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TitleInvesting in the Stock Market (CliffsNotes)
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Total Pages130
Table of Contents
                            Table of Contents
INTRODUCTION
	Why Do You Need This Book?
	How to Use This Book
	Don’t Miss Our Web Site
CHAPTER 1: DETERMINING YOUR FINANCIAL NEEDS AND GOALS
	Doing a Reality Check: Are You Free of
Major Debt?
		Sizing up credit card debt
		Considering other kinds of debt
	Setting Your Goals
		Deciding how much money and time you
need
		Developing an investment plan to meet
your goals and time frames
	Making a Commitment to Work for
Your Goals
		Using payroll deduction
		Exercising discipline
		Practicing patience
	Are You Ready?
CHAPTER 2: WHAT YOU NEED TO
KNOW ABOUT STOCKS
	The Many Varieties of Stocks
	Legal classification: Common or
preferred stocks
	Descriptive classification
		Total Market Value
		Anticipated performance
		Industry Group
	The Stock Market and Exchanges
	Understanding IPOs
CHAPTER 3: INVESTING IN THE
STOCK MARKET:
REWARDS AND RISKS
	Different Ways of Investing in the
Stock Market
		Investing as part of a group
		Investing in stocks on your own
	The Rewards of Investing
		Greater growth potential
		Better accessibility to your money
		Greater control
	The Risks of Investing
		You could lose a substantial part of
your investment
		You can’t see into the future
		There is no money-back guarantee
		You don’t have total control
CHAPTER 4: FINDING THE TOOLS TO
RESEARCH STOCKS
	Narrowing Your Choice of Stocks
		Narrowing the field
		Determining your investment strategy
		Devising a screening technique
	Understanding the Limits of Research
	Finding Your Level of Comfort
with Research
	Exploring Sources of Reliable Information
		Printed daily stock updates
		Televised daily stock updates
		Online daily stock updates
		Weekly and other reports on stocks
CHAPTER 5: SELECTING STOCKS
	Using Your Experience
	Using Your Intuition
	Reaching beyond Intuition: What Are the
Experts Doing?
	Picking Stocks: Some Criteria
		1: EPS: Earnings per share
		2: P/E ratio
		3: ROE: Return on stockholders’ equity
		4: Beta
		5 and 6: 5-year sales and earnings
history
		7: Company size
		8: Relative industry strength
	Practicing the Business of Real Purchases
		Playing the Paper Game
CHAPTER 6: TAKING THE PLUNGE:
MAKING THE
PURCHASE
	Buying Stocks with a Broker
		Choosing a broker
		Setting up an account
		Types of accounts
		Deciding what to do with dividends
		Deciding what to do with certificates
		Types of orders
	Buying Stocks on the Internet
	Buying Directly from a Company
	Maintaining Your Records
CHAPTER 7: TRACKING YOUR
STOCKS
	Setting Up Your Tracking Timetable
	Tracking the Stock
	Tracking a Company
CHAPTER 8: MAKING MID-COURSE
ADJUSTMENTS
	Diversifying Your Portfolio
	Purchasing Additional Stocks by
Dollar-Cost Averaging
	Handling Dividends
	Living with Market Downturns and
Stock Losses
	Knowing When to Sell a Loser
	Knowing When to Sell a Winner
CHAPTER 9: WHAT TO DO IF THINGS
GO BADLY
	Your First and Best Line of Defense
	When Do You Have a Legitimate
Complaint?
	Investor Rights
	What to Do If You Have a Legitimate
Complaint
CLIFFSNOTES REVIEW
	Q&A
	Scenarios
	Consider This
	Practice Projects
CLIFFSNOTES RESOURCE CENTER
	Books
	Internet
	Magazines and Newspapers
	Send Us Your Favorite Tips
INDEX
	NUMBERS
	A
	B
	C
	D
	E
	F
	G
	H
	I
	J
	K
	L
	M
	N
	O
	P
	Q
	R
	S
	T
	U
	V
	W
	Y
                        
Document Text Contents
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Page 65

My recommendation is that you focus on eight readily avail-
able and easily understood measures or criteria of a company’s
fundamental value. The goal of going through the same eight
criteria for each company is to answer the question: Is this is
a good company for me to invest in for the long run? As you
research, look at the following specific eight criteria:

You may be concerned that researching all the following fun-
damentals will take hours of your time. Don’t worry. In
almost all cases, the work has already been done for you. The
complete stock reports that you find in The Wall Street Jour-
nal and Investor’s Business Daily report much of the follow-
ing information every day. (For sales and earnings history,
you do have to go to your public library and check Value Line
or the S&P Reports.) And don’t forget to check Web sites on
the Internet. They contain a gold mine of information! See
the Web sites listed in the Resource Center in the back of this
book.

1: EPS: Earnings per share

The first bit of information you need to know about a com-
pany is how much money it is making. For ease of compar-
ison among companies, earnings are universally expressed as
earnings per share (EPS). These earnings are what’s left from
gross revenues after expenses, taxes, bad debts, and so on have
been subtracted.

For publicly traded and listed companies, these earnings and
other financial data come from audited financial records
approved by a Certified Public Accounting firm.

2: P/E ratio

The P/E ratio shows the relationship between the stock’s cur-
rent price and its reported annual earnings.

Chapter 5: Selecting Stocks 57

Page 66

A P/E ratio of 20 means that a company earns five cents for
every $1.00 you invest. This does not mean that the com-
pany pays a dividend of five cents per share. The company
may pay no dividend at all.

The P/E ratio tells us how much you have to pay to buy those
earnings per share. In the past, P/E ratios hovered between
10 and 20, but with the surge in stock prices in the 1990s,
P/E ratios in the 40 to 60 range and higher are increasingly
common.

Generally, the lower the P/E ratio, the more preferable the
stock. Profit, another name for earnings, is what drives the
price of stocks and payment of dividends.

3: ROE: Return on stockholders’ equity

The ROE, or return on equity, looks at the company’s prof-
itability from a different point of view. This figure tells you
what the company has done in the past with the money that
stockholders have invested in it.

An ROE of 15% or better is very good and maybe even out-
standing, depending on the industry. If you discover in your
research that one company’s ROE is above 15% and another
similar company’s ROE is 5%, the company with the higher
ROE is clearly the better choice. For a balanced perspective,
look at the trends for three or more years.

4: Beta

Beta is a measure of how volatile a stock’s price is relative to
the stock market as a whole. A beta of 1 means that the stock
moves up and down exactly at the same pace as the market
as a whole.

A beta greater than 1 indicates that a stock goes up or down
faster than the market as a whole. A beta of less than 1 means

58 CliffsNotes Investing in the Stock Market

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