekly with weekly
prices.  Mansfield shows about 2.5 years of action, Daily Graphs shows 1
year or 6 months for the less active stocks.

S&P Trendline Chart Guide is about $145 per year.  It provides over 4,000
charts.  These charts show one year of weekly price/volume data and do not
provide nearly the detail that Daily Graphs do.  You get what you pay for.

There are other charting services available.  These are merely representative.

9.  Can I get charts with a PC program?

Yes.  There are many programs available for various prices.  Daily quotes
run about $35 or so a month from Dial Data, for example.  Or you can
manually enter the data from the newspaper.

10.  What would a PC program do that a charting service doesn't?

Programs provide a wide range of technical analysis computations in
addition to moving averages.  RSI, MACD, Stochastics, etc., are routinely
included.  See Murphy's book [Ref 1] for definitions.  Frequently you can
change the length of the moving averages or other parameters.  As another
example, AIQ StockExpert provides an "expert rating" suggesting purchase
or short depending on the rating.  Intermediate values of the rating are
less conclusive.

11.  What does a charting service do that PC doesn't?

Charts generally contain a fair amount of fundamental information such
as sales, dividends, prior growth rates, institutional ownership.

11a.  Can I draw my own charts?

Of course.  For example, if you only want to follow a handful of mutual
funds of stocks, charting on a weekly basis is easy enough.  EMAs are
also easy enough to compute, but will take a while to overcome the lack
of a suitable starting value.

12.  What about wedges, exhaustion gaps, breakaway gaps, coils, saucer
     bottoms, and all those other weird formations?

The answer is beyond the scope of this FAQ article.  Such patterns can be
seen, particularly if you have a good imagination.  Many believe they are
not reliable.  There is some discussion in Murphy [Ref 1].

13.  Are there any aspects of technical analysis that don't seem quite
     so much like hokum or tea leaf reading?

RSI (Relative Strength Indicator) is based on the observation that a
stock which is advancing will tend to close nearer to the high of the day
than the low.  The reverse is true for declining stocks.  RSI is a formula
which attempts to provide a number which will indicate where you are in
the declining/advancing stage.

14.  Can I develop my own technical indicators?

Yes.  The problem is validating them via some sort of backtesting procedure.
This requires data and work.  One suggestion is to split the data into
two time periods.  Develop your indicator on one half and then see if it
still works on the other half.  If you aren't careful, you end up
"curve fitting" your system to the data.

-----------------------------------------------------------------------------

Subject: Ticker Tape Terminology
Last-Revised: 11 Dec 1992
From: [e-mail], [e-mail]

Ticker tape says:        Translation (but see below):
        NIKE68 1/2            100 shares sold at 68 1/2
     10sNIKE68 1/2           1000 shares sold at   "
 10.000sNIKE68 1/2          10000 shares sold at   "

The extra zeroes for the big trades are to make them stand out.  All
trades on CNN and CNBC are delayed by 15 minutes.  CNBC once advertised
a "ticker guide pamphlet, free for the asking", back when they merged
with FNN.  It also has explanations for the futures they show.

However, the first translation is not necessarily correct.  CNBC has
a dynamic maximum size for transactions that are displayed this way.
Depending on how busy things are at any particular time, the maximum
varies from 100 to 5000 shares.  You can figure out the current maximum
by watching carefully for about five minutes.  If the smallest number
of shares you see in the second format is "10s" for any traded security,
then the first form can mean anything from 100 to 900 shares.  If the
smallest you see is "50s" (which is pretty common), the first form
means anything between 100 and 4900 shares.

Note that at busy times, a broker's ticker drops the volume figure and
then everything but the last dollar digit (e.g. on a busy day, a trade
of 25,000 IBM at 68 3/4 shows only as "IBM 8 3/4" on a broker's ticker).
That never happens on CNBC, so I don't know how they can keep up with all
trades without "forgetting" a few.

-----------------------------------------------------------------------------

Subject: Treasury Debt Instruments
Last-Revised: 30 Mar 1994
From: [e-mail], [e-mail]

The US Treasury Department periodically borrows money and issues
IOUs in the form of bills, notes, or bonds ("Treasuries").  The
differences are in their maturities and denominations:

                    Bill             Note              Bond
  Maturity       up to 1 year     1 - 10 years     10 - 30/40 years
  Denomination     $5,000           $1,000            $1,000
                (10,000 minimum)

Treasuries are auctioned.  Short term T-bills are auctioned every Monday,
and longer term bills, notes, and bonds are auctioned at other intervals.

T-Notes and Bonds pay a stated interest rate semi-annually, and are
redeemed at face value at maturity.  Exception: Some 30 year and
longer bonds may be called (redeemed) at 25 years.

T-bills work a bit differently.  They are sold on a "discounted
basis."  This means you pay, say, $9,700 for a 1-year T-bill.  At
maturity the Treasury will pay you (via electronic transfer to your
designated bank checking account) $10,000.  The $300 discount is the
"interest."  In this example, you receive a return of $300 on a $9,700
investment, which is a simple rate of slightly more than 3%.

Treasuries can be bought through a bank or broker, but you will
usually have to pay a fee or commission to do this.  They can also
be bought with no fee using the Treasury Direct program, which is
described elsewhere in the FAQ.

In practice, the first T-bill purchase requires you to send a
certified or cashiers check for the full face value, and within a
week or so, after the auction sets the interest rate, the Treasury
will return the discount ($300 in the example above) to your checking
account.  For some reason, you can purchase notes and bonds with a
personal check.

Treasuries are negotiable.  If you own Treasuries you can sell them
at any time and there is a ready market.  The sale price depends on
market interest rates.  Since they are fully negotiable, you may also
pledge them as collateral for loans.

Treasury bills, notes, and bonds are the standard for safety.  By
definition, everything is relative to Treasuries; there is no safer
investment in the U.S.  They are backed by the "Full Faith and Credit"
of the United States.

Interest on Treasuries is taxable by the Federal Government in the
year paid.  States and local municipalities do not tax Treasury
interest income.  T-bill interest is recognized at maturity, so they
offer a way to move income from one year to the next.

The US Treasury also issues Zero Coupon Bonds.  The ``Separate Trading
of Registered Interest and Principal of Securities'' (a.k.a. STRIPS)
program was introduced in February 1986.  All new T-Bonds and T-notes
with maturities greater than 10 years are eligible.  As of 1987, the
securities clear through the Federal Reserve's books entry system.
As of December 1988, 65% of the ZERO-COUPON Treasury market consisted
of those created under the STRIPS program.

However, the US Treasury did not always issue Zero Coupon Bonds.
Between 1982 and 1986, a number of enterprising companies and funds
purchased Treasuries, stripped off the ``coupon'' (an anachronism from
the days when new bonds had coupons attached to them) and sold the
coupons for income and the non-coupon portion (TIGeRs or Strips) as
zeroes.  Merrill Lynch was the first when it introduced TIGR's and
Solomon introduced the CATS.  Once the US Treasury started its program,
the origination of trademarks and generics ended. There are still TIGRs
out there, but no new ones are being issued.

Other US Debt obligations that may be worth considering are US Savings
Bonds (Series E/EE and H/HH) and bonds from various US Government
agencies, including the ones that are known by cutesy names like
Freddie Mac, as well as the Mae sisters, Fannie, Ginnie and Sallie.

Historically, Treasuries have paid higher interest rates than EE
Savings Bonds.  Savings Bonds held 5 years pay 85% of 5 year Treasuries.
However, in the past few years, the floor on savings bonds (4% under
current law) is higher than short-term Treasuries.  So for the short
term, EE Savings Bonds actually pay higher than treasuries, but are
non-negotiable and purchases are limited to $15,000 ($30,000 face)
per year.

US Government Agency Bonds, in general, pay slightly more interest
but are somewhat less predictible than Treasuries.  For example,
mortgage-backed-bond returns will vary if mortgages are redeemed
early.  Some agency bonds, technically, are not general obligations
of the United States, so may not be purchased by certain institutions
and local governments.  The "common sense" of many people, however,
is that the Congress will never allow any of those bonds to default.

-----------------------------------------------------------------------------

Subject: Treasury Direct
Last-Revised: 28 Jun 1994
From: [e-mail], [e-mail],
    [e-mail]

You can buy Treasury Instruments directly from the US Treasury.
Contact any Federal Reserve Bank (for example, New York: 33 Liberty
Street, New York NY 10045) and ask for forms to participate in the
Treasury Direct program.  The minimum for a Treasury Note (2 years and
up) is only $5K and in some instances (I believe 5 year notes) $1K.
There are no fees and you may elect to have interest payments made
directly to your account.  You even may pay with a personal check, no
need for a cashier's or certified check as Treasury Bills (1 year and
under) required.  In the Treasury Direct program, you can ask that you
roll over the matured Treasury towards the purchase of a new one.

AAII Journal had an article on this a couple of years ago.  Like they
said, the government service is great, they just do not advertise it well.
You can get more information from the following phone numbers:

    Federal Reserve Banks   Recorded Info   Voice Line
    ----------------------------------------------------
    Atlanta                 404-521-8657    404-521-8653
    Baltimore               301-576-3500    301-576-3300
    Birmingham              205-731-9702    205-731-8708
    Boston                  617-973-3805    617-973-3810
    Buffalo                 716-849-5158    716-849-5000
    Charlotte               704-358-2424    704-358-2100
    Chicago                 312-786-1110    312-322-5369
    Cincinnati                              513-721-4787
    Cleveland                               216-579-2490
    Dallas                                  214-651-6362
    Denver                  303-572-2475    303-572-2470
    Detroit                 313-963-4936    313-964-6157
    El Paso                                 915-544-4730
    Houston                                 713-659-4433
    Jacksonville            904-632-1178    904-632-1179
    Kansas City             816-881-2767    816-881-2409
    Little Rock                             501-324-8272
    Los Angeles                             213-624-7398
    Louisville              502-568-9240    502-568-9236
    Memphis                                 901-523-7171
    Miami                   305-471-6257    305-471-6497
    Minneapolis             612-340-2051    612-340-2075
    Nashville               615-251-7236    615-251-7100
    New Orleans             504-593-3290    504-593-3200
    New York                212-720-5823    212-720-6619
    Oklahoma City           405-270-8660    405-270-8652
    Omaha                   402-221-5638    402-221-5636
    Philadelphia            215-574-6580    215-574-6680
    Pittsburgh              412-261-7988    412-261-7863
    Portland                503-221-5931    503-221-5932
    Richmond                804-697-8355    804-697-8372
    Salt Lake City          801-322-7844    801-322-7900
    San Antonio             512-978-1330    512-978-1303
    San Francisco           415-974-3491    415-974-2330
    Seattle                 206-343-3615    206-343-3605
    Saint Louis             314-444-8602    314-444-8665

    US Treasury                             202-874-4000
    Device for Hearing Impaired:            202-874-4026

-----------------------------------------------------------------------------

Subject: Uniform Gifts to Minors Act (UGMA)
Last-Revised: 27 Sep 1993
From: [e-mail], [e-mail], [e-mail]

The Uniform Gifts to Minors Act allows you to give $10,000 per year
to any minor, tax free.  You must appoint a custodian.

Some accountants advise that one person should make the gift and
that a different person should be the custodian.  The reason is
that if the donor and custodian are the same person, that person
is considered to exercise sufficient control over the assets to
warrant inclusion of the UGMA in his/her estate.  For more info,
see Lober, Louis v. US, 346 US 335 (1953) (53-2 USTC par. 10922);
Rev Ruls 57-366, 59-357, 70-348.

All of these are cited in the RIA Federal Tax Coordinator 2d, volume
22A, paragraph R-2619, which says (among other things) "Giving cash,
stocks, bonds, notes, etc., to children through a custodian may result
in the transferred property being included in the donor's gross estate
unless someone other than the donor is named as custodian."

To give such a gift, go to your friendly neighborhood stockbroker,
bank, mutual fund manager, or (close your eyes now: S&L), etc. and
say that you wish to open a Uniform Gifts (in some states "Transfers")
to Minors Act account.

You register it as:
  [ Name of Custodian ] as custodian for [ Name of Minor ] under the
  Uniform Gifts/Transfers to Minors Act - [ Name of State of Minor's
  residence ]

You use the minor's social security number as the taxpayer ID for this
account.  When you fill out the W-9 form for this account, it will
show this form.  The custodian should certify the W-9 form.

The money now belongs to the minor and the custodian has a legal
fiduciary responsibility to handle the money in a prudent manner for
the benefit of the minor.

So you can buy common stocks but cannot write naked options.  You
cannot "invest" the money on the horses, planning to donate the
winnings to the minor.  And when the minor reaches age of majority -
usually 18 - the minor can claim all of the funds even if that's
against your wishes.  You cannot place any conditions on those funds
once the minor becomes an adult.

Until the minor reaches 14, the first $600 earned by the minor is
tax free, the next $600 is taxed at the minor's rate, and the rest
is taxed at the higher of the minor's or the parent's rate.  After
the minor reaches 14, all earnings over $600 are taxed at the
minor's rate.

Note that if you want to continue doing your childs taxes even after
they turn 18, there is no reason they need to know about their UGMA
account that you set up for them.  They certainly can't blow their
college fund on a Trans Am if they don't know about it.

Even if your child does his/her own taxes, you can still give them
gifts through a trust without them knowing about it until they are
more mature.  Call and ask Twentieth Century Investors for information
about their GiftTrust fund.  The fund is entirely composed of trusts
like this.  The trust pays its own taxes.

-----------------------------------------------------------------------------

Subject: Warrants
Last-Revised: 11 Dec 1992
From: [e-mail]

There are many meanings to the word warrant.

The marshal can show up on your doorstep with a warrant for your arrest.

Many army helicopter pilots are warrant officers, who have received
a warrant from the president of the US to serve in the Army of the
United States.

The State of California ran out of money earlier this year and
issued things that looked a lot like checks, but had no promise to
pay behind them.  If I did that I could be arrested for writing a
bad check.  When the State of California did it, they called these
thingies "warrants" and got away with it.

And a warrant is also a financial instrument which was issued with
certain conditions.  The issuer of that warrant sets those conditions.
Sometimes the warrant and common or preferred convertible stock are
issued by a startup company bundled together as "units" and at some
later date the units will split into warrants and stock.  This is a
common financing method for some startup companies.  This is the
"warrant" most readers of the misc.invest newsgroup ask about.

As an example of a "condition," there may be an exchange privilege
which lets you exchange 1 warrant plus $25 in cash (or even no cash
at all) for 100 shares of common stock in the corporation, any time
after some fixed date and before some other designated date.
(And often the issuer can extend the "expiration date.")

So there are some similarities between warrants and call options for
common stock.

Both allow holders to exercise the warrant/option before an
expiration date, for a certain number of shares.  But the option is
issued by independent parties, such as a member of the Chicago Board
Options Exchange, while the warrant is issued and guaranteed by the
corporate issuer itself.  The lifetime of a warrant is often
measured in years, while the lifetime of a call option is months.

Sometimes the issuer will try to establish a market for the warrant,
and even try to register it with a listed exchange.  The price can
then be obtained from any broker.  Other times the warrant will be
privately held, or not registered with an exchange, and the price
is less obvious, as is true with non-listed stocks.

-----------------------------------------------------------------------------

Subject: Wash Sale Rule (from U.S. IRS)
Last-Revised: 14 Dec 1992
From: [e-mail]

From IRS publication 550, "Investment Income and Expenses" (1990).
Here is the introductory paragraph from p.37:

    Wash Sales
    You cannot deduct losses from wash sales or trades of stock or
    securities.  However, the gain from these sales is taxable.

    A wash sale occurs when you sell stock or securities at a loss and
    within 30 days before or after the sale you buy or acquire in a
    fully taxable trade, or acquire a contract or option to buy,
    substantially identical stock or securities.  If you sell stock and
    your spouse or a corporation you control buys substantially
    identical stock, you also have a wash sale.  You add the disallowed
    loss to the basis of the new stock or security.

It goes on explaining all those terms (substantially identical, stock
or security, ...).  It runs on several pages, too much to type in.  You
should definitely call IRS for the most updated ones for detail.  Phone
number:  800-TAX-FORM (800-829-3676).

-----------------------------------------------------------------------------

Subject: Zero-Coupon Bonds
Last-Revised: 28 Feb 1994
From: [e-mail]

Not too many years ago every bond had coupons attached to it.  Every
so often, usually every 6 months, bond owners would take a scissors
to the bond, clip out the coupon, and present the coupon to the bond
issuer or to a bank for payment.  Those were "bearer bonds" meaning
the bearer (the person who had physical possession of the bond) owned
it.  Today, many bonds are issued as "registered" which means even if
you don't get to touch the actual bond at all, it will be registered
in your name and interest will be mailed to you every 6 months. It is
not too common to see such coupons. Registered bonds will not generally
have coupons, but may still pay interest each year.  It's sort of like
the issuer is clipping the coupons for you and mailing you a check.
But if they pay interest periodically, they are still called Coupon
Bonds, just as if the coupons were attached.

When the bond matures, the issuer redeems the bond and pays you the
face amount.   You may have paid $1000 for the bond 20 years ago and
you have received interest every 6 months for the last 20 years, and
you now redeem the matured bond for $1000.

A Zero-coupon bond has no coupons and there is no interest paid.

But at maturity, the issuer promises to redeem the bond at face value.
Obviously, the original cost of a $1000 bond is much less than $1000.
The actual price depends on: a) the holding period -- the number of
years to maturity, b) the prevailing interest rates, and c) the risk
involved (with the bond issuer).

Taxes:  Even though the bond holder does not receive any interest while
holding zeroes, in the US the IRS requires that you "impute" an annual
interest income and report this income each year.  Usually, the issuer
will send you a Form 1099-OID (Original Issue Discount) which lists the
imputed interest and which should be reported like any other interest
you receive.  There is also an IRS publication covering imputed interest
on Original Issue Discount instruments.

For capital gains purposes, the imputed interest you earned between the
time you acquired and the time you sold or redeemed the bond is added to
your cost basis.  If you held the bond continually from the time it was
issued until it matured, you will generally not have any gain or loss.

Zeroes tend to be more susceptible to prevailing interest rates, and
some people buy zeroes hoping to get capital gains when interest rates
drop. There is high leverage.   If rates go up, they can always hold them.

Zeroes sometimes pay a better rate than coupon bonds (whether registered
or not).  When a zero is bought for a tax deferred account, such as an
IRA, the imputed interest does not have to be reported as income, so
the paperwork is lessened.

Both corporate and municipalities issue zeroes, and imputed interest on
municipals is tax-free in the same way coupon interest on municipals is.
(The zero could be subject to AMT).

Some marketeers have created their own zeroes, starting with coupon
bonds, by clipping all the coupons and selling the bond less the coupons
as one product -- very much like a zero -- and the coupons as another
product. Even US Treasuries can be split into two products to form a
zero US Treasury.

There are other products which are combinations of zeroes and regular
bonds.  For example, a bond may be a zero for the first five years of
its life, and pay a stated interest rate thereafter.  It will be treated
as an OID instrument while it pays no interest.

(Note:  The "no interest" must be part of the original offering; if a
cumulative instrument intends to pay interest but defaults, that does not
make this a zero and does not cause imputed interest to be calculated.)

Like other bonds, some zeroes might be callable by the issuer (they are
redeemed) prior to maturity, at a stated price.

-----------------------------------------------------------------------------

Compilation Copyright (c) 1994 by Christopher Lott, [e-mail]
--
"Christopher Lott / Email: [e-mail] / Tel: [phone]"
"Address: FB Informatik - Bau 57 / Universitaet KL / D--67653 Kaiserslautern"
"World-wide web: http://uomo.informatik.uni-kl.de:2080/Personalia/cml.html"