The Financial Times Guide to Investing: The Definitive Companion to Investment and the Financial Markets

Cover......Page 1
Contents......Page 8
About the author......Page 16
Acknowledgements......Page 17
Publisher’s acknowledgements......Page 18
What’s new in the third edition......Page 19
Introduction......Page 20
Part 1: Investment basics......Page 22
  Partnerships......Page 24
  Limited liability......Page 25
  Ordinary shares and extraordinary returns......Page 26
  Shareholder rights......Page 27
  A money-making machine......Page 28
  Dividends and retained earnings......Page 29
  Primary and secondary markets......Page 30
  Bonds......Page 31
  Capital structure......Page 32
  Rights issues......Page 33
  Financial institutions......Page 34
  Be proud to be a capitalist!......Page 37
  A note of warning – investment and speculation......Page 38
  Becoming a millionaire......Page 40
  Simple and compound interest......Page 41
  How well have investors fared in the past?......Page 43
  The importance of income......Page 45
  Equities versus gilts......Page 49
  What about risk?......Page 51
  Further reading......Page 53
  What is a stock market?......Page 55
  Brokers and market makers......Page 56
  Pricing – good old supply and demand......Page 57
  A short history of the London Stock Exchange......Page 58
  ‘Big Bang’......Page 59
  Variety of securities traded......Page 61
  LSE’s primary market......Page 63
  The secondary market......Page 65
  The Main Market (The Official List)......Page 66
  The Alternative Investment Market......Page 70
  techMARK and techMARK mediscience......Page 73
  ICAP Securities & Derivatives Exchange (ISDX)......Page 74
  Who owns UK shares?......Page 77
  The role of stock exchanges......Page 79
  Useful websites......Page 80
 Chapter 4: Buying and selling shares......Page 81
  Stockbroker services......Page 82
  Choosing a stockbroker......Page 86
  Finding prices and other information......Page 88
  Getting the most out of financial websites......Page 90
  What happens when I buy or sell shares?......Page 103
  An alternative mechanism......Page 108
  What happens after dealing?......Page 111
  Internet dealing......Page 114
  Direct market access......Page 115
  Transferring shares without brokers......Page 116
  Useful websites......Page 117
Part 2: The investment spectrum......Page 118
 Chapter 5: Pooled investments......Page 120
  Unit trusts......Page 121
  Open-ended investment companies (OEICs)......Page 138
  Exchange traded funds (ETFs)......Page 139
  Investment trusts (investment companies)......Page 146
  Investment platforms/supermarkets......Page 155
  With-profits policies......Page 158
  Stock-market-linked bonds......Page 161
  Money markets......Page 163
  Hedge funds......Page 164
  Bringing home the significance of high fees......Page 165
 Chapter 6: Bonds......Page 172
  Gilts......Page 173
  Corporate bonds......Page 180
  Credit rating......Page 184
  High-yield (junk) bonds......Page 185
  Convertible bonds......Page 187
  Foreign bonds......Page 188
  Eurobonds......Page 189
 Chapter 7: Unusual share investments......Page 192
  Business angels (informal venture capitalists)......Page 193
  Venture capital and other private equity......Page 195
  Private equity categories......Page 197
  Overseas shares......Page 200
  Preference shares......Page 204
  What is a derivative?......Page 206
  What is an option?......Page 207
  Call option holders (call option buyers)......Page 208
  Call option writers......Page 212
  An example of an option writing strategy......Page 213
  LIFFE share options......Page 214
  Put options......Page 215
  Using share options to reduce risk: hedging......Page 216
  Using options to reduce losses......Page 217
  Index options......Page 218
  Websites......Page 221
 Chapter 9: Futures......Page 222
  Marking to market and margins......Page 225
  Settlement......Page 227
  Equity index futures......Page 228
  Buying and selling futures......Page 230
  Spread betting......Page 232
  Contracts for difference......Page 238
  Warrants......Page 240
  Covered warrants......Page 241
  Further reading......Page 243
  Websites......Page 244
Part 3: Company analysis......Page 246
 Chapter 11: Company accounts......Page 248
  Oh no! Not numbers again!......Page 250
  How to obtain reports......Page 251
  The report and accounts......Page 252
  Profit and loss account......Page 254
  Balance sheet (statement of financial position)......Page 259
  Cash flow statement......Page 263
  Chief executive’s review......Page 268
  Directors’ report and business review......Page 269
  Auditors’ report......Page 270
  Trading statements......Page 271
  Further reading......Page 272
 Chapter 12: Key investment ratios and measures......Page 273
  From the financial pages......Page 274
  Performance ratios and measures......Page 283
  Financial health ratios and measures......Page 289
  Forward-looking measures......Page 293
  Further reading......Page 299
 Chapter 13: Tricks of the accounting trade......Page 300
  Goodwill......Page 303
  Fair value......Page 307
  What was our revenue again?......Page 312
  Exceptional items......Page 313
  Stock (inventory) valuation......Page 314
  Depreciation......Page 315
  Capitalisation......Page 317
  Off-balance-sheet items......Page 318
  Share (stock) options......Page 320
  Missing the profits and assets in investee companies......Page 321
  Other tricks......Page 322
  Concluding comments......Page 324
  Further reading......Page 325
  The competitive floor......Page 326
  The five competitive forces......Page 327
  Threat of entry......Page 330
  Intensity of rivalry of existing companies......Page 333
  The threat from substitutes......Page 335
  Buyer (customer) power......Page 336
  Supplier power......Page 337
  Industry evolution......Page 338
  Further reading......Page 344
 Chapter 15: The competitive position of the firm......Page 345
  The TRRACK system......Page 347
  What makes resources extraordinary?......Page 356
  Investment in resources......Page 361
  Leveraging resources and over-exploiting them......Page 362
  Concluding comments......Page 363
  Further reading......Page 364
Part 4: Managing your portfolio......Page 366
  New issues......Page 368
  Rights issues......Page 380
  Other equity issues......Page 385
  Scrip issues......Page 388
  Share buy-backs and special dividends......Page 390
 Chapter 17: Taxation and investors......Page 392
  Tax on dividends......Page 393
  Capital gains tax......Page 394
  Interest-bearing instruments......Page 396
  Individual savings accounts......Page 397
  Personal pensions......Page 399
  Enterprise Investment Scheme......Page 403
  Venture capital trusts......Page 405
  Tax-efficient charitable gifts......Page 407
  Merger motives......Page 408
  Financing mergers......Page 413
  The rules of the takeover game......Page 417
  Who wins from mergers?......Page 425
  Final comment: why do mergers fail?......Page 426
  Further reading......Page 427
  Protecting investors from wayward financial services professionals......Page 428
  Regulation of markets......Page 434
  Regulation of companies......Page 436
  Self-protection......Page 437
  Scams......Page 438
  Indices......Page 442
  Risk......Page 451
  Further reading......Page 462
 Chapter 21: Investment clubs......Page 463
  How to set up a club......Page 464
  Brokers......Page 465
  Further reading......Page 466
Glossary......Page 468
Index......Page 564