Consumer Dummies- High Powered Investing AIO for Dummies

791 Pages·2008·16.16 MB·English

by  Amine Bouchentouf

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High-Powered
Investing
ALL-IN-ONE
FOR
DUMmIES
‰
By Amine Bouchentouf;Brian Dolan;Dr.Joe Duarte;
Mark Galant;Ann C.Logue,MBA;Paul Mladjenovic;
Kerry Pechter;Barbara Rockefeller;Peter J.Sander,MBA;
and Russell Wild,MBA
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High-Powered Investing All-in-One For Dummies®
Published by
Wiley Publishing, Inc.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
Published by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
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About the Authors
Amine Bouchentouf (Commodities For Dummies)is President and Chief
Executive Officer of Renaissance Investment Advisors LLC. Renaissance is an
international financial advisory firm headquartered in New York City, which pro-
vides long-term strategic advice to individuals and institutions. He is also the
author of Arabic For Dummies.
Brian Dolan(Currency Trading For Dummies)has 15 years of experience in
the foreign exchange markets, including trading and analyst roles at top-tier
financial institutions.In addition to overseeing fundamental and technical
research at FOREX.com, Mr. Dolan publishes a daily technical analysis report
and weekly macro research report for the exclusive use of FOREX.com
clients. He has also published numerous articles on currency trading strate-
gies and risk management. Mr. Dolan is a graduate of Dartmouth College.
Dr. Joe Duarte(Futures & Options For Dummies, Futures Trading For
Dummies) analyzes intelligence and global geopolitical events and their
effects on the financial markets. He reaches thousands of investors daily
through his own Web site (www.joe-duarte.com) and FinancialWire, where he
is a featured syndicated columnist. Dr. Duarte is frequently quoted in the
major media, including CNBC, The Wall Street Journal,the Associated Press,
Marketwatch.com, and CNN.com. He is the author of Successful Energy Sector
Investingand Successful Biotech Investing,and the coauthor of After-Hours
Trading Made Easy.One of CNBC’s original Market Mavens, Dr. Duarte has
been writing about the financial markets since 1990.
Mark Galant (Currency Trading For Dummies)has enjoyed a 25-year career in
and around Wall Street, first as a trader and market maker and from 1994 to
1999 as Vice Chairman of FNX Ltd, the trading technology firm. Mr. Galant’s
last trading position was global head of FX options at Credit Suisse; he has
also been a money manager for famed hedge fund manager Paul Tudor Jones.
Mr. Galant founded GAIN Capital in October 1999; today, the firm’s propri-
etary trading platform is used by clients from 140 countries and supports a
monthly trading volume in excess of $100 billion. Mr. Galant holds a BS in
finance from the University of Virginia and an MBA from Harvard Business
School.
Ann C. Logue, MBA(Hedge Funds For Dummies) has 12 years of working
experience in financial services and has taught finance at the University of
Illinois at Chicago. She is a finance writer who has written numerous articles
on investment and hedge funds, and she has edited publications on equity
trading and risk management.
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Paul Mladjenovic(Stock Investing For Dummies, 2nd Edition)is a well-known
certified financial planner and investing consultant with over 19 years ofexpe-
rience writing and teaching about common stocks and related investments.He
owns PM Financial Services.
Kerry Pechter(Annuities For Dummies) is a finance writer whose work has
appeared in The New York Times, The Wall Street Journal, Men’s Health,and
many other national publications. He is currently the senior editor for Annuity
Market News,a monthly newsletter published by SourceMedia, Inc.
Barbara Rockefeller(Technical Analysis For Dummies) is an international
economist and forecaster specializing in foreign exchange. She was a pioneer
in technical analysis and also in combining technical analysis with fundamental
analysis. She publishes two reports daily using both techniques (www.rts-
forex.com) for professional fund managers, corporate hedgers, and individual
traders. The trading advice newsletter has an average annual hypothetical
return over 50 percent since 1994 and has never posted a losing year. She is the
author of three other books and contributes a regular column to Currency
Tradermagazine.
Peter J. Sander, MBA(Value Investing For Dummies) is a professional author,
researcher, and investor. His 15 titles include The 250 Personal Finance
Questions Everybody Should Ask, Everything Personal Finance,and the Cities
Ranked & Rated series.He has also developed over 150 columns for
MarketWatch and TheStreet.com. He has completed Certified Financial
Planner (CFP) education and testing requirements and has invested actively
for over 40 years.
Russell Wild, MBA(Bond Investing For Dummies, Exchange-Traded Funds For
Dummies)is the author or coauthor of nearly two dozen nonfiction books,
including The Unofficial Guide to Getting a Divorce(Wiley) with attorney
Susan Ellis Wild (his ex-wife). Wild is also a NAPFA-registered, fee-only finan-
cial advisor based in Allentown, Pennsylvania.
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Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration
form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and Media Composition Services
Development
Project Coordinator:Katie Key, Erin M. Smith
Compilation Editor: Tracy L. Barr
Layout and Graphics:Carl Byers,
Project Editor:Joan Friedman Alissa D. Ellet, Melissa K. Jester,
Shane Johnson, Christine Williams
Acquisitions Editor: Tracy Boggier
Proofreaders: C. M. Jones, Caitie Kelly
Technical Editor:Noel M. Jameson
Indexer: Broccoli Information Management
Technical Consultant:Russell Wild, MBA
Senior Editorial Manager: Jennifer Ehrlich
Editorial Supervisor:Carmen Krikorian
Editorial Assistants:Erin Calligan Mooney,
Joe Niesen, Leeann Harney, David Lutton
Cartoons: Rich Tennant
(www.the5thwave.com)
Publishing and Editorial for Consumer Dummies
Diane Graves Steele, Vice President and Publisher, Consumer Dummies
Joyce Pepple, Acquisitions Director, Consumer Dummies
Kristin A. Cocks, Product Development Director, Consumer Dummies
Michael Spring, Vice President and Publisher, Travel
Kelly Regan,Editorial Director, Travel
Publishing for Technology Dummies
Andy Cummings,Vice President and Publisher, Dummies Technology/General User
Composition Services
Gerry Fahey,Vice President of Production Services
Debbie Stailey,Director of Composition Services
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Contents at a Glance
Introduction.................................................................1
Book I: Investment Basics.............................................7
Chapter1:What Every Investor Should Know...............................................................9
Chapter 2: Indexes and Exchanges................................................................................23
Book II: Basic Investments: Stocks, Bonds,
Mutual Funds, and More .............................................33
Chapter 1:Playing the Market: Stocks...........................................................................35
Chapter 2:Many Happy Returns:Bonds.......................................................................49
Chapter 3:Getting to Know Mutual Funds....................................................................75
Chapter 4:The ABCs of ETFs..........................................................................................89
Chapter 5: Annuities......................................................................................................109
Book III: Futures and Options....................................127
Chapter 1:Futures and Options Fundamentals..........................................................129
Chapter 2:Being a Savvy Futures and Options Trader.............................................151
Chapter 3:Basic Trading Strategies.............................................................................167
Chapter 4:Advanced Speculation Strategies..............................................................181
Book IV: Commodities...............................................205
Chapter 1:A Commodities Overview...........................................................................207
Chapter 2: Understanding How Commodity Exchanges Work.................................221
Chapter 3:Welcoming Commodities into Your Portfolio..........................................233
Chapter 4: The Power House: Making Money in Energy...........................................245
Chapter 5:Pedal to the Metal: Investing in Metals....................................................273
Chapter 6:Down on the Farm: Trading Agricultural Products.................................291
Book V: Foreign Currency Trading..............................309
Chapter 1: Your Forex Need-to-Know Guide...............................................................311
Chapter 2:Major and Minor Currency Pairs...............................................................329
Chapter 3:The Mechanics of Currency Trading........................................................361
Chapter 4:Gathering and Interpreting Economic Data.............................................377
Chapter 5:Advice for Successful Forex Trading........................................................397
Chapter 6: Putting Your Trading Plan in Action.........................................................411
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Book VI: Hedge Funds...............................................427
Chapter 1: Getting the 411 on Hedge Funds................................................................429
Chapter 2:Looking before You Leap: How Hedge Funds Work................................443
Chapter 3:Taking the Plunge........................................................................................459
Chapter 4: A Potpourri of Hedge Fund Strategies......................................................481
Chapter 5:Evaluating Hedge Fund Performance........................................................505
Book VII: Value Investing..........................................521
Chapter 1: An Investor’s Guide to Value Investing.....................................................523
Chapter 2: A Value Investor’s Guide to Financial Statements...................................541
Chapter 3: Using Ratios as a Valuation Tool...............................................................571
Chapter 4: Valuing a Business.......................................................................................583
Book VIII: Technical Analysis ...................................617
Chapter 1:Wrapping Your Brain around Technical Analysis...................................619
Chapter 2:Reading Basic Bars to Special Bars...........................................................647
Chapter 3:Charting the Market with Candlesticks....................................................669
Chapter 4:Seeing Patterns and Drawing Trendlines.................................................681
Chapter 5:Transforming Channels into Forecasts....................................................703
Index.......................................................................725
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Table of Contents
Introduction..................................................................1
About This Book...............................................................................................1
Conventions Used in This Book.....................................................................2
What You’re Not to Read.................................................................................2
Foolish Assumptions.......................................................................................3
How This Book Is Organized...........................................................................3
Book I: Investment Basics.....................................................................3
Book II: Basic Investments: Stocks, Bonds,
Mutual Funds, and More....................................................................4
Book III: Futures and Options...............................................................4
Book IV: Commodities............................................................................4
BookV: Foreign Currency Trading.......................................................4
Book VI: Hedge Funds............................................................................5
Book VII: Value Investing.......................................................................5
Book VIII: Technical Analysis................................................................5
Icons Used in This Book..................................................................................5
Where to Go from Here....................................................................................6
Book I: Investment Basics..............................................7
Chapter 1:What Every Investor Should Know. . . . . . . . . . . . . . . . . . . . . 9
Seeing Your Investment Options at a Glance................................................9
Traditional investment vehicles...........................................................9
High-end investment or speculation vehicles..................................11
Studying Investment Strategies....................................................................14
Value investing: It’s fundamental!.......................................................14
Technical analysis................................................................................14
Recognizing and Managing Investment Risks.............................................15
Diversify, diversify, diversify...............................................................16
Research your investment..................................................................17
Practice before you jump in................................................................17
Noting the Role of the SEC............................................................................17
Going for Brokers...........................................................................................18
Full-service or discount?.....................................................................19
Choosing a broker................................................................................21
Picking among types of brokerage accounts....................................21