{"product_id":"the-wall-street-journal-complete-money-and-investing-guidebook-isbn-9780307236999","title":"The Wall Street Journal Complete Money and Investing Guidebook","description":"Unravel the Mysteries of the Financial Markets—the Language, the Players, and the Strategies for Success\u003cbr\u003e \u003cbr\u003eUnderstanding money and investing has never been more important than it is today, as many of us are called upon to manage our own retirement planning, college savings funds, and health-care costs. Up-to-date and expertly written, \u003ci\u003eThe Wall Street Journal Complete Money and Investing Guidebook\u003c\/i\u003e provides investors with a simple—but not simplistic—grounding in the world of finance. It breaks down the basics of how money and investing work, explaining:\u003cbr\u003e\u003cbr\u003e• What must-have information you need to invest in stocks, bonds, and mutual funds \u003cbr\u003e\u003cbr\u003e• How to see through the inscrutable theories and arcane jargon of financial insiders and advisers \u003cbr\u003e\u003cbr\u003e• What market players, investing strategies, and money and investing history you should know\u003cbr\u003e\u003cbr\u003e• Why individual investors should pay attention to the economy       \u003cbr\u003e\u003cbr\u003eWritten in a clear, engaging style by Dave Kansas, one of America’s top business journalists and editor of \u003ci\u003eThe Wall Street Journal Money \u0026amp; Investing\u003c\/i\u003e section, this straightforward book is full of helpful charts, graphs, and illustrations and is an essential source for novice and experienced investors alike. \u003cbr\u003e\u003cbr\u003eGet your financial life in order with help from \u003ci\u003eThe Wall Street Journal\u003c\/i\u003e.\u003cbr\u003e\u003cbr\u003e\u003cbr\u003e\u003cbr\u003eLook for:\u003cbr\u003e\u003cbr\u003e\u003ci\u003e• The Wall Street Journal Complete Personal Finance Guidebook \u003cbr\u003e• The Wall Street Journal Personal Finance Workbook\u003cbr\u003e• The Wall Street Journal Complete Real Estate Investing Guidebook\u003c\/i\u003eDave Kansas is editor of \u003ci\u003eThe Wall Street Journal’s Money \u0026amp; Investing\u003c\/i\u003e section and the author of \u003ci\u003eThe Street.com Guide to Smart Investing in the Internet Era\u003c\/i\u003e. He lives in New York City.CHAPTER 1\u003cbr\u003e\u003cbr\u003e Stocks\u003cbr\u003e\u003cbr\u003e Many people have heard of the New York Stock Exchange; maybe some have   even seen footage of people scurrying around in strangely colored   jackets. But just what are all those people doing at the NYSE, and what   does it mean to you as an investor?\u003cbr\u003e\u003cbr\u003e First, we should take a step back. Buying and selling stocks involve   financial markets. And markets sound more complex than they are. In   fact, many of us start learning about markets from a very early age.\u003cbr\u003e\u003cbr\u003e As kids, many of us set up lemonade stands. We had a product we wanted   to sell, and we went looking for buyers. We needed information to set   prices. What were the kids on the next block charging? What kind of   demand did we see? The corner of a block seemed to offer more   opportunity than\u003cbr\u003e\u003cbr\u003e the middle of the block. None of us considered working from the alley.   We also needed to know how much our sugar, plastic cups and water cost,   in order to see if we were making any money at five cents a cup.\u003cbr\u003e\u003cbr\u003e A stock market isn’t that different. It’s about buyers and sellers.   It’s about finding a place where the most buyers and sellers are   located. It’s about supply and demand. Basically, all the transactions   in our life, from selling a used car to running a garage sale, contain   elements of what happens among those brightly dressed folks running   around the stock exchange floor (by the way, those jackets help traders   quickly identify who a fellow trader works for). But in the world of   stock markets, things happen faster and on a much larger scale than at   a lemonade stand.\u003cbr\u003e\u003cbr\u003e TWO TYPES OF MARKETS\u003cbr\u003e\u003cbr\u003e In the United States, stocks trade in two main markets: the New York   Stock Exchange and the Nasdaq Stock Market. A number of other markets   exist, but they make markets mainly in stocks that are primarily traded   at one of these two marketplaces. When companies go public, they can   seek to list on any of these exchanges.\u003cbr\u003e\u003cbr\u003e The New York Stock Exchange\u003cbr\u003e\u003cbr\u003e The New York Stock Exchange is the oldest stock market in the United   States. It began in 1792 under a buttonwood tree in lower Manhattan,   with folks trading shares back and forth among one another. Since then   it has grown to become the largest stock market in the world.\u003cbr\u003e\u003cbr\u003e It’s now located on the corner of Wall Street and Broad Street in lower   Manhattan, but its physical place is less and less important. In a   world of high-speed information, stock market participants can work   from Whitefish, Montana, as easily as from the floor of the exchange   itself.\u003cbr\u003e\u003cbr\u003e Trading at the New York Stock Exchange, often called the NYSE or the   Big Board, uses a so-called specialist trading system. In this system,   a single person is in charge of the trading in a particular stock. For   instance, if you want to buy a share of IBM, your bid will ultimately   go to the specialist assigned to trade IBM. That specialist acts as a   kind of traffic cop, directing movement among buyers and sellers. He or   she looks around to find someone who wants to sell a share of IBM at   the price you want to buy. The matching up of buyers and sellers occurs   throughout the trading day, and sometimes the specialist buys or sells   for his own account if an order can’t be matched.\u003cbr\u003e\u003cbr\u003e When the NYSE is on television, sometimes you see a gaggle of folks   standing in front of the specialist, hollering out buy and sell orders.   That’s when the specialist looks most like a traffic cop—pointing,   gesturing, yelling. It looks confusing, but it’s just a simple matching   up of buyers and sellers so they can trade stocks.\u003cbr\u003e\u003cbr\u003e Along with shouting and pointing, specialists also match buyers and   sellers electronically. This kind of high-tech activity makes up a   growing amount of the trading that happens at the New York Stock   Exchange. While the trading volume and the number of stocks trading at   the NYSE have grown dramatically in the past twenty years, the number   of people working on the floor of the stock exchange has remained about   the same, thanks largely to the growth of high-tech, all-electronic   trading. All aspects of NYSE trading, including electronic trading, are   refereed by the specialists.\u003cbr\u003e\u003cbr\u003e The HISTORY OF THE NYSE\u003cbr\u003e\u003cbr\u003e The New York Stock Exchange, the world’s largest and best-known stock   market, traces its history to 1792, when a group of brokers in our   young nation agreed to trade stocks and other securities for a   commission (securities being another name for financial assets such as   stock and bonds). The Buttonwood Agreement—so named since it was   reached under a buttonwood tree in lower Manhattan—initiated trading in   five securities, a small start for a market that now lists stocks with   a value of about $20 trillion.\u003cbr\u003e\u003cbr\u003e In 1817, the group of brokers and traders adopted a set of rules and   the name “The New York Stock \u0026amp; Exchange Board.” Over the following   decades, the exchange would trim its name but add greatly to the number   of stocks traded: banks, insurance companies, canal companies and, as   the century rolled forward and America moved westward, rail, mining and   steel companies.\u003cbr\u003e\u003cbr\u003e The stock market swelled in importance and popularity as the years   passed by, helping to finance the growing nation’s infrastructure   through projects such as the Transcontinental Railroad and the Erie   Canal. But the NYSE became the heart of various financial panics, too.   Jay Cooke, who played a role in financing the Union efforts in the   Civil War, was a large dealer in the bond market through his eponymous   company. In 1873, Jay Cooke \u0026amp; Co. collapsed due to large, bad bets on   railroad stocks, forcing the market to close for ten days and   triggering a national uproar.\u003cbr\u003e\u003cbr\u003e In 1896, The Wall Street Journal published its first Dow Jones   Industrial Average (DJIA). It was the first popular measuring stick for   the NYSE and remains a cultural touchstone more than a hundred years   later. Its initial value was 40.74. The DJIA, a price-weighted average,   reached its initial value by totaling the share prices of its twelve   component stocks (today it has thirty component stocks) and dividing   that figure by a “divisor” to reach the average price. (For more on the   DJIA, see page 22.)\u003cbr\u003e\u003cbr\u003e In 1903, the NYSE moved into its current location. Three years later,   the Dow Jones Industrial Average closed above 100 for the first time.\u003cbr\u003e\u003cbr\u003e The stock exchange closed for four and a half months in 1914—its   longest closure ever—just before the start of World War I. Concerns   about the market’s health amid so much uncertainty, compounded by   trading losses ahead of open conflict, led market officials to shut   down operations. The NYSE reopened later in the year. After the war   ended in 1918, the NYSE became the center of the stock market world,   supplanting the London Stock Exchange.\u003cbr\u003e\u003cbr\u003e The exchange’s most infamous events occurred in 1929. The Roaring   Twenties led to widespread speculation, roaring stock prices and   newfound wealth. But the dreams of getting rich on stocks ended badly.   On Black Tuesday, October 29, the DJIA fell 11%, to 230 points. The   DJIA, which had peaked in September 1929 at 381.17, wouldn’t reach that   level again until 1954.\u003cbr\u003e\u003cbr\u003e In the wake of the crash, the Great Depression unfolded, and the   Securities and Exchange Commission (SEC) was created to police the   stock markets. Prior to its establishment, few rules governed the   buying and selling of stocks. Politicians believed that the watchdog   function of the SEC was needed to restore confidence in the stock   market.\u003cbr\u003e\u003cbr\u003e But during the Depression, few people cared much for the market.   Trading was thin, as the memory of the 1929 crash and the wealth lost   remained far too vivid.\u003cbr\u003e\u003cbr\u003e In the late 1960s, a steady increase in trading volume led to a   paperwork crisis. Eventually, greater automation was adopted to stave   off a problem that had back offices processing trades around the clock   for months in order to keep up with trading volume.\u003cbr\u003e\u003cbr\u003e In 1987, the stock market crashed once more, with the Dow Jones   Industrial Average dropping 22% in a single day. NYSE volume topped a   then-record 500 million shares, yet the NYSE was able to maintain a   relatively orderly market, something that competing markets, such as   the Nasdaq Stock Market, failed to do. The following day, as prices   stabilized, volume set another record, topping 600 million shares.\u003cbr\u003e\u003cbr\u003e By 1990, the stock market had evolved from its clubby beginnings to   include wide swaths of America. More than 50 million individuals owned   shares of stocks traded on the exchange. This rise of individual   investment in stocks continues today.\u003cbr\u003e\u003cbr\u003e Daily trading volume passed 1 billion shares in 1997 during a selling   panic that prompted officials to halt trading briefly. The downdraft   became a blip in an otherwise impressive move in share prices. From   1995 to 2000, the Dow Jones industrials rose from 5000 to 10,000,   eventually clipping past 11,000.\u003cbr\u003e\u003cbr\u003e But the good times—or the bubble, as many came to see it—didn’t last.   Starting in the spring of 2000, major market measures peaked (the DJIA   at 11,722.98 and the Nasdaq at 5048.62) and then slid. Over the next   few years, the Dow slipped toward 7000 and the Nasdaq Composite Index   lost more than half its value, dropping below 2000.\u003cbr\u003e\u003cbr\u003e In the wake of the September 11, 2001, attacks, which destroyed the   nearby World Trade Center, the NYSE closed for four sessions, its   longest closure since 1933. Trading reopened on September 17, with a   record 2.37 billion shares traded.\u003cbr\u003e\u003cbr\u003e Today, daily trading volume routinely tops 1 billion shares, and about   2,800 stocks trade on the New York Stock Exchange. While trading still   takes place via a specialist system established in the late 1800s, most   transactions move through the exchange electronically. Listed companies   are based all over the world, including in Japan, China, Latin America,   Europe and Africa.\u003cbr\u003e\u003cbr\u003e The Nasdaq Stock Market\u003cbr\u003e\u003cbr\u003e The NYSE has tough listing requirements, so many less-proven companies,   especially young technology companies, begin life on the Nasdaq Stock   Market. The Nasdaq, known for its high-tech stocks such as Microsoft   and Intel, trades in a different way. Rather than having specialists   who manage the trading\u003cbr\u003e\u003cbr\u003e in specific stocks, the Nasdaq Stock Market relies on an army of   so-called market makers to trade stocks. Market makers\u003cbr\u003e\u003cbr\u003e are like specialists, in the sense that they focus on the trading of   one stock or a specific group of stocks. But rather than a\u003cbr\u003e\u003cbr\u003e single referee, the Nasdaq has groups of market makers all making deals   in a single stock. These market makers post bid (sell) and ask (buy)   prices and trade shares among themselves, usually on behalf of   investors.\u003cbr\u003e\u003cbr\u003e Interestingly, the Nasdaq Stock Market doesn’t have a floor like the   NYSE. Its trading world is all electronic, living in the phone lines   and computers of various brokerage firms around the country. Market   makers advertise their buy and sell orders through this network; they   can see one another’s orders and match buys against sells.\u003cbr\u003e\u003cbr\u003e ECNs\u003cbr\u003e\u003cbr\u003e Electronic communications networks are the newest way to trade. These   all-electronic networks enable buyers and sellers to find one another   in a manner similar to the Nasdaq Stock Market, but large investors   favor the speed of ECNs. ECNs also often provide for lower transaction   costs and a degree of anonymity that is favored by very large   investors. Large investors like a bit of shielding so that competitors   don’t know their trading moves. If others know a large investor is   buying a big chunk of a certain stock, they may want to join the buying   fray. More buyers mean more demand, making the stock more expensive for   our large investor. By staying anonymous, the large investor can   accumulate a large chunk of stock without the trouble of attracting   hangers-on.\u003cbr\u003e\u003cbr\u003e ECNs trade all sorts of stocks, but various regulatory rules make it   easier for ECNs to trade Nasdaq Stock Market stocks than New York Stock   Exchange stocks.\u003cbr\u003e\u003cbr\u003e \u003cbr\u003e\u003cbr\u003e INDEXES AND HOW THEY ARE CALCULATED\u003cbr\u003e\u003cbr\u003e When most people think about the stock market, one of the first things   that comes to mind is the Dow Jones Industrial Average. Newscasts,   cocktail party conversations and idle chatter about stocks often   revolve around “how the market is doing.” With thousands of stocks   trading, “the market” is a slippery notion. But the Dow Jones   Industrial Average enables people to take a measure of the market.   Often called simply “the Dow,” the industrial average is the most   popular such measure.\u003cbr\u003e\u003cbr\u003e The Dow has thirty large stocks in it, representing major industries   such as finance, technology and retailing. The measure is more than a   hundred years old, and of the original group of components only General   Electric remains (and even it spent a little time outside the Dow   during the past century). The components of the Dow Jones averages are   determined by the editors of The Wall Street Journal. The editors make   changes to maintain the relevance of the Dow Jones average in relation   to the overall market. For instance, as the U.S. economy has evolved   away from a manufacturing focus, steel companies have fallen off the   Dow industrials. At the same time, technology companies, such as   Microsoft and Intel, have been added in recent years.\u003cbr\u003e\u003cbr\u003e Other popular measures of the market include the Standard \u0026amp; Poor’s   500-stock index, which tracks the performance of 500 blue-chip stocks,   or stocks of companies (including stocks in the Dow Jones Industrial   Average) known for their long-established record of earning profits and   paying dividends. The Nasdaq Composite Index, wildly popular during the   Internet bubble of the late 1990s, measures the performance of all the   stocks in the Nasdaq market. The Nasdaq Composite, which includes   technology giants such as Microsoft and Cisco Systems, is often seen as   a proxy for that important sector. The most popular measure of smaller   stocks is the Russell 2000, which tracks the performance of 2,000   small-capitalization stocks. (Capitalization refers to the market value   of the company, and that figure is reached by multiplying the share   price by the number of shares outstanding.) The Russell 2000 stocks   have an average market capitalization (often shortened to simply   “market cap”) of about $1 billion. By comparison, stocks in the DJIA   often have market caps of many billions of dollars.\u003cbr\u003e\u003cbr\u003e As computer technology has advanced, the number of market measures has   proliferated. Broad measures, such as the New York Stock Exchange   Composite Index and the Wilshire Total Market Index, calculate the   performance of large groups of stocks. These indexes provide a more   complete measure of how the market is doing. But despite these   technological improvements, the thirty-stock Dow remains the most   frequently cited gauge of how the stock market is doing.\u003cbr\u003e\u003cbr\u003e As mentioned earlier, the Dow is a “price-weighted” average. Here’s how   it works. To get a closing figure of the Dow, add up all the price   moves of the thirty stocks. If each stock rose by $1, that would come   to $30. Then divide that number by the “divisor.” The divisor is   determined by the editors of The Wall Street Journal and is published   on page C2 of the paper. The divisor has been less than 1 since 1986,   and thus it now acts as a multiplier. In mid 2005, the divisor was   0.13033708. Thus, a $30 total would lead to a gain of more than 220   points in the Dow. If each stock lost $1, the calculation would be the   same, except that the result would be a loss of more than 220 points.","brand":"Crown Currency","offers":[{"title":"Default Title","offer_id":46303987106021,"sku":"NP9780307236999","price":19.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9780307236999.jpg?v=1767742109","url":"https:\/\/k12savings.com\/products\/the-wall-street-journal-complete-money-and-investing-guidebook-isbn-9780307236999","provider":"K12savings","version":"1.0","type":"link"}