If you want to know how Starting Your Own Business How to plan and build a successful enterprise How to Retire Abroad Your complete guide to a fresh start in the sun The Buy to Let Handbook How to invest for profit in residential property and manage the letting yourself Your Retirement Masterplan How to enjoy a fulfilling and enriching third age Ways to Beat the Pensions Crisis howtobooks For full details, please send for a free copy of the latest catalogue to: How To Books Spring Hill House, Spring Hill Road Begbroke, Oxford OX5 1RX, United Kingdom info@howtobooks.co.uk www.howtobooks.co.uk howtobooks Dedication For my father, Donald White, who (among many other kindnesses too numerous to mention) bravely introduced me to trading in shares through his own stockbroker and also taught me about investment trusts Published by How To Content, A division of How To Books Ltd, Spring Hill House, Spring Hill Road, Begbroke, Oxford OX5 1RX United Kingdom Tel: (01865) 375794 Fax: (01865) 379162 info@howtobooks.co.uk www.howtobooks.co.uk All rights reserved No part of this work may be reproduced or stored in an information retrieval system (other than for purposes of review) without the express permission of the publisher in writing The right of John White to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988 © Copyright 2007 John White Fifth edition 2000 Reprinted 2000 and 2001 Sixth edition 2003 Reprinted 2004, 2006 and 2007 Seventh edition 2007 First published in electronic form 2008 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978 84803 215 Produced for How To Books by Deer Park Productions, Tavistock Typeset by PDQ Typesetting, Newcastle-under-Lyme, Staffs Cover design by Baseline Arts Ltd, Oxford NOTE: The material contained in this book is set out in good faith for general guidance and no liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the book Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements NOTE 2: Use of the pronouns ‘him’ and ‘he’ in this book implies a person of either sex Contents List of illustrations viii Preface ix Introduction 1 Why buy shares? The benefits Why shares rise in value? Are shares right for you? A history of shares The difficulty of selecting shares 3 11 17 26 An explanation of shares Basic information Why come to market? More about shares Capital versus income The stockmarket indices Marketability of shares Market subdivisions Share sectors Types of share 28 28 34 35 37 40 42 47 47 48 Factors affecting the price of a share Share dilution The perception of share values The movement of markets The importance of timing Company bids and takeovers 57 57 62 68 71 72 v vi Investing in Stocks & Shares Avoiding undue risk Avoiding local risk Overseas investments Pooled funds The institutions The zero sum game 76 76 77 79 89 89 Dealing in shares Certificates or nominee account? The broker Taurus/Crest A summary of charges The mechanics of share dealing When to buy and when to sell The Coppock Indicator 92 92 93 98 102 104 113 114 Stockmarket strategies Some stockmarket investment strategies Modern portfolio theory/risk management The Logical Investment Strategy Summary of the Logical Investment Strategy Construction of a wishlist Construction of a hitlist Valuation of shares Performance assessment 116 116 121 122 124 126 128 128 129 Investing in traded options and futures Introduction to options Interpretation of charts Futures Other derivatives 131 131 141 146 146 Bonds/gilts/interest-bearing deposits Introduction to bonds and gilts Tax implications of purchases of bonds and gilts Strategies for buying gilts How to buy and sell gilts How to buy and sell bonds 147 147 157 159 161 162 Six typical case studies Conclusion 163 173 Contents vii Appendices Government privatisations The Black-Scholes Model for traded options Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) Individual Savings Accounts (ISAs) The price of gold Split capital investment trusts Business and Enterprise Schemes Permanent Income Bearing Shares (PIBS) Bulletin Board/SEATS 10 Value investment 11 FRS-3: new accounting rules 12 AIM/PLUS 13 Emerging markets 14 Order-driven markets/SETS 15 The Internet 16 Capital Gains Tax (CGT) 17 Reinvestment of dividends 18 Derivatives 19 Alternative investments 20 Inland Revenue stamp offices 21 Self-invested pension plans (SIPPs) 174 176 178 179 184 186 188 192 195 196 198 199 201 202 204 206 213 215 219 220 221 Glossary 225 Further reading 241 Useful addresses 242 Index 244 List of Illustrations The Barclays Capital indices from 1945 to the present Equity and building society funds: growth with net income reinvested The BZW indices in real terms Equity and building society funds with net income reinvested (in real terms) Proxy form for voting Certificate of dividend payment Typical statement of ISA transactions Rights issue: letter of allotment of shares Warrant certificate 10 Share dividend counterfoil 11 Letter of acceptance for new issue of shares 12 Stock transfer form 13 Contract note for purchase of shares 14 Share certificate 15 Contract note for sale of shares 16 The ‘X, Y, Z Form’ for renunciation of shares etc 17 Typical statement of a money market account 18 Contract note for purchase of traded options 19 FTSE index chart showing formation of resistance levels 20 Chart of share price showing strong trend line 21 Chart of gold showing declining trend 22 Example of a convertible certificate 23 Typical gilt certificate viii 4 8 29 31 41 58 60 63 94 96 103 107 109 111 133 139 143 144 145 148 158 Preface to the Seventh Edition Investing in Stocks and Shares has proved to be one of the most enduring of guides to investment in stockmarkets since it was first published in 1992 This may be because it is maintained by a professional long-term investor and not by a financial journalist or a salesman peddling a ‘get-rich-quick’ book; or it may be due to the book’s advocacy from the first edition of the importance of seeking dividend growth from investments in shares, and not buckling to the latest investment fashion The beliefs expressed in the first edition, that share prices would rise more than alternative investments and that the ‘Logical Investment Strategy’ would have a long term application, have been fulfilled despite the general decline in stockmarkets across the world during 2001–2003 Much of the decline was due to the bursting of the ‘dot-com’ bubble and the belated realisation by investors that mobile phone companies would struggle to grow once everyone had a mobile phone Readers of earlier editions should have largely avoided both disasters The prediction in the 6th edition (2003), that stockmarkets would recover, was speedily borne out Between 2003 and 2006 the average share price rose by about 60 per cent, far outstripping housing, cash and bonds However, while compiling Table for this book, I was startled to discover that houses had outperformed shares for the ten year period up to 2007 That is the first time that this has occurred since the book’s first edition in 1992 Nevertheless, the decline in global inflation has lowered expectations of returns from all types of investment Gilts and house prices have enjoyed a good run in the last six years, but this cannot continue unless inflation (and thence interest rates) falls even further Indeed, it is economically impossible for stockmarkets and house prices to move in opposite directions for any length of time, since both are ultimately driven by company profits via dividends or ix 232 Investing in Stocks & Shares lesser or greater degree of complexity and/or sophistication Individual Savings Accounts (ISAs) Tax-free plan for shares, cash and life assurance, operated by a plan manager Replaces the older PEPs and TESSAs Inflation The rise in the value of prices of the same items over a period of time Generally attributed to the circulation of too much money Insider Trading Use of privileged (ie not publicly known) information to achieve an advantage in trading of assets Now illegal in the UK Institutions Large, well-respected and influential companies specialising in an area (in this case, finance) Financial institutions include banks, unit trusts and pension companies Interest Money paid by a borrower to a lender in exchange for the use of the lender’s money Interest is usually paid once or twice a year at a rate which may be varied by the lender, and the lender will normally expect to get back at some future date all the money he lent Interim Dividend Dividend paid on profits part-way through a company’s financial year Introduction Sale of privately held, existing shares in a company to the public, normally to institutions Investment Purchase of an asset in the expectation that the asset will rise in value (The colloquial expression, ‘I invested in a new carpet’ is incorrect, unless the carpet is expected to rise in value.) Investment Company with Variable Capital (ICVC) Regulated UK collective investment scheme See also OEIC Investment Trusts Companies which invest principally in the shares of other companies Issue Price Price at which new shares are issued Issued Share Capital The nominal, or face value, sum of the shares issued by a company Cf market price Junior Debt Borrowings which will be repaid by a bankrupt company after the more important borrowings (senior debt) have been repaid – but only if sufficient money remains See mezzanine finance Junk Bonds Junior debt which has been packaged into bundles and can be traded on a stockmarket Letter of Acceptance Temporary certificate of ownership of newly issued shares Leverage See Gearing Limits Bounds between which a purchase or sale of securities is permitted by the investor Liquidation Termination of a company by selling all its business or assets Often described as ‘winding-up’ Glossary 233 Liquidity The ease with which an asset can be turned into cash Listing See Quote Loan Notes Interest-bearing bonds issued usually for the purpose of deferring CGT (shares are exchanged for loan notes) Loan Stock Fixed interest bonds, issued by companies Unlike debentures, loan stock is not always secured on the assets of the company Long Position Buying securities with borrowed money, in the expectation that their price will rise Longs Gilts which will be repaid in more than 15 years’ time Main Market Companies which have met stringent financial criteria in order to be listed by the London Stock Exchange Margin A proportion of the cost of the purchase of an asset put up by the investor as an advance payment Market (The) Place where assets are traded The London Stock Exchange now trades shares and other securities over a complicated network of computer screens Market Makers Professionals (mostly institutions) at the Stock Exchange who buy and sell shares, holding them on their own books in the interval between buying and selling Market Price The current value of a freely traded commodity, such as shares The market value of a company is obtained by multiplying the price of its shares by the number of shares in existence Marketability The ease with which shares, or other assets, can be traded between buyers and sellers Matched Bargain Agreement, usually mediated through stockbrokers or market makers, to bring together a buyer and a seller of poorlymarketable shares Mature Industry Industry from which no further growth (in technology or number of customers) is expected Merger Joining together of two companies, without a formal takeover Mezzanine Finance Borrowings from a lender which carry a higher risk, and higher interest yield (to the lender) than other company debt See junior debt Middle Price Price half-way between the bid and offer prices of an asset Modern Portfolio Theory (MPT) Theoretical method of optimising the balance between risk and performance from an investor’s assets to match his requirements Net Income after tax has been deducted 234 Investing in Stocks & Shares Net Asset Value (NAV) Value after adding together all assets and subtracting all liabilities New Issue Shares sold for the first time by a company New Time Late purchase of shares at the end of an account, to be paid for at the end of the next account (Obsolete.) Nil-paid No money yet paid to buy an asset The right to buy the asset is valuable, and can be sold as ‘nil-paid’ The term is usually applied to rights issues Nominal Value See face value Nominee Account Assets held by an agent on behalf of the original investor See also Crest Normal Market Size (NMS) Newly introduced measure of the marketability of shares Off Market Trades carried out without going through a recognised stockmarket For example, a private deal to buy and sell shares between two friends Off-Shore Refers to any base outside the mainland of the UK, and not subject to British tax laws Offer Price Selling price offered by a broker The price which an investor will pay to buy shares (or other assets) Offer for Sale New shares sold by a company at a fixed price to the general public Offer for Tender New shares sold by a company to the highest bidders Open-Ended Investment Companies (OEICs) Pooled investment funds, intermediate between unit and investment trusts Regulated by company law, often with several share types Options Provide the opportunity to purchase or sell assets at an agreed price at a later date Options normally have to be purchased Order-Driven Market Stockmarket where buyers and sellers deal directly with one another (via computer), rather than through the agency of market makers Orderly Market Market in which buyers and sellers trade in full possession of knowledge about the value of the underlying assets Out-of-the-Money Options which cannot at present be exercised with profit at the striking price Over subscribed More people applied for shares in a new issue than there were shares to meet the demand Over The Counter (OTC) Market Limited market made by some dealers in shares of minor companies which not match the requirements needed for a full listing on the AIM or London Stock Exchange OTC stocks are now very rare in the UK, but are more Glossary 235 common abroad for companies which not qualify for a listing on their national stock exchange Par Value See face value Pari Passu Shares (or other assets) which rank equally with similar assets issued by the same company Payment in kind notes (PIKs) High risk roll-up bonds The interest due is not paid, but added to increase the debt until the final repayment date Penny Shares Shares of undefined, low individual value Typically the share price will be less than 40p Personal Equity Plan (PEP) Tax-free fund, operated by a plan manager, in which to hold a restricted range of investments in shares or bonds New PEPs cannot be opened Physical Delivery Hand over assets in settlement instead of their cash equivalent PIBS Permanent Income-Bearing Shares Actually undated bonds issued by a building society Placing Non-public sale of new shares in a company to selected investors, typically the financial institutions PLUS (formerly OFEX) Market in very small companies made by brokers Plus Markets Now regulated by London Stock Exchange Poison Pills Measures taken by a company to make it a less attractive target to be taken over by a raider Pooled Funds Funds which invest in a range of assets, normally of a similar type (eg a unit trust investing in shares) This spreads the individual risk of owning each share, giving an averaged performance Portfolio A collection of assets, not necessarily of the same type Pound-Cost Averaging Buying assets at regular intervals, in order to even out ups and downs in the price of those assets Preference Shares Shares which will receive dividends before the ‘ordinary’ shares (but after debentures and loan stocks), in the event of a shortfall in the ability of the company to pay dividends Preference shares usually provide a higher (often fixed) yield than ordinary shares Premium The extent to which the market price of an asset exceeds that of its real value See also discount Price Earnings (P/E) Ratio Equal to the share price of a company divided by its EPS and providing a measure of how well the share price represents the ability of the company to generate earnings Prior Charges The order in which payments are made by a company to the owners of its bonds and shares 236 Investing in Stocks & Shares Privatisations Sale of nationalised industries by the government to the public Program Trading Use of automated (computer) programs set to initiate purchases or sales of assets when predetermined price limits are met Prospectus Document which lists the financial and other details of a company which is seeking to issue new shares The publication of a prospectus is now a legal requirement before issues of shares and company bonds Provisional Allotment Temporary certificate of ownership of shares issued under a rights issue, pending payment of the purchase price of the shares PTM (Panel of Takeovers and Mergers) Oversees company takeovers, funded by £1 levy on large share purchases See Takeover Code Quote/Quotations A company is said to be ‘quoted’ (or ‘listed’) if it can be traded on one of the two London exchanges (the AIM or the Main Market of the London Stock Exchange) The Exchange provides a quotation for its current share price Raider A company (or, rarely, a wealthy individual) which makes a hostile bid for another company Ramping Artificially boosting the price of an asset For an example, see stabilisation Rationalisation Making a business more efficient (frequently a euphemism for closing down factories or stores) Real estate investment trusts (REITs) Property companies that receive tax advantages for distributing virtually all rental income to investors Recovery Stock A company whose share price is depressed as a result of poor profits, but which is expected to return to normal profitability Redemption Date The date on which stocks are repaid, usually at par Redemption Yield The overall yield which an investor will get if he holds a bond to the redemption date (inclusive of gains in the value of the bond) Registration Process by which changes in ownership of shares are recorded, normally by the registrars of the company concerned Renunciation Giving up your right to own some shares, usually in connection with a temporary certificate of ownership Reverse Convertible Bond (RCB) Bond that can be repaid with a predetermined number of shares, instead of with cash Reverse Takeover A company without a quotation buys up a company with a quotation Rights Issue Issue of new shares for cash to existing investors by a Glossary 237 company which has already issued shares Risk – Market The risk that the whole stockmarket will fall steeply in value (see crash) Risk – Specific The risk that an individual company will go bankrupt, rendering its shares worthless Rolling System System of settling share dealings soon after they occur, instead of at the end of the account The current system allows days Roll-up Fund A fund which reinvests its income (dividends or interest) by buying more units of the same fund This can result in rapid compound growth, especially if the income is received free of tax Rule 4.2/Rule 535 Now obsolete Stock Exchange rules that permitted matched bargains to be made in many poorly traded stocks and shares Replaced by Rule 2.1 Scrip Issue Issue of new shares at no cost by a company to its shareholders (a capitalisation issue is similar) The share price of the company is adjusted to compensate for the increased number of shares in existence SEAQ Computer screen-based Stock Exchange system showing quotations from market makers SEATS Stock Exchange Alternative Trading System, for shares in little-traded companies Securities Assets traded on an exchange (eg shares, bonds and gilts) Securitisation Conversion of a stream of cash receipts into a security that can be sold See, eg, gilt strips Self-invested Pension Plan (SIPP) Pension fund administered by pensions provider for the investor, who makes the investment decisions Senior Debt Loans made to a company which will be repaid first in the event that the company becomes bankrupt See junior debt SETS (Stock Exchange Electronic Trading Service) A new market where buyers and sellers deal directly with one another (via computer), rather than through the agency of market makers See also Order-Driven Market SETSmm Combination of SETS and market makers for lessertraded stocks The market makers provide liquidity when electronic orders dry up Settlement The investor pays or receives cash in respect of his purchases or sales of assets Shaking the Tree Process by which a market maker deliberately upsets the price of shares in a quietly-trading company in order to encourage investment activity 238 Investing in Stocks & Shares Share Certificate A certificate naming the investor as the owner of the shares These certificates have no direct value That is, they cannot be used as a substitute for cash (contrast bearer certificates) See also Crest Shell Stocks Quoted companies whose main business has virtually ended, awaiting an injection of new ideas or a reverse takeover Short Position Selling securities which are not owned, in the hope of buying them back at a cheaper price at a later date Shorts Gilts which will be repaid in less than five years’ time Splitting Giving up part of your right to own some shares See Renunciation Spread Difference between bid and offer prices Spread-betting Betting that the current share price of a company or index will rise or fall beyond the spread Stabilisation Short-lived purchases by professional investors of the newly issued shares of a company in order to maintain an initial, artificially high price Stakeholder Pension Tax-favoured pension scheme with maximum one per cent administration charge Stag Investor who buys shares in a new issue with the intention of selling them at a profit as soon as they have been received ‘Stock and Put’ strategy Guaranteed performance from a share portfolio by holding mostly shares with protection against a market fall through the use of put options Stocks Strictly speaking, securities paying a fixed rate of interest Now often used as a synonym for the shares of a company Stop-loss/Stop-profit Desist from holding a security when its value has fallen or risen to a preset limit Striking Price Price at which an agreement between buyer and seller is made Striking Price (Traded Options) Price at which the underlying security can be bought or sold Suspension The Stock Exchange will no longer trade the company’s shares (private trades may still be possible) Synthetics That combination of borrowed (lent) money and shares which, after allowing for interest, is equal to the value of the call (put) option in the same stock Takeover Purchase of one company by another Takeover Code/Panel Government body which provides the regulations (the code) for one company to make a takeover bid for another Talisman Computerised system for transferring ownership of most Glossary 239 shares Largely replaced by Crest Tap Stock Government re-issue of gilts which were not fully taken up by investors on the day of issue Taurus A former Stock Exchange system for registering purchases and sales of shares (abandoned in 1993) Taurus was a complex, electronic nominee account Tax Exempt Special Savings Accounts (TESSAs) Tax-free roll-up fund for investment of cash with a bank or building society New TESSAs cannot be opened Technical Analysis See chart analysis Technology, Media, Telephone (TMT) Stocks Shares in hightechnology companies that were fashionable from 1999-2001 Temporary Certificate Certificate issued pending despatch of the ‘definitive’ (final) certificate Usually encountered as a letter of acceptance (of a share offer) or as a provisional allotment of shares (rights issue) Tender Bid to buy stocks at an auction Tied Advisers Advisers tied to one company or investment product They cannot give advice on other investments Time Deposit Deposit which cannot be withdrawn until the stated date Touch Difference between the best and worst dealing prices quoted by different market makers The term is often used synonymously for ‘spread’ Tracking Stock Stock which tracks the performance of a subsidiary of a major listed company Traded Options Options which can be traded on a recognised stockmarket See options Tradepoint Alternative order-driven market for virtually all shares Used predominantly by institutions Transfer Substitution of the old owner on a share register by the new Form giving title to the new owner Treasury Bills Bonds issued by Governments for 1–3 months only Trustee Independent supervisor of a fund Unbundling Breaking up a conglomerate into its component parts, in the belief that the value of the parts is greater than the value of the whole Unconditional Bid Offer to purchase the shares of a company which is made to the shareholders of the company regardless of how many accept Undertaking for Collective Investment in Transferable Securities (UCITS) European equivalent of an OEIC or ICVC 240 Investing in Stocks & Shares Underwriter Investor or institution who agrees to buy any unsold shares remaining after a new issue The underwriter receives a fee for this service Unfranked Income Dividend or interest income which is not taxed at source by the Inland Revenue However, unfranked income frequently has tax deducted by its UK agent before being sent on to the investor Unit Trust A fund which manages numerous assets, mostly of one type (eg shares), and whose overall value is divided into units which can be bought by investors The fund is subject to the supervision of a trustee and government legislation Universal Stock Future Tradeable futures for individual companies See futures Unlisted Securities Market (USM) Former market for quoted companies which had less stringent financial requirements than those of the main market Unquoted Stocks and shares not registered on any authorised stock exchange See quote Upside Potential for an asset to increase in value Venture Capital Money used to start up a new business Venture Capital Trusts (VCTs) Tax-favoured pooled-fund for investment in the shares of small companies not yet listed on any stockmarket Volume Number of stocks traded in a single time span (normally one day) Warrants Derivatives providing the right to buy shares in the underlying company at a fixed price before a fixed, future expiry date Not to be confused with options ‘Covered’ warrants are backed by institutions instead of the underlying company White Knight A friendly company that will counter-bid for a company which is the target of a hostile bid Wind-up See liquidation Yield The dividend of a share, expressed as a percentage of the share price Yield Gap Difference between the average yield of gilts and the average yield of shares Yield Ratio The average yield of gilts divided by the average yield of shares Further Reading It takes years of experience to build up a good knowledge of share investment Gaps in this knowledge can be filled by reading a number of indispensable publications The Financial Times, especially on Saturdays when there is good coverage of items of interest to personal investors Investors’ Chronicle, published weekly and a mine of knowledge and factual information about companies The information is very well indexed, both weekly and quarterly, so that the magazines form a major reference source Subscription Department, PO Box 423, Sittingbourne, Kent ME9 8FA (www.investorschronicle.co.uk) How to Make Money with Charts, T H Stewart, WoodheadFaulkner, 1986 This gives an excellent account of technical analysis – for believers only Economist magazine, published weekly, and giving an excellent overview of the economic climate and academic theories Private Investors’ Directory A guide to stockbrokers prepared to act for private clients Obtained from the Stock Exchange (see Useful Addresses) The Inland Revenue publishes many pamphlets on tax and share/ bond dealing Ask at your local branch (Taxation changes so frequently that only the briefest overview can be given in this book.) The Investor’s Guide to Emerging Markets, M Mobius, Pitman Publishing A book by one of the Templeton trust managers How to Make Money from Property: The best-selling and expert guide to property investment, Adam Walker, How To Books Making Money from Letting: How to buy and let residential property for profit, Moira Stewart, How To Books A Simple Guide to Pensions: Discover how to solve the pension puzzle and provide for a comfortable retirement, John Claxton, How To Books 241 Useful Addresses Association of Investment Companies (AIC): 9th Floor, 24 Chiswell Street, London EC1Y 4YY Tel: (020) 7282 5555 Bank of England, Debt Management Office, Eastcheap Court, 11 Philpot Lane, London EC3M 8UD Tel: 0845 357 6500 Website: www.dmo.gov.uk For information about gilts Barclays Capital Ltd, The North Colonnade, Canary Wharf, London E14 4BB Tel: (020) 7623 2323 Website: www.barcap.com Suppliers of the long-term comparative share-gilt-building society data used in this book Barclays Stockbrokers Ltd, Client Service Team, Tay House, 300 Bath Street, Glasgow G2 4LH Tel: 0845 601 7788 Now the largest private client stockbroker in the UK, after taking over the popular Sharelink/Charles Schwab operation in January 2003 Allows certificated trading Best Investments, Chesterfield Gardens, Mayfair, London W1J 5BQ Tel: (020) 7189 9988 Website: BestInvest.co.uk Monitors EIS and VCT investments (among others) Building Societies Association, 6th Floor, York House, Kingsway, London WC2B 6UJ Tel: (020) 7437 0655 Website: www.bsa.org.uk City Index Ltd, Sales Dept., Freepost, LON21292, London EC2B 2BB Tel: 0800 072 1107 Website: www.cityindex.co.uk Trading in derivatives Companies House, 21 Bloomsbury Street, London WC1B 3XD Also at Crown Way, Cardiff CF4 3UZ Tel: 0870 3333 636 Website: www.CompaniesHouse.gov.uk For information about companies Debt Management Office See Bank of England Euronext-LIFFE, Cannon Bridge House, Cousin Lane, London EC4 3XX Tel: (020) 7623 0444 Website: www.euronext.com Flaxdale Printers Ltd, Malvern Drive, Woodford Green, Essex IG8 0JR Tel: (020) 8504 6862 Publishers of Investment Trusts magazine 242 Further Reading 243 Halifax ShareDealing Ltd, Trinity Road, Halifax HX1 2RG Tel: 0845 722 5525 Website: www.halifax.co.uk/sharedealing Discount broker providing a very cheap service Hemscott, 2nd Floor, Finsbury Towers, 103–105 Burnhill Row, London EC1Y 8TY Tel: (020) 7496 0055 General share data I G Index Ltd, Friars House, 157–168 Blackfriars Road, London SE1 8EZ Tel: 0800 195 3100 Website: www.igindex.co.uk Trading in derivatives Inland Revenue, Public Enquiries Room, West Wing, Room 62, Somerset House, London WC2R 1LB Tel: (020) 7438 6622 Website: www.hmrc.gov.uk Investors’ Compensation Scheme Financial Services Compensation Scheme, 7th Floor, Lloyds Chambers, Portsoken Street, London E1 8BN Tel: (020) 7892 7300 Website: www.fscs.org.uk London Stock Exchange (the), 10 Paternoster Square, London EC4M 7LS Tel: (020) 7797 1000 Website: www.LondonStockexchange.com M&G Customer Services, M&G House, Victoria Road, Chelmsford CM1 1FB Tel: 0800 389 8601 Website: www.MandG.co.uk Purveyors of the very first unit trusts and still one of the most highly regarded unit trust managers with a wide range of trusts A free Yearbook of M&G unit trusts is published every year National Register of Fee-Based Advisers A guide to local, independent fee-based advisers c/o Investors’ Chronicle (see Further Reading) National Savings and Investments, Mythop Road, Blackpool FY3 9YP Tel: 0845 964 5000 Wesbite: www.nsandi.com Governmentbacked savings, that can also be obtained by application at many Post Offices OyezForms Publishing, Oyez House, PO Box 55, Spa Road, London SE16 3QQ For stock transfer and other legal forms Proshare, 3rd Floor, 8–11 Lime Street, London EC3M 7AA Help desk (60p/min) Tel: 0906 802 2222 Website: www.proshareclubs.co.uk Securities and Futures Authority (SFA), 25 The North Colonnade, Canary Wharf, London E14 5HS Tel: (020) 7676 1000 Website: www.fsa.gov.uk Spink and Son, 69 Southampton Row, Bloomsbury, London WC1B 4ET Tel: (020) 7563 4000 Website: www.spink.com Well-established gold dealers, who also produce catalogues Index ‘A’ shares, 28 acceptance (of offer), 74 Advance Corporation Tax (ACT), 25 alpha stocks, 43 Alternative Investment Market (AIM), 43, Appendix 12 Alternative Investments, Appendix 19 American Depository Receipt (ADR), Appendix 18 annuity, 170, Appendix apportionment, Appendix 16 arbitrageurs, 70 assets, 28 average down strategy, 116 ‘B’ shares, 61 balanced portfolio, 15 bankruptcy, 32, 137, 140, 147, 149, 151 bearer certificates, 108 ‘bed and breakfast’, 113, Appendix 16 beta stocks, 43 bids (takeovers), 65, 72 ‘Big Bang’, 23, 98 blue chips, 48 bond ratings, 152 bonds, 147 et seq buying and selling, 161 price of, 153 safety of, 150 bond washing, 160 broker, 93 et seq Bulletin Board, 45, Appendix Business Expansion Scheme (BES), 46, Appendix ‘C’ shares, 75 Capital Asset Price Model (CAPM), 122 capital gains tax (CGT), 25, 38, 74, 75, 87, 102, 129, 138, 146, 159, Appendix 16 capital growth, 37, 38 capitalisation of interest, 54 cash, 15 ‘Cash and Calls’ strategy, 120 charges, broker, 23, 95, 102, 104 gilts, 153, 161 ISA, 39 traded options, 138 unit trust, 80, 102 charts, 69, 141 et seq cheques in post, 106 Chinese walls, 24 commissions, see charges company reports, 126 Composite Rate Tax (CRT), 228 compound growth, 12 conglomerates, 53 Consols, 20 contract for difference, Appendix 18 contrarian view, 119 convertibles, 59, 149 Coppock Indicator, 114 covered warrant, 61, Appendix 18 Crash, Stockmarket, The Great, 21 1973–1974, 23, 37 October 1987, 24, 64, 89, 120 Crest, 98–101 Crest Depository Receipt (CDR), Appendix 18 crime, 19, 21, 54, 79, 99, 126 cycles, economic, 21, 35 daytrader, 205, 229 dealing, mechanics of, 104, 140, 161 dealing services, 101 debentures, 147, 151 debt, junior, mezzanine, 151 senior, 151 delta stocks, 43 dilution levy, 81 directors’ shares, 66 discount broker, 104 distribution bond, 162 dividend, 30, 62–4, Appendix 17 ex, cum, 67 efficient market hypothesis (EMH), 68 emerging markets, Appendix 13 enhanced scrip dividend, 62 Enterprise Investment Scheme (EIS), see Business Expansion Scheme 244 Index 245 equalisation, 110 equity, 28 Eurobond market, 150 European Options, see Traditional Options Exchange Traded Fund (ETF), Appendix 18 Financial Times, classifications, 33, 44 discounts on investment trusts, 82 gilts, 155 prices, 33 traded options, 138 unit prices, 110 Form ‘XYZ’, 111, 112 Foreign Income Dividends (FIDs), 25 fraud, see crime FRS-3, Appendix 11 funds, ethical, 88 fund of funds, 87 gilts, 160, 161 managers, 84, 89 off-shore, 87 pooled, 79 et seq futures, 146 gamma stocks, 43 gearing, 61, 82, 85 gilts, 9, 106, 114, 141, 147 et seq gilt strips, 153, 159 gold, Appendix growth, 49 guaranteed funds, 119 hedge funds, 70 hitlist, 128 house prices, 3, 5, 55 income growth, 38 independent advisers, 16 index-linked gilts, 5, 114, 156 indices (of stockmarket), 40, 90, 130, 136, 154, Appendix 12 Individual Savings Accounts (ISAs), 25, 38, Appendix inflation, 7, 9, 12 inside information, 24, 54 institutions, 15, 22, 89 Internet, the, Appendix 15 investment trusts, 20, 81 et seq., 102, 112 split-capital, Appendix issued share capital, 29, 57 junk bonds, 151 leverage, see gearing limited (Ltd), 13, 19 loan notes, 75, 147 loan stocks, 147, 151 Logical Investment Strategy, the, 26, 122 et seq London Options Clearing House (LOCH), 135 margin, 132 marketability of shares, 42 et seq matched bargains, 45 mature industries, 50 merger, 74 mezzanine finance, 151 Modern Portfolio Theory (MPT), 121 nationality declarations, 106 new issues, 34, 66, 112 nil-paid shares, 112 nominal share value, 29 nominee account, 92, 93, 99, 108 Normal Market Size (NMS), 44 OFEX, see PLUS off-shore funds, 87 Open-Ended Investment Companies (OEICs), 81 order-driven market, Appendix 14 overseas investments, 46, 77–79, 83, Appendix 13 over the counter (OTC) stocks, 46 payment in kind notes (PIKs), 152 penny shares, 52, 141 performance, investor’s, 129 management, 84 perks, shareholders’, Personal Equity Plans (PEPs), 25, Appendix PIBS, Appendix PLUS, 46, Appendix 12 poison pills, 73 pooled funds, 79 et seq pound cost averaging, 117 preference shares, 59 price earnings (P/E) ratio, 30 privatisation issues, 6, 49, Appendix profit margins, 65 program trading, 24, 120 property (commercial), 54, 55 property funds, 55 PTM (Panel of Takeovers and Mergers), 236 random walk, 70 real estate investment trusts (REITs), 56 recovery stocks, 49, 116 redemption (of bonds), 154 246 Investing in Stocks & Shares Reverse Convertible Bond (RCB), 149 reverse takeovers, 52 reward/risk ratio, 16, 121 rights issue, 57, 112 risk, management of (see also MPT), 76 et seq., Appendix 10 market (beta), 76, 77 specific (alpha), 76 Rule 2.1, 45 savings schemes, 82 scrip issue, 57 SEATS, Appendix securitisation, 237 Self-invested Pension Plan (SIPP), 14, Appendix 21 SETS (Stock Exchange Electronic Trading Service), Appendix 14 SETSmm, Appendix 14 shares, certificates, 92, 108 consolidation of, 112 dilution, 57 fundamentals, 64 in lieu of dividends, 61 purchases of, 92, 105 registers of, 113 renunciation of, 112 sales of, 110 sectors of, 47 sentiment about, 65 splitting of, 113 subdivisions of, 47 suspension of dealing in, 44 temporary certificates of, 112 valuation of, 128 value, 62 share shops, 93 shell stocks, 52 Simple Reversal system, 117 smaller companies, 51 South Sea Bubble, 19 spread, 43 spread-betting, 136, Appendix 18 stabilisation, 68 stamp duty, 98, 138, Appendix 20 Stakeholder Pension, 14, 26 stock, 28 ‘Stock and Put’ strategy, 120 Stock Exchange (the London), early, 18, 19 modern, 23 compensation scheme, 92, 95, 104 stockmarket, the, bears, 36 bulls, 36, 114 early history, 17 main market, 43 modern history, 22 movements of, 68 et seq strategies for, 116 et seq USM, 43 stock transfer forms, 96 stop loss policy, 118 takeovers, see bids tap stock, 153 Taurus, 98 Tax Exempt Special Savings Accounts (TESSAs), 25, Appendix taxation (general), 38, 39, 40, 87, 138, 157, 159, Appendix 16 technical analysis, see Charts technology, 51 technology, media, telephone (TMT) stocks, 25, 51 timing (purchasing of shares), 71, 88 touch, 43 tracking stock, 75 traded options, 131 et seq agreements, 134 Black-Scholes model, 134, Appendix calls, 132 in and out of money, 137 potential for loss, 132 price movements of, 134 public limit order, 137 purchase of, 133 puts, 132 time value of, 137 Tradepoint, 239 trading shares, 32; see also ‘dealing’ traditional options, 131 treasury shares, 67 trends, 72 tulip mania, 18 USA, effect on UK stockmarkets, 67 unit trusts, 22, 80, 88, 110 universal stock future, Appendix 18 Unlisted Securities Market (USM), 43 utilities, Venture Capital Trusts (VCTs), Appendix War Loan, 156 warrants, 61, 120, 141 white knight, 73 wishlist, 126 et seq yield, 31, 116 yield gap, 22, 31, 35, 114, 123 property, 55 zero sum, 89 ... paragraph.] Other information can be given in the form of a special symbol in any column and is explained in the key given on the inside back 34 Investing in Stocks & Shares cover of the Financial... in? ??uenced by in? ??ation, in that in? ??ation serves as the basis for the minimum demand for a wage increase In? ??ation is measured as an average percentage increase in the cost of everyday purchases and is... for monitoring the performance of shares Hitherto, individual stockbrokers or magazines had attempted to monitor selections of shares, and the ‘old’ Financial Times started an index in 1926 On