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stock market question....

aargh57 said:
OK, here's a shot in the dark. What would anyone suggest to someone that really wanted to learn about investing. When I go to the bookstore there are tons of books all promising to make me a millionaire if I only read their book. Any suggestions? If it matters any, I currently have a decent sized IRA, 401K (in my 401K I can self allocate 20% of my money, the rest has to be in the funds that are offered), and a variable life policy.
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One of the best places on the web is motley fool.
 
andyandy- If you're to ask for help, you should ask for it in English. Your constant use of "u" really grates.

aargh57 said:
OK, here's a shot in the dark. What would anyone suggest to someone that really wanted to learn about investing. When I go to the bookstore there are tons of books all promising to make me a millionaire if I only read their book. Any suggestions? If it matters any, I currently have a decent sized IRA, 401K (in my 401K I can self allocate 20% of my money, the rest has to be in the funds that are offered), and a variable life policy.
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I really recommend Principles of Corporate Finance. It actually looks at stocks from the companies' point of view, explaining why they make the decisions they do. But this also means that it explains investing, because you can't understand how to run a publicly traded company without understanding what your stockholders are doing and why. It's also aimed at graduate, MBA type students, which can make it rather intimidating, but that also means that you're learning the actual principles, rather than some dumbed-down version. It provides a much deeper level of understanding than investing books, explaining the actual reasons for why the stock market is how it is, rather than just giving you a surface understanding.

Most of all, it approaches the subject from the point of view of educating the reader, rather than just spouting a bunch of BS to look knowledgeable, telling you that you can become a millionaire, and doing whatever else it takes to get someone to buy it. I have yet to see a book aimed at investors that takes the subject seriously, rather than just peddling simplistic ideas.

lenny said:
investing in shares, like opening a bank account, is harder in the UK.
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How so?

but then betting on the stock market is very easy, and the returns are tax free (no income tax, no capital gains, ...)
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Why is "the" in italics?

LazarusLong said:
The example given describes the sale of a "futures contract" without specifying whether it is a "call" or a "put", or stating the strike price, or expiration date.
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It says that it's for six months from now.

Keep in mind that the buyer of the contract has the option to "exercise" (i.e., sell you his share for $24) at any time within the specified time. You, as the seller of the contract have no say in when, or whether, he decides to do so.
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That's true for puts, but not for futures options.

There is nothing risk-free about this scenario.
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It makes no sense to interpret an example with the assumption that there is no arbitrage, then complain that there is no arbitrage.

LazarusLong said:
As a previous poster noted, a contract price of $14 is grossly unrealistic. The buyer of the contract is agreeing to pay the strike price after one year, so his eventual total cost is the strike price plus the contract price; it makes no sense to agree to pay more for a stock in a year than it would cost you today.
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The reason it doesn't make sense is because it creates arbitrage. It's rather silly to criticize an example of arbitrage on the basis that it doesn't make sense. Arbitrage is, by definition, a situation where pricing is not rational.

LazarusLong said:
Their example involves a contract that is still open after the trade, so there is inherent risk, even if it is only opportunity cost.
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How so?
 
Probably better to say inconsistant [sic].
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"Arbitrage is, inconsistent, a situation where pricing is not rational."?

Or did you mean "Arbitrage is, by definition, a situation where pricing is inconsistent."? "Rational" has a specific meaning in economics. If prices are inconsistent, then they are not rational.
 
Bond Concepts: Duration

Betty holds a five-year bond with a par value of $1,000 and coupon rate of 5%. For simplicity, let's assume that the coupon is paid annually and that interest rates are 5%. What is the Macaulay duration of the bond?

plugging in the values the example gives a duration of 4.55 years....but what exactly does this 4.55 years refer to?
As far i as can see after 4 years you will have received $200 from coupon payments....and will still have $1050 dollars outstanding....is that correct?
Is the duration relevent in this example - seeing as you wont receive the $1050 until 5 years and not 4.55 years?

many thanks :) :) :)
 
At 4.55 years, you have 200 nominal dollars, and are still owed 1050 nominal dollars. Those 1050 dollars that you are still owed, however, are future dollars, and future dollars aren't worth as much as present dollars. So you are owed 1027 present dollars, and they are due in .45 years, so that's 462 dollar-years. Those 200 dollars are past dollars, which are worth more than present dollars, and you've had them for a while. So when you figure out how much those past dollars are worth and multiply by how long you've had them, you should get 462 dollar-years, to match the amount you're owed.
 
aargh57 said:
OK, here's a shot in the dark. What would anyone suggest to someone that really wanted to learn about investing. When I go to the bookstore there are tons of books all promising to make me a millionaire if I only read their book. Any suggestions? If it matters any, I currently have a decent sized IRA, 401K (in my 401K I can self allocate 20% of my money, the rest has to be in the funds that are offered), and a variable life policy.
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I'd highly recomend "A Mathematician Plays The Stock Market " by John Allen Paulos. Readable, funny but packed with great easy-to-understand explanations of financial jargon and technicalities. It will innoculate you against the bogus get-rich-quick schemes and help you avoid most of the common pitfalls. He's particularly good on the psychology of investing and why people make the mistakes they do.
 
first recommendation:

Stay away from futures and options trading...typically only the broker makes money.

glenn
 
Yeah, unless you're hedging against a previously existing interest, options aren't investing, they're just wagering.
 
Thanks, I have "Getting Started in Options" and read it a long time ago and was thinking about trying them out. I'll stick with stocks.
 
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