Collection of Internet/Collection of Internet.iso/faq/misc/investme/general/part2

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From: [e-mail] (Christopher Lott)
Subject: misc.invest FAQ on general investment topics (part 1 of 3)
Message-ID: <[e-mail]>
Followup-To: misc.invest
Summary: Answers to frequently asked questions about investments.
         Should be read by anyone who wishes to post to misc.invest.
Originator: [e-mail]
Keywords: invest, stock, bond, money, faq
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References: <[e-mail]>
Date: Sun, 27 Mar 1994 01:02:49 GMT
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Archive-name: investment-faq/general/part1
Version: $Id: faq-p1,v 1.13 1994/03/23 06:56:18 lott Exp lott $
Compiler: Christopher Lott, [e-mail]

This is the general FAQ for misc.invest, part 1 of 3.

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Subject: Sources for Current and Historical Market Data
Last-Revised: 8 Feb 94
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail],
    [e-mail]

There is now a free source for historical stock information on the Internet:
    + Ed Savage ([e-mail]) has started collecting data.  Stated
      purpose: "To collect publicly available market data in one place so
      people can FTP it easily."  Donate *freely redistributable* data or
      access same via anonymous ftp to host name dg-rtp.dg.com.  Fetch the
      file pub/misc.invest/README for more information on formats, content,
      etc.  This is NOT a real-time or 15-min delay quote server.  It does
      have close-of-day quotes for a limited number of stocks.

Other free services:
    + Martin Wong's QUOTESERVER.  Summary of stock market activity updated
      at approximately 21:45 EST with the current day's closing information
      for the market and about 200 individual issues.  Available by email
      (contact [e-mail]) or via the World Wide Web using the
      Document URL http://www.ai.mit.edu/stocks.html

    + The University of Michigan has a large collection of data collected
      by the US Government.  Use anonymous ftp to host una.hh.lib.umich.edu
      and look in directory /ebb/indicators.

Paid services:
    + Prodigy.  US$15/month for basic service includes 15 minute delayed
      quotes on stocks at NO additional charge.  Additional US$15/month for
      historical data download service (flat fee).  Available via local
      dial-up all over the US.  Contact them at 800-PRO-DIGY.

    + Compuserve.  US$8.95/month for basic service includes 15-min delayed
      quotes on stocks and options and access to (mutual) Fund Watch Online.
      Historical quotes are available for about US$.05 each.  Available via
      local dial-up all over the US.
      Contact them at 800-848-8990 or [phone].

    + GEnie.  US$8.95/month includes 4 free hours; subsequent hours are $3.
      Has daily closing quotes. Genie Professional service (price not given)
      gives historical quotes, stock reports, different investment s/w, access
      to Charles Schwab and online trading.  Contact them at 800-638-9636.

    + Farpoint. ($4 or $8/week for an IBM-compatible diskette) provides
      daily high, low, close, and volume for for approximately 6000 stocks.
      They offer historical data from 1 July 89 to present.  Write to
      Farpoint, 3412 Milwaukee Avenue, Suite 477, Northbrook, Illinois 60062.
      Also see the listing for the Farpoint BBS below.

    + Xpress.  Broadcasts stock quotes and news via cable TV in the US.
      Decoder costs $125 and provides 9600-baud serial-line output.
      Tier 1 service is free and includes quotes 3x/day and news stories.
      Tier 2 service costs $22/month and adds 15-min delayed quotes and
      investment blurbs.  Ftp a UNIX Xpress-reader from ftp.acns.nwu.edu
      in directory pub/xpress.  Beware that your local cable rep. may not
      know that the cable co. offers it!  Contact Xpress at 800-7PC-NEWS.

    + Worden Brothers TeleChart 2000.  PC software costs $29.  Historical
      data costs 1/2-cent/day for minimum 300 days, 1/4-cent thereafter,
      and includes high, low, close, and volume.  Offers data from about 1988
      for every listed and OTC issue and many indexes.  Toll-free number for
      downloading data at 14.4K baud.  Contact them at 800-776-4940.

    + Dow Jones News Retrieval.  Stock, bond, mutual, index quotes as well
      as news articles on companies, and misc. analysis packages.  US $30
      per month flat rate for the after hours service (8pm-5am local time).
      Available via dialup over Tymnet and SprintNet; available via Internet.
      Contact them at 800-522-3567 or [phone].

    + InterTrade provides historical quotes for stocks, funds, and indices
      on all three major US markets on floppy disks.  One year of data for
      a block of 500 stocks/funds/indices costs $20.  Subscriptions available.
      Contact them at [phone] or 72066,[e-mail].

    + The American Association of Individual Investors (AAII) sells a package
      on floppy disk issued quarterly with financial info (balance sheets,
      company summary, stock summary, income statement data) on many issues.
      Only $99/year if you are a member. Contact them at [phone].

    + Standard & Poor's Compustat (most complete and most expensive).
      Contact them at ............

    + Disclosure's "Compact Disclosure" on CD (only $6,000 a year).
      Contact them at ............

    + Value Line's Database
      Contact them at ............

Bulletin Boards for historical stock information include:
    + The Farpoint BBS offers a free source of historical stock data
      (about 3 years worth).  They give you 120 minutes of free time
      daily and have historical data files on hundreds of stocks.
      Phone number is [phone].

    + The Business Center BBS in San Diego carries historical data on
      most issues on the NYSE, NASDAQ, and AMEX.   TBC also provides free
      15-minute delayed quotes on over 12,000 symbols, mutual funds, and
      indexes.  It is free but limits on-line time to 20 minutes.
      Phone number is [phone].

    + FinComm BBS.  "The Online Magazine Of Wall Street Computing."
      Individual daily quotes available for free.  US$50/year buys a premium
      account that offers unlimited access to historical stock data.
      Phone number is [phone].

    + Stock Data.  $10/month for daily market data via modem, $30-$45
      per month for weekly update via diskette.  Historical data back to
      1987 at $1/day.  Phone number is [phone].

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Subject: Beginning Investor's Advice
Last-Revised: 16 Nov 1993
From: [e-mail], [e-mail]

Investing is just one aspect of personal finance.  People often seem to
have the itch to try their hand at investing before they get the rest
of their act together.  This is a big mistake.  For this reason, it's
a good idea for "new investors" to hit the library and read maybe read
three different overall guides to personal finance - three for different
perspectives, and because common themes will emerge (repetition implies
authority?).  Anyway, what I'm talking about are books like:

  Madigan and Kasoff, The First-Time Investor, ISBN 0-13-942376-1
  Andrew Tobias,
     [Still] the Only [Other] Investment Guide You Will Ever Need.
         (3 versions with slightly different titles, all very similar.)
  Sylvia Porter, New Money Book for the 80s
  Money Magazine, Money Guide

Another good source is the Mutual Fund Education Alliance (MFEA); write
them at MFEA, 1900 Erie Street, Suite 120, Kansas City, MO 64116.

What I am specifically NOT talking about is most anything that appears
on a list of investing/stock market books that are posted in misc.invest
from time to time.  You know, Market Logic, One Up on Wall Street,
Beating the Dow, Winning on Wall Street, The Intelligent Investor, etc.
These are not general enough. They are investment books, not personal
finance books.

Many "beginning investors" have no business investing in stocks.  The
books recommended above give good overall money management, budgeting,
purchasing, insurance, taxes, estate issues, and investing backgrounds
from which to build a personal framework.  Only after that should one
explore particular investments.  If someone needs to unload some cash
in the meantime, they should put it in a money market fund, or yes,
even a bank account, until they complete their basic training.

While I sympathize with those who view this education as a daunting
task, I don't see any better answer.  People who know next to nothing
and always depend on "professional advisors" to hand-hold them through
all transactions are simply sheep asking to be fleeced (they may not
actually be fleeced, but most of them will at least get their tails
bobbed).  In the long run, you are the only person ultimately responsible
for your own financial situation.

All beginners should read the article about Charles Givens in this FAQ.
Advanced beginners should also check the recommended list of books
about stocks and other investments that also appears in this FAQ.

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Subject: Dave Rhodes and Other Chain Letters
Last-Revised: 30 Sep 1993
From: [e-mail], [e-mail]

Please do NOT post the "Dave Rhodes" or any other chain letter,
pyramid scheme, or other scam to misc.invest.

Pyramid schemes are fraud.  It's simple mathematics.  You can't
realistically base a business on an exponentially-growing cast of
new "employees."  Sending money through the mails as part of a
fraudulent scheme is against US Postal regulations.  Notice that
it's not the *asking* that is illegal, but rather the delivery of
money through the US mail that the USPS cares about.  But fraud is
illegal, no matter how the money is delivered, and asking that
delivery use the US Mail just makes for a double whammy.

Note that when someone posts this nonsense with their name and home
address attached, it's fairly simple for a postal inspector to trace
the offender down.

Although the "Dave Rhodes" letter has been appearing almost
weekly in misc.invest, and it's getting pretty old, it's mildly
interesting to see how this scam mutates as it passes through
various bulletin boards and newsgroups.  Sometimes our friend
Dave went broke in 1985, sometimes as recently as 1988.  Sometimes
he's now driving a mercedes, sometimes a cadillac, etc., etc.
The scam just keeps getting updated to keep up with the times.

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Subject: American Depository Receipts (ADR)
Last-Revised: 11 Dec 1992
From: [e-mail]

An American Depository Receipt is a share of stock of an investment in
shares of a non-US corporation.

For example, BigCitibank might purchase 25 million shares of a non-US
stock. Call it EuroGlom Corporation (EGC).  Perhaps EGC trades on the
Paris exchange, where BigCitibank bought them.  BigCitibank would then
register with the SEC and offer for sale shares of EGC ADRs.

EGC ADRs are valued in dollars, and BigCitibank could apply to the
NYSE to list them.  In effect, they are repackaged EGC shares, backed
by EGC shares owned by BigCitibank, and they would then trade like any
other stock on the NYSE.

BigCitibank would take a management fee for their efforts, and the
number of EGC shares  represented by EGC ADRs would effectively
decrease, so the price would go down a slight amount;  or EGC itself
might pay BigCitibank their fee in return for helping to establish a
US market for EGC.  Naturally, currency fluctuations will affect the
US Dollar price of the ADR.

Dividends paid by EGC are received by BigCitibank and distributed
proportionally to EGC ADR holders.  If EGC withholds (foreign) tax on
the dividends before this distribution, then BigCitibank will withhold
a proportional amount before distributing the dividend to ADR holders,
and will report on a Form 1099-Div both the gross dividend and the
amount of foreign tax withheld.

Most of the time the foreign nation permits US holders (BigCitibank in
this case) to vote their shares on all or most issues, and ADR holders
will receive ballots which will be received by BigCitibank and voted in
proportion to ADR Shareholder's vote.  I don't know if BigCitibank has
the option of voting shares which ADR holders failed to vote.

Having said this, however, for the most part ADRs look and feel pretty
much like any other stock.

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Subject: Bankrupt Broker
Last-Revised: 23 Jun 1993
From: [e-mail]

The U.S. Securities Investor Protection Corporation (SIPC) is a
federally chartered private corporation whose job is to insure
shareholders against the situation of a U.S. stock-broker going
bankrupt.

The National Association of Security Dealers requires all of their
member brokers to have SIPC insurance.   Many brokers supplement the
limits that SIPC insures ($100,000 cash and $500,000 total, I think--
I could be wrong here) with additional policies so you are covered up
to $1 million or more.

Having said that, be aware there are still quite a few brokers
who do not insure with SIPC - and so are not members of the NASD.

My advice is that you should not do business with a broker who is not
insured by the SIPC.

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Subject: Beta
Last-Revised: 11 Dec 1992
From: [e-mail],[e-mail],[e-mail]

Beta is the sensitivity of a stock's returns to the returns on some market
index (e.g., S&P 500). Beta values can be roughly characterized as follows:

b < 0        Negative beta is possible but not likely.  People thought gold
        stocks should have negative betas but that hasn't been true

b = 0        Cash under your mattress, assuming no inflation

0 < b < 1    Dull investments (e.g., utility stocks)

b = 1        Matching the index (e.g., for the S&P 500, an index fund)

b > 1        Anything more volatile than the index (e.g., small cap. funds)

b -> infinity    Impossible, because the stock would be expected to go to zero
        on any market decline.  2-3 is probably as high as you will get

More interesting is the idea that securities MAY have different betas in
up and down markets.  Forbes used to (and may still) rate mutual funds
for bull and bear market performance.

Here is an example showing the inner details of the beta calculation process:

Suppose we collected end-of-the-month prices and any dividends for a
stock and the S&P 500 index for 61 months (0..60).  We need n + 1 price
observations to calculate n holding period returns, so since we would
like to index the returns as 1..60, the prices are indexed 0..60.
Also, professional beta services use monthly data over a five year period.

Now, calculate monthly holding period returns using the prices and
dividends. For example, the return for month 2 will be calculated as:
             r_2 = ( p_2 - p_1 + d_2 ) / p_1

Here r denotes return, p denotes price, and d denotes dividend.  The
following table of monthly data may help in visualizing the process.
Monthly data is preferred in the profession because investors' horizons
are said to be monthly.
    ===========================================
      #     Date   Price   Dividend(*)   Return
    ===========================================
      0  12/31/86  45.20         0.00        --
      1  01/31/87  47.00         0.00    0.0398
      2  02/28/87  46.75         0.30    0.0011
      .       ...    ...          ...       ...
     59  11/30/91  46.75         0.30    0.0011
     60  12/31/91  48.00         0.00    0.0267
    ===========================================
(*) Dividend refers to the dividend paid during the period.  They are
    assumed to be paid on the date.  For example, the dividend of 0.30
    could have been paid between 02/01/87 and 02/28/87, but is assumed
    to be paid on 02/28/87.

So now we'll have a series of 60 returns on the stock and the index
(1...61).  Plot the returns on a graph and fit the best-fit line
(visually or using some least squares process):

                      |         *   /
               stock  |  *    *  */ *
               returns|    *  * /      *
                      |   *   /    *
                      | *   /*  *     *
                      |   /  *  *
                      | /    *
                      |
                      |
                      +------------------------- index returns

The slope of the line is Beta.  Merrill Lynch, Wells Fargo, and others
use a very similar process (they differ in which index they use and in
some econometric nuances).

Now what does Beta mean?  A lot of disservice has been done to Beta in
the popular press because of trying to simplify the concept.  A beta of
1.5 does *not* mean that is the market goes up by 10 points, the stock
will go up by 15 points.  It even *doesn't* mean that if the market has
a return (over some period, say a month) of 2%, the stock will have a
return of 3%.  To understand Beta, look at the equation of the line we
just fitted:

     stock return = alpha + beta * index return

Technically speaking, alpha is the intercept in the estimation model.
It is expected to be equal to risk-free rate times (1 - beta).  But it
is best ignored by most people.  In another (very similar equation) the
intercept, which is also called alpha, is a measure of superior performance.

Therefore, by computing the derivative, we can write:
     Change in stock return = beta * change in index return

So, truly and technically speaking, if the market return is 2% above its
mean, the stock return would be 3% above its mean, if the stock beta is 1.5.

One shot at interpreting beta is the following.  On a day the (S&P-type)
market index goes up by 1%, a stock with beta of 1.5 will go up by 1.5% +
epsilon. Thus it won't go up by exactly 1.5%, but by something different.

The good thing is that the epsilon values for different stocks are
guaranteed to be uncorrelated with each other.  Hence in a diversified
portfolio, you can expect all the epsilons (of different stocks) to
cancel out.  Thus if you hold a diversified portfolio, the beta of a
stock characterizes that stock's response to fluctuations in the market
portfolio.

So in a diversified portfolio, the beta of stock X is a good summary of
its risk properties with respect to the "systematic risk", which is
fluctuations in the market index.  A stock with high beta responds
strongly to variations in the market, and a stock with low beta is
relatively insensitive to variations in the market.

E.g. if you had a portfolio of beta 1.2, and decided to add a stock
with beta 1.5, then you know that you are slightly increasing the
riskiness (and average return) of your portfolio.  This conclusion is
reached by merely comparing two numbers (1.2 and 1.5).  That parsimony
of computation is the major contribution of the notion of "beta".
Conversely if you got cold feet about the variability of your beta = 1.2
portfolio, you could augment it with a few companies with beta less than 1.

If you had wished to figure such conclusions without the notion of
beta, you would have had to deal with large covariance matrices and
nontrivial computations.

Finally, a reference.  See Malkiel, _A Random Walk Down Wall Street_, for
more information on beta as an estimate of risk.

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Subject: Bonds
Last-Revised: 7 Jan 1993
From: [e-mail]

Bonds are debt instruments.   Let's say a corporation needs to build
a new office building, or needs to purchase manufacturing equipment,
or needs to purchase aircraft, they will have to raise money.

One way is to arrange for banks or others to lend them money. But a
generally less expensive way is to issue (sell) bonds.  The corporation
will agree to pay dividends on these bonds and at some time in the
future to redeem these bonds.

In the U.S., corporate bonds are often issued in units of $1,000.
When municipalities issue bonds, they are usually in units of $5,000.
Dividends are usually paid every 6 months.

Bondholders are not owners of the corporation.  But if the corporation
gets in financial trouble and needs to dissolve, bondholders must be
paid off in full before stockholders get anything.

If the corporation defaults on any bond payment, any bondholder can
go into bankruptcy court and request the corporation be placed in
bankruptcy.

The price of a bond is a function of prevailing interest rates (as
rates go up, the price of the bond goes down, and vice versa) as
well as the risk perceived for the debt of the particular
corporation.  For example, if the company is in bankruptcy, the
price of the bond will be low.

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Subject: Book-to-Bill Ratio
Last-Revised: 19 Aug 1993
From: [e-mail]

The book-to-bill ration is the ratio of business "booked" (orders
taken) to business "billed" (products shipped and bills sent).

A book-to-bill of 1.0 implies incoming business = ougoing product.
Often in downturns, the b-t-b drops to 0.9, sometimes even lower.
A b-t-b of 1.1 or higher is very encouraging.

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Subject: Books About Investing (especially stocks)
Last-Revised: 19 Jan 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail], [e-mail],
    [e-mail]

Books are organized alphabetically by author's last name.

Author            Title(s)
-----            --------
Peter Bernstein        Capital Ideas
Frank Cappielo        New Guide to Finding the Next Superstock
George S. Clason    The Richest Man in Babylon
Consumer's Union    Consumer Reports Money Book
Burton Crane        The Sophicated Investor
William Donoghue    No-Load Mutual Fund Guide
Dun & Bradstreet    Guide to Your Investments 1993
Louis Engel        How to Buy Stocks
Norman G. Fosback    Stock Market Logic
Gary Gastineau        The Stock Options Manual
Benjamin Graham        The Intelligent Investor, Security Analysis
C. Colburn Hardy    The Fact$ of Life
Jiler            How Charts Can Help You
Gerald M. Loeb        The Battle for Investment Survival
Peter Lynch        One Up on Wall Street
Burton Malkiel        A Random Walk Down Wall Street
Lawrence McMillan    Options as a Strategic Investment
Sylvia Porter        New Money Book for the 80s
Pring            Technical Analysis Explained
Claude Rosenberg    Stock Market Primer
L. Louis Rukeyser    How to Make Money in the Stock Market
Terry Savage        New Money Strategies for the 1990's
Charles Schwab        How to be Your Own Stockbroker
John A. Straley        What About Mutual Funds
Andrew Tobias        [Still] Only [other] Investment Guide You'll Ever Need
                (3 books, very similar titles)
Train            Money Masters, New Money Masters
Venita Van Caspel    Money Dynamics for the 1990s
Richard Wurman et al.    Wall Strt Jrnl Guide to Understanding Money & Markets
Martin Zweig        Winning on Wall Street

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Subject: Bull and Bear Lore
Last-Revised: 19 Jan 1994
From: [e-mail]

This information is paraphrased from _The Wall Street Journal Guide to
Understanding Money & Markets_ by Wurman, Siegel, and Morris, 1990.

One common myth is that the terms "bull market" and "bear market" are
derived from the way those animals attack a foe, because bears attack
by swiping their paws downward and bulls toss their horns upward.
This is a useful mnemonic, but is not the true origin of the terms.

Long ago, "bear skin jobbers" were known for selling bear skins that
they did not own; i.e., the bears had not yet been caught.  This was
the original source of the term "bear."  This term eventually was used
to describe short sellers, speculators who sold shares that they did
not own, bought after a price drop, and then delivered the shares.

Because bull and bear baiting were once popular sports, "bulls" was
understood as the opposite of "bears."  I.e., the bulls were those
people who bought in the expectation that a stock price would rise,
not fall.

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Subject: Buying and Selling Stock Without a Broker
Last-Revised: 27 Sep 1993
From: [e-mail], [e-mail]

Yes, you can buy/sell stock from/to a friend, relative or acquaintance
without going through a broker.  Call the company, talk to their investor
relations person, and ask who the Transfer Agent for the stock is.  The
Transfer Agent is the person who accomplishes the transfer, i.e., by
issuing new certificates with the buyer's name on them. The transfer
agent is paid by the company to issue new certificates, and to keep
track of who owns the company's stock.  The name of the Transfer Agent
is probably printed on your stock certificates, but it might have changed,
so it is best to call and check.

The back of the certificate contains a stock power, i.e., those words
that say you want the shares to be transferred.  Fill out the transferee
portion with the desired name, address, and tax id number to be registered.
Sign the stock power exactly as the certificate is registered: joint
tenancy will require signatures from all the people listed, stock that
was issued in maiden name must be signed as such, etc.  In addition to
signing, you must get your signature(s) guaranteed.  The signature
guarantee is an obscure ritual.  It is similar to a notary public, but
different.  The people who can provide a signature guarantee are banks
and stock brokers who are members of an exchange.  Now, your stock
broker might not be too happy to see you and help you when you are
trying to avoid paying a commission, so I suggest you get the guarantee
from your bank.  It's very easy.  Someone at the bank checks your
signature card to see if your signature looks right and then applies
a little rubber stamp.  Also, if you have the time, have the transferee
fill out a W-9 form to avoid any TEFRA withholding.  W-9 forms are
available from any bank or broker.

Then send it all to the transfer agent.  The agent will usually recommend
sending securities registered mail and insuring for 2% of the total value.
For safety, many people send the endorsement in a separate envelope from
the stock certificate, rather than using the back of the stock certificate
(if you do this, include a note that says so.)  SEC regulations require
transfer agents to comply with a 3 business day turn-around time for 90%
of the stock transfers received in good standing.  In a few days, the buyer
gets a stock certificate in the mail.  Poof!

There is no law requiring you to use a broker to buy or sell stock, except
in certain very special circumstances, such as restricted stock, or
unregistered stock.  As long as the stock being sold has been registered
with the SEC (and all stock sold on the exchanges, NASDAQ, etc. has been
registered by the company), then the public can buy and sell it at will.
If you go out and create yourself a corporation (Brooklyn Bridge Inc),
do not register your stock with the SEC, and then start selling stock in
your company to a bunch of individuals, advertising it, etc, then you can
easily violate many SEC regulations designed to protect the unsuspecting
public.  But this is very different than selling the ordinary registered
stuff.  If you own stock in a company that was issued prior to the time
the company went public, depending on a variety of conditions in the SEC
regulations, that stock may be restricted, and restricted stock requires
some special procedures when it is sold.

In brief:  I do not believe that the guy who offers to sell people 1 share
of Disney stock is violating any rules.  Just for full disclosure: I'm not
a lawyer.

-----------------------------------------------------------------------------

Subject: Computing the Rate of Return on Monthly Investments
Last-Revised: 4 Apr 1993
From: [e-mail]

Q: Assume $X is invested at the beginning of the year into some mutual
   fund or like account, with $Y added to the account every month.
   Now, down the road, if the value at any given month "i" is Vi, what
   conclusions can be drawn from it ?

The relevant formula is F = P(1+i)**n - p((1+i)**n - 1)/i
where F is the future value of your investment (i.e., the value after
n periods), P is the present value of your investment (i.e., the amount
of money you invest initially), p is the payment each period (p is
negative if you are adding money to your account and positive if you
are taking money out of your account), n is the number of periods you
are interested in, and i is the interest rate per period.
You cannot manipulate this formula to get a formula for i; you have
to use some sort of iterative method or buy a financial calculator.

One thing to keep in mind is that i is the interest rate *per period*.
You may need to compound the rate to obtain a number you can compare
apples-to-apples with other rates.  For instance, a 1 year CD paying
12% interest is not as good an investment as an investment paying 1%
per month for a year.  If you put $1000 into each, you'll have $1120
in the CD at the end of the year but $1000*(1.01)**12 = $1126.82 in
the other investment due to compounding.  I always convert interest
rates of any kind into a "simple 1-year CD equivalent" for the purposes
of comparison.

See also the 'irr' program, which has been posted to misc.invest, and
which is now available on request from the compiler of this FAQ.

-----------------------------------------------------------------------------

Subject: Computing Compound Return
Last-Revised: 22 Jan 1993
From: [e-mail], [e-mail]

To calculate the compounded return, just figure out the factor by which
the investment multiplied.  Say $1000 went to $3200 in 10 years.
Take the 10th root of 3.2 (the multiplying factor) and you get a
compounded return of 1.1233498 (12.3% per year).  To see that this works,
note that 1.1233498**10 = 3.2.

Another way of saying the same thing:  In my calculation, I assume all
the gains are reinvested so following formula applies:
    TR = (1 + AR) ** YR
where TR is total return, AR is annualized return, and YR is year. To
calculate annualized return otherwise, following formula applies:
    AR = (10 ** (Log TR/ YR)) - 1
Thus a total return of 950% in 20 years would be equivalent of 11.914454%
annualized return.

-----------------------------------------------------------------------------

Subject: Derivatives
Last-Revised: 28 Feb 1994
From: [e-mail], [e-mail]

A derivative is a financial instrument that does not constitute ownership,
but a promise to convey ownership.  The most simple example is a call
option on a stock.  In the case of a call option, the risk is that the
person who writes the call (sells it and assumes the risk) may not be
in business to live up to their promise when the time comes.  In
standarized options sold through the Options Clearing House, there are
supposed to be sufficient safeguards for the small investor against this.

What really concerns regulators is the fact that big banks swap all kinds
of promises all the time, like interest rate swaps, froward currency swaps,
options on futures, etc.  They try to balance all these promises (hedging),
but there is the big danger that one big player will go bankrupt and leave
lots of people holding worthless promises.  Such a collapse could cascade,
as more and more speculators (banks) cannot meet their obligations because
they were counting on the defaulted contract to protect them from losses.

All of this is done off the books, so there is no total on how much
exposure each bank has under a specific scenario.  Some of the more
complicated derivatives try to simulate a specific event by tracking it
with other events (that will *usually* go in the same or the opposite
direction).  Examples are buying Japan stocks to protect against a loss in
the US.  However, if the *usual* correlation changes, big losses can be
the result.

The big danger with the big banks is that while they can use derivitives
to hedge risk, they can also use them as a way of taking ON risk.  Not
that risk is bad.  Risk s how a bank makes money, for example issuing
loans is a risk.  However, banks are forbidden from taking on risk with
derivatives.  It's just too easy for a bank to hedge bonds with derivitives
that don't have the same maturity, same underlying security, etc. so the
correlation between the hedge and the risky position is weak.

-----------------------------------------------------------------------------

Subject: Discount Brokers
Last-Revised: 2 Feb 1994
From: [e-mail], [e-mail], [e-mail],
    [e-mail]

A discount broker is merely a way to save money for people who are looking
out for themselves.

According to Charles Schwab, the big difference between them and "the other
guys" is that there is no analyst sitting in the back that will call you up
and encourage you to purchase a stock.  They have people there that can
provide good financial advice--but only if you ask.  If you walk in the door
and say "I want to buy XXX", that's what they'll do.

All transactions with E-Trade are apparently initiated through either touch-
tone phone or computer.  They are particularly cheap ($0.015/share, min $35).

List of US discount brokers and phone numbers:

Accutrade First National   800 762 5555
K. Aufhauser & Co.         800 368 3668
Brown & Co.                800 343 4300
Fidelity Brokerage         800 544 7272
Fleet Brokerage            800 221 8210
Kennedy, Cabot, & Co.      800 252 0090  213 550 0711
Lombard                    800 688 3462
Barry Murphy & Co.         800 221 2111
Olde Discount              800 USA OLDE
Pacific Brokerage Service  800 421 8395  213 939 1100
Andrew Peck Associates     800 221 5873  212 363 3770
Quick & Reilly             800 456 4049
Charles Schwab & Co.       800 442 5111
Scottsdale Securities      800 727 1995  818 440 9957
Stock Cross                800 225 6196  617 367 5700
Vanguard Discount          800 662 SHIP
Waterhouse Securities      800 765 5185
Jack White & Co.           800 233 3411
E-Trade                    800 786 2573  415 326 2700

Here is a table to compare commissions at various discount brokers.  This is
based on commission schedules gotten at various times in 1991 and 1992.
These tables are for stocks only, not bonds or other investments.

                                           $2000 trades
                     Firm    400@ 5  200@ 10  100@ 20   50@ 40   25@ 80
             K. Aufhauser  $  43.49 $  27.49 $  25.49 $  25.49 $  25.49
        Pacific Brokerage  $  29.00 $  29.00 $  29.00 $  29.00 $  29.00
         Jack White & Co.  $  45.00 $  39.00 $  36.00 $  34.50 $  33.75
    Kennedy, Cabot, & Co.  $  33.00 $  33.00 $  33.00 $  23.00 $  23.00
            Bidwell & Co.  $  41.25 $  31.25 $  27.25 $  25.75 $  23.50
           Quick & Reilly  $  50.00 $  50.00 $  49.00 $  49.00 $  49.00
            Olde Discount  $  35.00 $  50.00 $  40.00 $  40.00 $  40.00
        Vanguard Discount  $  57.00 $  57.00 $  48.00 $  40.00 $  40.00
       Fidelity Brokerage  $  63.50 $  63.50 $  54.00 $  54.00 $  54.00
           Charles Schwab  $  64.00 $  64.00 $  55.00 $  55.00 $  55.00
                  E-Trade  $  35.00 $  35.00 $  35.00 $  35.00 $  35.00

                                           $8000 trades
                     Firm   1600@ 5  800@ 10  400@ 20  200@ 40  100@ 80
             K. Aufhauser  $  90.50 $  61.50 $  43.49 $  27.49 $  25.49
        Pacific Brokerage  $  36.00 $  44.00 $  29.00 $  29.00 $  29.00
         Jack White & Co.  $  81.00 $  57.00 $  45.00 $  39.00 $  36.00
    Kennedy, Cabot, & Co.  $  83.00 $  43.00 $  33.00 $  33.00 $  33.00
            Bidwell & Co.  $  84.75 $  56.75 $  45.25 $  39.25 $  30.25
           Quick & Reilly  $  79.00 $  79.00 $  79.00 $  79.00 $  49.00
            Olde Discount  $  67.50 $  95.00 $  70.00 $  60.00 $  40.00
        Vanguard Discount  $  82.00 $  82.00 $  82.00 $  82.00 $  48.00
       Fidelity Brokerage  $ 109.00 $ 102.70 $ 102.70 $ 102.70 $  54.00
           Charles Schwab  $ 120.00 $ 103.20 $ 103.20 $ 103.20 $  55.00
                  E-Trade  $  35.00 $  35.00 $  35.00 $  35.00 $  35.00

                                          $32000 trades
                     Firm   6400@ 5 3200@ 10 1600@ 20  800@ 40  400@ 80
             K. Aufhauser  $ 194.50 $ 138.50 $  90.50 $  72.50 $  67.50
        Pacific Brokerage  $ 132.00 $  68.00 $  36.00 $  44.00 $  29.00
         Jack White & Co.  $ 161.00 $  97.00 $  81.00 $  57.00 $  45.00
    Kennedy, Cabot, & Co.  $ 131.00 $  99.00 $  83.00 $  43.00 $  33.00
            Bidwell & Co.  $ 252.75 $ 140.75 $ 100.75 $  88.75 $  57.25
           Quick & Reilly  $ 222.00 $ 131.40 $ 131.40 $ 131.40 $ 131.40
            Olde Discount  $ 187.50 $ 215.00 $ 135.00 $ 115.00 $  90.00
        Vanguard Discount  $ 156.00 $ 156.00 $ 156.00 $ 156.00 $ 156.00
       Fidelity Brokerage  $ 301.00 $ 173.00 $ 169.90 $ 169.90 $ 169.90
           Charles Schwab  $ 360.00 $ 200.00 $ 170.40 $ 170.40 $ 170.40
                  E-Trade  $  96.00 $  48.00 $  35.00 $  35.00 $  35.00

-----------------------------------------------------------------------------

Subject: Dividends on Stock and Mutual Funds
Last-Revised: 22 Mar 1993
From: [e-mail]

A company may periodically declare cash and/or stock dividends.
This article deals with cash dividends on common stock.  Two
paragraphs also discuss dividends on Mutual Fund shares.  A
separate article elsewhere in this FAQ discusses stock splits
and stock dividends.

The Board of Directors of a company decides if it will declare a
dividend, how often it will declare it, and the dates associated
with the dividend.  Quarterly payment of dividends is very common,
annually or semiannually is less common, and many companies don't
pay dividends at all.  Other companies from time to time will
declare an extra or special dividend.  Mutual funds sometimes
declare a year-end dividend and maybe one or more other dividends.

If the Board declares a dividend, it will announce that the dividend
(of a set amount) will be paid to shareholders of record as of the
RECORD DATE and will be paid or distributed on the DISTRIBUTION
DATE (sometimes called the Payable Date).

In order to be a shareholder of record on the RECORD DATE you must
own the shares on that date (when the books close for that day).
Since virtually all stock trades by brokers on exchanges are
settled in 5 (business) days, you must buy the shares at least
5 days before the RECORD DATE in order to be the shareholder of
record on the RECORD DATE.  So the (RECORD DATE - 5 days) is the
day that the shareholder of record needs to own the stock to
collect the dividend.  He can sell it the very next day and still
get the dividend.

If you bought it at least 5 business days before the RECORD date
and still owned it at the end of the RECORD DATE, you get the
dividend.  (Even if you ask your broker to sell it the day after
the (RECORD DATE - 5 days), it will not have settled until after
the RECORD DATE so you will own it on the RECORD DATE.)

So someone who buys the stock on the (RECORD DATE - 4 days) does
not get the dividend. A stock paying a 50c quarterly dividend might
well be expected to trade for 50c less on that date, all things
being equal.  In other words, it trades for its previous price,
EXcept for the DIVidend.  So the (RECORD DATE - 4 days) is often
called the EX-DIV date.  In the financial listings, that is
indicated by an x.

How can you try to predict what the dividend will be before it is
declared?

Many companies declare regular dividends every quarter, so if you
look at the last dividend paid, you can guess the next dividend
will be the same.  Exception: when the Board of IBM, for example,
announces it can no longer guarantee to maintain the dividend, you
might well expect the dividend to drop, drastically, next quarter.
The financial listings in the newspapers show the expected annual
dividend, and other listings show the dividends declared by Boards
of directors the previous day, along with their dates.

Other companies declare less regular dividends,  so try to look at
how well the company seems to be doing.   Companies whose shares
trade as ADRs (American Depository Receipts -- see article elsewhere
in this FAQ) are very dependent on currency market fluctuations, so
will pay differing amounts from time to time.

Some companies may be temporarily prohibited from paying dividends
on their common stock, usually because they have missed payments on
their bonds and/or preferred stock.

On the DISTRIBUTION DATE shareholders of record on the RECORD date
will get the dividend.  If you own the shares yourself, the company
will mail you a check.  If you participate in a DRIP (Dividend
ReInvestment Plan, see article on DRIPs elsewhere in this FAQ) and
elect to reinvest the dividend, you will have the dividend credited
to your DRIP account and purchase shares, and if your stock is held
by your broker for you, the broker will receive the dividend from
the company and credit it to your account.

Dividends on preferred stock work very much like common stock,
except they are much more predictable.

Tax implications:

Some Mutual Funds may delay paying their year-end dividend until
early January.  However, the IRS requires that those dividends be
constructively paid at the end of the previous year.  So in these
cases, you might find that a dividend paid in January was included
in the previous year's 1099-DIV.

Sometime before January 31 of the next year, whoever paid the
dividend will send you and the IRS a Form 1099-DIV to help you
report this dividend income to the IRS.

Sometimes -- often with Mutual Funds -- a portion of the dividend
might be treated as a non-taxable distribution or as a capital gains
distribution.  The 1099-DIV will list the Gross Dividends (in line 1a)
and will also list any non-taxable and capital gains distributions.
Enter the Gross Dividends (line 1a) on Schedule B.

Subtract the non-taxable distributions as shown on Schedule B
and decrease your cost basis in that stock by the amount of
non-taxable distributions (but not below a cost basis of zero --
you can deduct non-taxable distributions only while the running
cost basis is positive.)     Deduct the capital gains distributions
as shown on Schedule B, and then add them back in on Schedule D if
you file Schedule D, else on the front of Form 1040.

-----------------------------------------------------------------------------

Subject: Dollar Cost and Value Averaging
Last-Revised: 11 Dec 1992
From: [e-mail]

Dollar Cost Averaging purchases a fixed dollar amount each transaction
(usually monthly via a mutual fund).  When the fund declines, you
purchase slightly more shares, and slightly less on increases.  It
turns out that you lower your average cost slightly, assuming the
fund fluctuates up and down.

Value Averaging adjusts the amount invested, up or down, to meet a
prescribed target.  An example should clarify:  Suppose you are going
to invest $200 per month and at the end of the first month, your $200
has shrunk to $190.  Then you add in $210 the next month, bringing the
value to $400 (2*$200). Similarly, if the fund is worth $430 at the
end of the second month, you only put in $170 to bring it up to the
$600 target. What happens is that compared to dollar cost averaging,
you put in more when prices are down, and less when prices are up.

Dollar Cost Averaging takes advantage of the non-linearity of the 1/x
curve (for those of you who are more mathematically inclined).  Value
Averaging just goes in a little deeper when the value is down (which
implies that prices are down) and in a little less when value is up.
An article in the American Association of Individual Investors showed
via computer simulation that value averaging would outperform dollar-
cost averaging about 95% of the time. "Outperform" is a rather vague
term.  As best as I remember, whatever the percentage gain of dollar-
cost averaging versus buying 100% initially, value averaging would
produce another 2 percent or so.

Warning: Neither approach will bail you out of a declining market nor
get you in on a bull market.

-----------------------------------------------------------------------------

Subject: Dollar Bill Presidents
Last-Revised: 19 Aug 1993
From: [e-mail], [e-mail]

      $1 - George Washington
      $2 - Thomas Jefferson
      $5 - Abraham Lincoln
     $10 - Alexander Hamilton
     $20 - Andrew Jackson
     $50 - Ulysses S. Grant
    $100 - Benjamin Franklin
    $500 - William McKinley
  $1,000 - Grover Cleveland
  $5,000 - James Madison
 $10,000 - Salmon P. Chase
$100,000 - Woodrow Wilson

[ Ok, so it's trivia. - Ed. ]

-----------------------------------------------------------------------------

Subject: Dramatic Stock Price Increases and Decreases
Last-Revised: 12 Jan 1994
From: [e-mail], [e-mail]

One frequently asked question is "Why did &my_stock go [down][up] by
&large_amount in the past &short_time?"

The purpose of this answer is not to discourage you from asking this
question in misc.invest, although if you ask without having done any
homework, you may receive a gentle barb or two.  Rather, one purpose
is to inform you that you may not get an answer because in many cases
no one knows.

Stocks often lurch upward and downward by sizable amounts with no
apparent reason, sometimes with no fundamental change in the underlying
company.  If this happens to your stock and you can find no reason,
you should merely use this event to alert you to watch the stock more
closely for a month or two.  The zig (or zag) may have meaning, or it
may have merely been a burp.

A related question is whether stock XYZ, which used to trade at 40 and
just dropped to 25, is good buy.  The answer is, possibly.  Buying
stocks just because they look "cheap" isn't generally a good idea.
All too often they look cheaper later on.  (IBM looked "cheap" at 80
in 1991 after it declined from 140 or so.  The stock finally bottomed
in the 40's. Amgen slid from 78 to the low 30's in about 6 months,
looking "cheap" along the way.)  Technical analysis principles suggest
to wait for XYZ to demonstrate that it has quit going down and is
showing some sign of strength, perhaps purchasing in the 28 range.
If you are expecting a return to 40, you can give up a few points
initially.  If your fundamental analysis shows 25 to be an undervalued
price, you might enter in.  Rarely do stocks have a big decline and a
big move back up in the space of a few days.  You will almost surely
have time to wait and see if the market agrees with your valuation
before you purchase.

-----------------------------------------------------------------------------

Subject: Direct Investing and DRIPS
Last-Revised: 9 Nov 1993
From: [e-mail], [e-mail],
    [e-mail], [e-mail], [e-mail]

DRIPS offer an easy, low-cost way for buying stocks.  Various companies
(lists are available through NAIC and some brokerages) allow you to
purchase shares directly from the company and thereby avoid brokerage
commissions.  However, you must purchase the first share through a
broker, NAIC, or other conventional means. In all cases, that first
share must be registered in your name, not in street name.  (A practical
restriction here is that for some common kinds of accounts like IRAs
and Keoghs, you can't participate in a DRIP since the stock has to be
held by the custodian.)  Once you have that first share, additional
shares can be purchased through the DRIP either through dividend
reinvestments or directly by sending in a check. Thus the two names
for DRIP: Dividend/Direct Re-Investment Plan.  The periodic purchase
also allows you to automatically dollar-cost-average the purchase of
the stock.

A handful of companies sell their stock directly to the public without
going through an exchange or broker even for the first share.  These
companies are all exchange listed as well, and tend to be utilities.

Money Magazine from Nov (or Dec) 92 reports that the brokerage house
A.G. Edwards has a special commission rate for purchases of single
shares.  They charge a flat 16% of the share price.  However,
contributors to this FAQ report that some (all?) of the AGE offices
provide this service only for current account holders.

Published material on DRIPS:
 + _Guide to Dividend Reinvestment Plans_
   Lists over a one hundred companies that offer DRIP's.  The number
   given for the company is 800-443-6900; the cost is $9.00 (charge to CC)
   and they will send you the DRIPs booklet and a copy of a newsletter
   called the Money Paper.

 + _Low cost/No cost investing_ (author forgotten)
   Lists about 300-400 companies that offer DRIPs.

 + _Buying Stocks Without a Broker_ by Charles B. Carlson.
   Lists 900 companies/closed end funds that offer DRIPS.  Included is a
   profile of the company and some plan specifics.  These are: if partial
   reinvestment of dividends are allowed, discounts on stock purchased
   with dividends, optional cash payment amount and frequency, fees,
   approximate number of shareholders in the plan.

 [ Compiler's note:  It seems to me that a listing of the hundreds or
   more companies that offer DRIPS belongs in its own FAQ, and I will not
   reprint other people's copyrighted lists.  Please don't send me lists
   of companies that offer DRIPS. ]

-----------------------------------------------------------------------------

Subject: Free Information
Last-Revised: 14 Mar 94
From: [e-mail]

Here are some secrets from the self-proclaimed "King of Cheap/Free
Information."

1.  Local Companies:  Look in your local newspapers for information
and stories about the companies in your immediate area.  I have found
that our local papers carry some great articles about our local
companies long before the WSJ or other papers pick up on them.  The
local papers tend to report very minute details that the "big" papers
never report.  The local paper that I get covers insider buys/sells,
IPOs etc., management changes, detailed earnings reports, analyst
opinions, you name it.

2.  "Stocks on Call":  This is a GREAT freebie.  If you have a
touch-tone phone and access to a FAX machine then you can download
lots of stories about companies and they are FREE.  Their number is
1-800-578-7888.  The information is biased because it is sponsored by
the listing companies, but it is free, so you get what you pay for.
Once a week or so I call them and I get a list of companies that they
have stories on.  Once you have the list then you can call and get 3
stories per call sent directly to your FAX.  It is all handled by
computer (usually).  The only drawback is that it they may/probably
won't have everything/anything about the companies you are interested
in.  I have gotten some great tips from here.....nice fast growing
small companies (and some F-500s too).

3.  Stock Charts:  I get at least one copy of Investor's Business Daily
per week.  The Friday edition is particularly great.  They have a lot
of charts on some stocks with good movement and so I cut those out
that I am interested in and file them away.  IBD is available in most
areas at newsstands, bookstores etc. and is a good newspaper for its
charts.

4.  Archive Information:  For historical information, I save one copy
of Barron's or WSJ or IBD each month.  If I see a company that I am
suddenly interested in then I can just open up those old editions and
get some pretty good historical data.  IBD is great for this.

5.  An Important Edition of Wall St. Journal:  I think it is imperative
to get a copy of the WSJ that covers the year in review.  This edition
comes out usually on the first business day of the new year.  It
contains a lot of information about how each stock has performed
during that last year, including the % movement of the stock during
the past year.  I get two copies of this paper because I get so much
out of them (one for work, one for home).

6.  SEC on Internet:  See the entry for Edgar elsewhere in this FAQ.

7.  Writing Letters:  If you are interested in a company then get
their address and write them a letter.  If you have a non-discount
broker then they can get you the company's address.  Otherwise go to
virtually any library and they will be able to help you find the
addresses you are interested in.  When you write to a company, tell
them you are interested in investing in them and you want to learn
more about them.  Ask for 10Ks, annual reports, 10Qs, quarterly
summaries, analyst reports and anything else they can send you.  Some
companies will bury you with information if you just ask.  Ask them to
add your name to their mailing list for future information.  Many
companies maintain active mailing lists and so the information will
keep flowing to you.  All this for only $0.29.

8.  Reader Service Cards in Investor's Daily or other places:  Another
reason I like to get the Friday edition of IBD is because they usually
have a bunch of companies hyping themselves and offering information
if you send in a reader service card.  This is another great almost
freebie.  For $0.29 you can usually find at least 3-5 companies that
are worth finding out about.

-----------------------------------------------------------------------------

Subject: Future and Present Value of Money
Last-Revised: 28 Jan 94
From: [e-mail]

This note explains briefly two concepts concerning the time-value-of-money,
namely future and present value.

* Future value is simply the sum to which a dollar amount invested today
will grow given some appreciation rate.  The formula for future value
is the formula from Case 1 of present value (below), but solved for the
future-sum rather than the present value.

    To compute the future value of a sum invested today, the formula for
    interest that is compounded monthly is:
    fv = principal * (1 + rrate/12) ** (12 * termy)
    where
        principal = dollar value you have now
        termy     = term, in years
        rrate     = annual rate of return in decimal (i.e., use .05 for 5%)

    For interest that is compounded annually, use the formula:
    fv = principal * (1 + rrate) ** (termy)

    Example:
    I invest 1,000 today at 10% for 10 years compounded monthly.
    The future value of this amount is 2707.04.

* Present value is the value in today's dollars assigned to an amount of
money in the future, based on some estimate rate-of-return over the long-term.
In this analysis, rate-of-return is calculated based on monthly compounding.

Two cases of present value are discussed next.  Case 1 involves a single
sum that stays invested over time.  Case 2 involves a cash stream that is
paid regularly over time (e.g., rent payments), and requires that you also
calculate the effects of inflation.

Case 1a: Present value of money invested over time.  This tells you what a
         future sum is worth today, given some rate of return over the time
         between now and the future.  Another way to read this is that you
         must invest the present value today at the rate-of-return to have
         some future sum in some years from now (but this only considers the
         raw dollars, not the purchasing power).

         To compute the present value of an invested sum, the formula for
         interest that is compounded monthly is:
                  future-sum
     pv =  ----------------------------------
           (1 + rrate/12) ** (12 * termy)
     where
         future-sum = dollar value you want in termy years
         termy = term, in years
         rrate = annual rate of return that you can expect, in decimal

     Example:
         I need to have 10,000 in 5 years.  The present value of 10,000
         assuming an 8% monthly compounded rate-of-return is 6712.10.
         I.e., 6712 will grow to 10k in 5 years at 8%.

Case 1b: This formulation can also be used to estimate the effects of
     inflation; i.e., compute real purchasing power of present and
     future sums.  Simply use an estimated rate of inflation instead
     of a rate of return for the rrate variable in the equation.

     Example:
         In 30 years I will receive 1,000,000 (a gigabuck).  What is
         that amount of money worth today (what is the buying power),
         assuming a rate of inflation of 4.5%?  The answer is 259,895.65

Case 2:  Present value of a cash stream.  This tells you the cost in
     today's dollars of money that you pay over time.  Usually the
     payments that you make increase over the term.  Basically, the
     money you pay in 10 years is worth less than that which you pay
     tomorrow, and this equation lets you compute just how much.

     In this analysis, inflation is compounded yearly.  A reasonable
     estimate for long-term inflation is 4.5%, but inflation has
     historically varied tremendously by country and time period.

     To compute the present value of a cash stream, the formula is:
          month = 12*termy   paymt  * (1 + irate) ** int ((month - 1)/ 12)
     pv = SUM                ---------------------------------------------
          month = 1               (1 + rrate/12) ** (month - 1)
     where
         month = month number
         termy = term, in years
         paymt = monthly payment, in dollars
         irate = rate of inflation (increase in payment/year), in decimal
         rrate = rate of return on money that you can expect, in decimal
         int() function = keep integral part; compute yr nr from mo nr

     Example:
         You pay $500/month in rent over 10 years and estimate that
         inflation is 4.5% over the period (your payment increases with
         inflation.)  Present value is 49,530.57

Two small C programs for computing future and present value are available
from the compiler of this FAQ.  Simply mail a note with any subject and
contents to the following address:  lott=[e-mail]

-----------------------------------------------------------------------------

Subject: Getting Rich Quickly
Last-Revised: 18 Jul 1993
From: [e-mail]

Take this with a lot of :-) 's.

Legal methods:
  1. Marry someone who is already rich.
  2. Have a rich person die and will you their money.
  3. Strike oil.
  4. Discover gold.
  5. Win the lottery.

Illegal methods:
  6. Rob a bank.
  7. Blackmail someone who is rich.
  8. Kidnap someone who is rich and get a big ransom.
  9. Become a drug dealer.

For completeness sakes:
 10. "If you really want to make a lot of money, start your own religion."
                - L. Ron Hubbard

Hubbard made that statement when he was just a science fiction writer in
either the '30s or '40s.  He later founded the Church of Scientology.
I believe he also wrote Dianetics.

-----------------------------------------------------------------------------

Subject: Charles Givens
Last-Revised: 18 Nov 1993
From: [e-mail], [e-mail], [e-mail]

Charles J. Givens, born in 1941, is a self-styled investment guru who
regularly appears in info-mercials on late-night television to tell
the world about the fortunes he has made and lost, his free seminars
run by his associates, and the Charles J. Givens Organization.

Givens offers investment advice through his seminars and publications.
He has written several best-selling books:
    Wealth Without Risk (1988)
    Financial Self-Defense (1990)
    More Wealth Without Risk (1991)

Membership in his organization is offered for about $400 up front and
subsequent dues of $80 a year.  According to reference (2), a member
of his organization receives printed materials, videotapes, and audio
tapes which describe financial strategies.  The organization publishes
a monthly newsletter.  Telephone advice is also offered to members.

His advice is generally simplistic and sometimes contradictory.  All
examples are taken from Wealth Without Risk, as cited in Reference (4).
Simplistic:    number 210, don't buy bonds when interest rates are rising.
Contradictory:  number 206, do not put your money in vacant land;
        number 245, invest your IRA or Keogh money in vacant land.

Givens offers some helpful advice but contrary to the titles of his books,
his ideas can be extremely risky.  For example, some of his suggestions
about insurance, especially dropping uninsured motorist coverage from
one's automobile insurance, may leave people underinsured and vulnerable
in case of an accident unless they are very careful about reading their
policies and asking hard questions.  He also makes aggressive inter-
pretations of tax law, interpretations which might get one in trouble
with the IRS.  Prospective followers of Givens must, absolutely must,
read about recent successful lawsuits against Givens as well as his
criminal convictions and other disclosures about him and his organization.
See below for exact references.  In conclusion: his advice is simply
not appropriate for everyone.

References:

(1) _Smart Money_, August 1993.

(2) The Wall Street Journal, ``Pitching Dreams,'' 08/05/91, Page A1.

(3) The Wall Street Journal, ``Enterprise: Proliferating Get-Rich Shows
    Scrutinized,'' 04/19/90, Page B1.

(4) The Wall Street Journal, ``Double or Nothing,'' 02/15/90, Page A12.

(5) The Wall Street Journal, `` Tax Report: A Special Summary and Forecast
    Of Federal and State Tax Developments,'' 11/01/89.

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Subject: Goodwill
Last-Revised: 18 Jul 1993
From: [e-mail]

Goodwill is an asset that is created when one company acquires another.
It represents the difference between the price the acquiror pays and
the "fair market value" of the acquired company's assets.  For example,
if JerryCo bought Ford Motor for $15 billion, and the accountants
determined that Ford's assets (plant and equipment) were worth $13
billion, $2 billion of the purchase price would be allocated to goodwill
on the balance sheet.  In theory the goodwill is the value of the
acquired company over and above the hard assets, and it is usually
thought to represent the value of the acquired company's "franchise,"
that is, the loyalty of its customers, the expertise of its employees;
namely, the intangible factors that make people do business with the
company.

What is the effect on book value?  Well, book value usually tries to
measure the liquidation value of a company -- what you could sell it
for in a hurry.  The accountants look only at the fair market value of
the hard assets, thus goodwill is usually deducted from total assets
when book value is calculated.

For most companies in most industries, book value is next to meaningless,
because assets like plant and equipment are on the books at their old
historical costs, rather than current values.  But since it's an easy
number to calculate, and easy to understand, lots of investors (both
professional and amateur) use it in deciding when to buy and sell stocks.

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Compilation Copyright (c) 1994 by Christopher Lott, [e-mail]
--
"Christopher Lott / Email: [e-mail] / Tel: [phone]"
"Adresse: FB Informatik - Bau 57 / Universitaet KL / D--67653 Kaiserslautern"