How the Stock Market Works - Becket, Michael

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Note on the Ebook Edition For an optimal reading experience please view large tables and figures in landscape mode. This ebook published in 2014 by Kogan Page Limited 2nd Floor 45 Gee Street London EC1V 3RS UK © Michael Becket 2012 2014 E-ISBN 978 0 7494 7239 9 Full imprint details

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Contents How this book can help Acknowledgements 01 What and why are shares Quoted shares Returns Stock markets 02 What are bonds and gilts Bonds Preference shares Convertibles Gilts 03 The complicated world of derivatives Pooled investments Other derivatives 04 Foreign shares 05 How to pick a share Strategy The economy

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Picking shares 06 Tricks of the professionals Fundamental analysis Technical analysis 07 Where to find advice and information Advice Information Indices Online Company accounts Using the accounts Other information from companies Other sources Complaints 08 What does it take to deal in shares Investment clubs Costs 09 How to trade in shares How to buy and sell shares Using intermediaries Trading Stock markets Other markets 10 When to deal in shares

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Charts Technical tools Sentiment indicators Other indicators Selling 11 Consequences of being a shareholder Information Annual general meeting Extraordinary general meeting Consultation Dividends Scrip issues Rights issues Nominee accounts Regulated markets Codes of conduct Takeovers Insolvency 12 Tax Dividends Capital profits Employee share schemes Tax incentives to risk ISAs SIPPs Tax rates Glossary Index

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M How this book can help aking money demands effort whether working for a salary or investing. You get nothing for nothing. Anyone who tells you the stock market is an absolute doddle and money for old rope is either a conman or a fool. And the proof of that became very clear with the stock market depressions starting in 2007. But doing a bit of work does not necessarily mean heavy mathematics and several hours every day with the financial press the internet and company reports – though a bit of all those is vital – but it does mean taking the trouble to learn the language doing a bit of research and thinking through what it is you really want and what price you are prepared to pay for it. At the very least that learning will put the investor on a more even footing with the people trying to sell. It has been hard enough earning the money so this book helps with the little bit extra to make sure the cash is not wasted. There are few general rules about investment but the most important is very simple: if something or somebody offers a substantially higher profit than you can get elsewhere there is a risk attached. The world of investment is pretty sophisticated and pretty efficient in the economists’ sense that participants can be fairly well informed so everything has a price. And the price for higher returns is higher risk. There is nothing wrong in that – Chapter 5 sets out how to decide what your acceptable level is – but the point is it has to be a conscious decision to accept the dangers rather than make a greedy grab for what seems a bargain. Scepticism is vital but it needs to be helped with something to judge information by and this book provides that. In the end though there is no better protection than common sense asking oneself what is likely plausible or possible. For instance why should this man be offering me an infallible way of

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making a fortune when he could be using it himself without my participation Why is the share price of this company soaring through the roof when I cannot see any reasonable substance behind it What does the market know about that company that I do not which makes its shares seem to provide such a high return What is my feeling about the economy that would justify the way share prices in general are moving The stock market is of course not the only avenue of investment. People buy their own homes organize life assurance and pension policies and have rainy- day money accessible in banks and building societies. And indeed those foundations should probably precede getting into the stock market which is generally more volatile and risky. Shares have had their low moments for example at the dotcom crash or more recently during the credit crisis but over any reasonably middle-term view the stock market has provided a better return than most other forms of investment. That however is an average and a longish view so you still have to know what you are doing. That is why this book starts with setting out what the various financial instruments are: shares and other things issued by companies bonds and gilts and then derivatives which are the clever ways of packaging those primary investments. Each has its own character benefits and drawbacks. That helps with the decision on where to put your money. At least as important is the timing. That applies whether you are an in-and-out energetic trader or a long-term investor and Chapter 10 will provide help.

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I Acknowledgements would like to thank the great help provided by the W ealth Management Association in providing very helpful advice and up-to-date information on the market and for the careful help of the London Stock Exchange in vetting the accuracy of the text. I would also like to thank Barclays Capital for the charts from its publication Barclays Bank Equity Gilt Study. And of course I remain constantly grateful for the help patience and encouragement of my wife Kay.

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