The Financial Times Guide To Investing: The Definitive Companion To Investment and The Financial Markets

Description

No need to be baffled any longer by a flurry of information, data, facts and comments, impenetrabel waves of jargon, and the complexities of the financial markets.
The Financial Times Guide to Investing will introduce you  to the complex art of investing, and how to invest successfully, whether you are actively involved in investing or just thinking about it. In addition to providing a simple guide to understanding how financial markets operate, it will allow you to follow and act on your own judgements based on case studies and worked examples, giving you the chance to experiment successfully with shares, bonds, funds and derivatives. The book is written in a clear and uncluttered manner taking many examples and case studies from the FT.

 

Table of Contents     

CONTENTS

Introduction

PART I INVESTMENT BASICS

 

Chapter 1 What is investment?

Back in time

Partnerships

A company with limited liability

Ordinary shares and extraordinary returns

Shareholder rights

A money making machine

Dividends and retained earnings

What if I want to sell?

Primary and secondary markets

Bonds

Capital structure

Stocks and shares

Rights issues

Financial Institutions

Investment banks

The asset transformers

Pension funds

Insurance companies

The risk spreaders

Be proud to be a capitalist!

A note of warning – Investment and speculation

 

Chapter 2 The rewards of investment.

Becoming a millionaire

A little more realism

Simple and compound interest

An analogy

What investors have received in the past

Decade by decade

The importance of income

International comparison

Equity versus gilt performances

What about risk?

Closing comment

Chapter 3 Stock Markets.

What is a stock market?

Brokers and market makers

Pricing – good old supply and demand

A short history of the London Stock Exchange

Big bang

Chinese walls

Recent moves

The international scene

Variety of securities traded

The primary market

The secondary market

The Official list (the ‘Main’ market)

The Alternative Investment Market

TechMARK and the other MARKs

OFEX

Who owns UK shares?

Tasks for stock exchanges

Useful websites

Chapter 4 Buying and Selling Shares.

Stockbroker services

Choosing a stockbroker

Finding prices

What happens when I buy or sell shares?

Small or infrequently traded shares

An alternative mechanism

What happens after dealing?

Ways of paying for your shares

Internet dealing

Transferring shares without brokers

Websites

 

 

PART II THE INVESTMENT SPECTRUM

 

Chapter 5 Pooled investments.

Unit trusts

Pricing

Charging

Reading the FT

How do you buy or sell units?

Who looks after the unit holder’s interests?

Types of trusts available

Returns

Minimum investment

Following your units’ progress

Switching funds

Points to bear in mind when choosing a unit trust

OEICs

ETFs

Advantages of ETFs

Investment trusts (Investment companies)

Discounts and premiums

Costs for the investor

Borrowing

Tax

Split-capital investment trusts (‘Dual capital’ trusts)

Websites

With-profit policies

Taxation

The controversy over with-profit funds

Unit-linked policies

Insurance company bonds

Stock market-linked bonds

Hedge funds

Fund supermarkets

Websites

Chapter 6 Bonds.

Gilts

Prices and returns

Yield

Quotes

Buying and selling gilts

Cum-dividend and ex-dividend

Index-linked gilts

Corporate Bonds

Debentures and loan stock

Trust deeds and covenants

Repayments

Bond variations

Trading in the corporate bond market

Credit rating

High-yield (junk) bonds

Convertible bonds

Foreign bonds

Eurobonds

Chapter 7 Unusual share investment

Business angels

Venture capital

Private equity

Points for investors concerning Angel and Venture Capital

Overseas shares

Points to consider about investing abroad

Some useful websites for investors in overseas shares

Preference shares

Chapter 8 Options

What is a derivative?

A long history

What is an option?

Share options

Call option holders (call option buyer)

Call option writers

An example of an option writing strategy

LIFFE share options

Put options

Traditional options

How to trade options (and futures)

Using share options to reduce risk: hedging

Using options to reduce losses

Index options

Hedging against a decline in the market using index options

 

Chapter 9 Futures

Marking to market and margins

Worked example showing margins

Settlement

Worked example: hedging with a share index future

Universal Stock Futures (Single Stock Futures)

Using USFs to reduce risk

Buying and selling futures

Chapter 10 Spread betting, Contracts for difference and Warrants

Spread betting

Money up-front

Types of bet

Uses of spread betting

Further points

Contracts for difference

Additional points on contracts for difference trading

Warrants

Covered warrants

More on covered warrants

Example of covered warrant use – releasing cash while maintaining exposure to a share

 

PART III COMPANY ANALYSIS

Chapter 11 Company Accounts.

Oh no! Not numbers again!

How to obtain the report

The report and accounts

Profit and loss

Balance sheet

Cash flow statement

Chairman’s statement

Chief executive’s review (Operational review)

The Director’s report

Financial review

Auditor’s report

Five-year summary

Reading

Chapter 12 Key investment ratios and measures.

From the financial pages

Price-earnings ratio (PER)

Dividend yield

Dividend cover, payout ratio and retention ratio

Market capitalisation

Net asset value (NAV)

Market to book ratio

Enterprise value (EV)

Performance Ratios and measures

Profit margins

Gross profit margin

Operating profit margin

Pre-tax profit margin

Return on capital employed (ROCE)

EBITDA

Free cash flow

Owner earnings

Financial health ratios and measures

Gearing

Capital gearing

Income gearing

Current ratio

Quick ratio

Forward looking measures

Dividend valuation model (DVM)

Intrinsic value

Reading

Chapter 13 Some of the tricks of the accounting trade.

Goodwill

Fair value

What was our revenue again?

Exceptional items

Stock (inventory) valuation

Depreciation

Capitalisation

Off-balance-sheet

Share (Stock) options

Other tricks

Concluding comment

Reading

Chapter 14 Analysing the industry

The competitive floor

The five competitive forces

Threat of entry

Intensity of rivalry of existing companies

The threat from substitutes

Buyer (customer) power

Supplier power

Industry evolution

Technological change

Learning

Economic

Government

Social

Concluding comments

Reading

Chapter 15 The competitive position of the firm.

The TRRACK system

Tangible

Relationships

Reputation

Attitude

Capabilities

Knowledge

What makes resources extraordinary?

Demanded

Scarcity

Appropriable

Investment in resources

Leveraging resources and over-exploiting them

Concluding comments

Reading

 

PART IV MANAGING YOUR PORTFOLIO

 

Chapter 16 Companies issuing shares.

New issues

The sponsor

The prospectus

Finding out about new issues

Underwriting

The role of the corporate broker

After flotation

Methods of flotation

Timetable for a new issue

Under-pricing and stagging

How does an Alternative Investment Market (AIM) flotation differ from one on the Official List?

Right issues

An example

What if a shareholder does not want to take up the rights?

Ex-rights and cum-rights

The price discount decision

Information on rights issues

Other equity issues

Placings and open offers

Vendor placing

Bought deal

Information on share issues

Scrip issues

Share buy-backs and special dividends

Chapter 17 Taxation and investors.

Stamp duty

Tax on dividends

Capital gains tax

Tips on reducing CGT

Interest-bearing instruments

Inheritance tax, IHT

Individual savings accounts, ISAs

Personal Pensions

Enterprise investment scheme

Venture capital trusts

Off-shore investment

Chapter 18 Mergers and takeovers.

Merger motives

In the interests of shareholders

Managerial motives

Third party motives

Financing mergers

Cash

Shares

Other types of finance

The rules of the takeover game

The regulatory bodies

Pre-bid

The bid

Post-bid

Defence tactics

Information

Who wins from mergers?

Chapter 19 Investor protection.

Protecting investors from wayward financial service professionals

Authorisation

If you have a complaint

Compensation

Regulation of markets

Regulating companies

Self protection

Chapter 20 Measuring performance: indices and risk.

Indices

Risk

Volatility

Diversifiable risk

Correlation

Beta

Sharpe ratio

Treynor’s ratio

Different types of risk

Liquidity risk

Event risk

Political risk

Exchange rate risk

Market risk

Manager risk

Inflation risk

Websites giving risk of shares and indices

Websites giving information on risk of funds (unit trusts, investment trusts and OEICS)

Reading

Chapter 21 Investment clubs.

How to set up a club

The unit valuation system

Bank account

Brokers

Tax

Reading

 

Glossary.

List of useful Internet addresses.