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Stock Investing FOR DUMmIES‰ 4 TH EDITION by Paul Mladjenovic Stock Investing For Dummies®, 4th Edition Published by John Wiley & Sons, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2013 by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748- 6008, or online at http://www.wiley.com/go/permissions. 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For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Library of Congress Control Number: 2012955718 ISBN 978-1-118-37678-2 (pbk); ISBN 978-1-118-46119-8 (ebk); ISBN 978-1-118-46120-4 (ebk); ISBN 978-1-118-46121-1 (ebk) Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 About the Author Paul Mladjenovic is a certified financial planner practitioner, writer, and public speaker. His businesses, PM Financial Services and ProsperityNetwork. net, have helped people with financial and business concerns since 1981. In 1985 he achieved his Certified Financial Planner (CFP) designation. Since 1983, Paul has taught thousands of investors through popular national seminars such as “The $50 Wealth-Builder” and other financial seminars. Paul has been quoted or referenced by many media outlets, including Bloomberg, MarketWatch, Comcast, CNBC, and a variety of financial and business publi- cations and websites. As an author, he has written the books The Unofficial Guide to Picking Stocks (Wiley) and Zero-Cost Marketing (ProsperityNetwork. net). In 2002, the first edition of Stock Investing For Dummies was ranked in the top 10 out of 300 books reviewed by Barron’s. In recent years, Paul accurately forecasted many economic events, including the rise of gold, the decline of the U.S. dollar, and the housing crisis. He edits the financial e-zine Prosperity Alert, available free at www.ProsperityNetwork.net. Paul’s personal website can be found at www.RavingCapitalist.com, and you can view his video commentaries at www.youtube.com/paulmlad. Dedication For my fantastic wife Fran, my wonderful boys Adam and Joshua, and a loving, supportive family; I thank God for you. I also dedicate this book to the millions of investors who deserve more knowledge and information to achieve lasting prosperity. Author’s Acknowledgments First and foremost, I offer my appreciation and gratitude to the wonderful people at Wiley. It has been a pleasure to work with such a top-notch organization that works so hard to create products that offer readers tremendous value and information. I wish all of you continued success! Wiley has some notables whom I want to single out. The first person is Georgette Beatty (my project editor). She has guided me from day one (for both the 3rd edition and this 4th edition). Her patience, professionalism, and guidance have kept me sane and productive. Thanks for being great! Christy Pingleton (my copy editor) is a pro who took my bundle of words and turned them into worthy messages, and I thank her. Wiley is lucky to have her! The technical editor, Kevin Kennedy, is a great financial pro whom I appreciate. He made sure that my logic is sound and my facts are straight. I wish him continued success. My gratitude again goes out to my fantastic acquisitions editor, Stacy Kennedy, for making this 4th edition happen. For Dummies books don’t magi- cally appear at the bookstore; they happen because of the foresight and efforts of people like Stacy. Wiley is fortunate to have her (and the others also mentioned)! Fran, Lipa Zyenska, I appreciate your great support during the writing and updating of this book. It’s not always easy dealing with the world, but with you by my side, I know that God has indeed blessed me. Te amo! Lastly, I want to acknowledge you, the reader. Over the years, you’ve made the For Dummies books what they are today. Your devotion to these wonderful books helped build a foundation that played a big part in the creation of this book and many more yet to come. Thank you! Publisher’s Acknowledgments We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Vertical Composition Services Websites Senior Project Coordinator: Kristie Rees Senior Project Editor: Georgette Beatty Layout and Graphics: Joyce Haughey (Previous Edition: Georgette Beatty) Proofreaders: Jessica Kramer, Toni Settle Acquisitions Editor: Stacy Kennedy Indexer: Potomac Indexing, LLC Copy Editor: Christine Pingleton (Previous Edition: Todd Lothery) Assistant Editor: David Lutton Editorial Program Coordinator: Joe Niesen Technical Editor: Kevin L. Kennedy Editorial Manager: Michelle Hacker Editorial Assistant: Alexa Koschier Cover Photo: © Harald Sund / Getty Images Cartoons: Rich Tennant (www.the5thwave.com) Publishing and Editorial for Consumer Dummies Kathleen Nebenhaus, Vice President and Executive Publisher David Palmer, Associate Publisher Kristin Ferguson-Wagstaffe, Product Development Director Publishing for Technology Dummies Andy Cummings, Vice President and Publisher Composition Services Debbie Stailey, Director of Composition Services Contents at a Glance Introduction ................................................................ 1 Part I: The Essentials of Stock Investing ........................ 9 Chapter 1: Surveying the World of Stock Investing .....................................................11 Chapter 2: Taking Stock of Your Current Financial Situation and Goals ..................17 Chapter 3: Defining Common Approaches to Stock Investing ...................................35 Chapter 4: Recognizing Risk and Volatility ..................................................................45 Chapter 5: Stock Investing through Exchange-Traded Funds ....................................63 Part II: Before You Start Buying ................................. 71 Chapter 6: Gathering Information ..................................................................................73 Chapter 7: Going for Brokers ..........................................................................................93 Chapter 8: Investing for Long-Term Growth ..............................................................105 Chapter 9: Investing for Income ...................................................................................119 Chapter 10: Understanding Technical Analysis for Stock Investors .......................133 Part III: Picking Winners ......................................... 151 Chapter 11: Using Basic Accounting to Choose Winning Stocks .............................153 Chapter 12: Decoding Company Documents ..............................................................171 Chapter 13: Emerging Sector and Industry Opportunities .......................................183 Chapter 14: Investing with Megatrends ......................................................................193 Chapter 15: The Big Economic and Political Picture.................................................207 Part IV: Investment Strategies and Tactics ................ 219 Chapter 16: Choosing among Investing, Trading, and Speculating .........................221 Chapter 17: Understanding Brokerage Orders and Trading Techniques ..............233 Chapter 18: Using Trade Triggers and Advanced Conditional Orders ...................249 Chapter 19: Getting a Handle on DPPs, DRPs, and DCA . . . PDQ .............................257 Chapter 20: Corporate and Government Skullduggery: Looking at Insider Activity ............................................................................................................267 Chapter 21: Keeping More of Your Money from the Taxman ..................................279 Part V: The Part of Tens ........................................... 291 Chapter 22: Ten Considerations When Your Stock Portfolio Is Down ...................293 Chapter 23: Ten Considerations When Your Stock Portfolio Is Up ........................299 Chapter 24: Ten Challenges and Opportunities for Stock Investors ......................305 Chapter 25: Ten Great Strategies That Go Well with Stocks ....................................311 Part VI: Appendixes ................................................. 317 Appendix A: Resources for Stock Investors ...............................................................319 Appendix B: Financial Ratios ........................................................................................335 Index ...................................................................... 345