Archive-name: investment-faq/general/part6
Version: $Id: faq-p6,v 1.35 1996/09/18 12:47:54 lott Exp lott $
Compiler: Christopher Lott, cml@cs.umd.edu

This is the general FAQ for misc.invest, part 6 of 7.

Compilation copyright (c) 1996 by Christopher Lott.  Use and copying
of this information, distribution of the information on electronic
media, and preparation of derivative works based upon this information
are permitted, so long as the following conditions are met:
    + No fees or compensation are charged for this information,
      excluding charges for the media used to distribute it.
    + Proper attribution is given to the authors of individual articles.
    + This copyright notice is included intact.

Disclaimer: This information is made available AS IS, and no
warranty is made about its quality or correctness.

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

Subject: Stocks - The Dow Jones Industrial Average
Last-Revised: 11 Dec 1992
From: vision@cup.portal.com, nfs@princeton.edu

The Dow Jones Industrial Average is computed from the following stocks:

Ticker  Name
------  ----
AA	Alcoa
ALD	Allied Signal
AXP	American Express
BA	Boeing
BS	Bethlehem Steel
CAT	Caterpillar
CHV	Chevron
DD	Du Pont
DIS	Disney
EK	Eastman Kodak
GE	General Electric
GM	General Motors
GT	Goodyear Tire
IBM	International Business Machines
IP	International Paper
JPM	JP Morgan Bank
KO	Coca Cola
MCD	McDonalds
MMM	Minnesota Mining and Manufacturing (3M)
MO	Philip Morris
MRK	Merck
PG	Procter and Gamble
S	Sears, Roebuck
T	AT&T
TX	Texaco
UK	Union Carbide
UTX	United Technologies
WX	Westinghouse
XON	Exxon
Z	Woolworth

The Dow Jones averages are computed by summing the prices of the stocks
in the average and then dividing by a constant called the "divisor".  The
divisor for the industrial average is adjusted periodically to reflect
splits in the stocks making up the average; the divisor was originally 30
but has been reduced over the years to 0.462685 (as of 92-10-31).  The
current value of the divisor can be found in the Wall Street Journal
and Barron's.


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

Subject: Stocks - Other Indexes
Last-Revised: 29 Sep 1995
From: jld1@ihlpm.att.com, pearson_steven@tandem.com, jordan@imsi.com,
	rajiv@bongo.cc.utexas.edu, r_ison@csn.org, A.B.Huggins@durham.ac.uk,
	doug_d@sdd.hp.com, dolson@baldy.den.mmc.com, sscrog@halcyon.com,
	jfriedl@nff.ncl.omron.co.jp, baader@mibm.ruf.uni-freiburg.de

Please see <http://www.ft.com/stocks/stockdes.html> for detailed
explanations of many of these indexes.  That page is maintained
by Britain's the Financial Times.

US Indexes:
-----------

AMEX Composite
    A capitalization-weighted index of all stocks trading on the ASE.

NASDAQ 100
    The 100 largest non-financial stocks on the NASDAQ exchange.

NASDAQ Composite
    Midcap index made up of all the OTC stocks that trade on the Nasdaq
    Market System. 15% of the US market.

NYSE Composite
    A capitalization-weighted index of all stocks trading on the NYSE.

Russell 1000
    ?

Russell 2000
    Designed to be a comprehensive representation of the U.S. small-cap
    equities market.  The index consists of the smallest 2000 companies
    out of the top 3000 in domestic equity capitalization.   The stocks
    range from $40M to $456M in value of outstanding shares.  This index
    is capitalization weighted; i.e., it gives greater weight to stocks
    with greater market value (i.e., shares * price).

Russell 3000
    The 3000 largest U.S. companies.

Standard & Poor's 500
    Made up of 400 industrial stocks, 20 transportation stocks, 40 utility,
    and 40 financial.  Market value (#of common shares * price per share)
    weighted.  Dividend returns not included in index. Represents about
    70% of US stock market.  Cap range 73 to 75,000.

Standard & Poor's 400 (aka S&P Midcap)
    Tracks 400 industrial stocks. Cap range: 85 million to 6.8 billion.

Standard & Poor's 100 (and OEX)
    The S&P 100 is an index of 100 stocks.  The "OEX" is the option on 
    this index, one of the most heavily traded options around.  

Value Line Composite
    See Martin Zweig's Winning on Wall Street for a good description.
    It is a price-weighted index as opposed to a capitalization index.
    Zweig (and others) think this gives better tracking of investment
    results, since it is not over-weighted in IBM, for example, and
    most individuals are likewise not weighted by market cap in their
    portfolios (unless they buy index funds). 

Wilshire 5000
    All U.S. exchange-traded stocks. Contains over 6000 US stocks on NYSE,
    Amex, and NASDAQ. Includes the S&P 500.  Considered by some a good
    measure of market as a whole because it includes smaller companies. 

Wilshire 4500 
    The Wilshire 5000 minus the S&P500. About 29% of the total stock market.
    Cap range: 1 to 23,000.

Non-US Indexes:
--------------

CAC-40 (France)
    The CAC-Quarante, this is 40 stocks on the Paris Stock Exchange formed
    into an index.  The futures contract on this index is probably the most
    heavily traded futures contract in the world. 

DAX (Germany)
    The German share index DAX tracks the 30 most heavily traded stocks
    (based on the past three years of data) on the Frankfurt exchange.

FTSE-100 (Great Britain)
    Commonly known as 'footsie'.  Consists of a weighted arithmetical 
    index of 100 leading UK equities by market capitalization.  Calculated
    on a minute-by-minute basis.  The footsie basically represents the bulk
    of the UK market activity.

Nikkei (Japan)
    "Nikkei" is an abbreviation of "nihon keizai" -- "nihon" is Japanese for
    "Japan", while "keizai" is "business, finance, economy" etc.  Nikkei is
    also the name of Japan's version of the WSJ.  The nikkei is sometimes
    called the "Japanese Dow," in that it is the most popular and commonly
    quoted Japanese market index.

JPN
    JPN is a modified price-weighted index that measures the aggregate
    performance of 210 common stocks actively traded on the Tokyo Stock 
    Exchange that are representative of a broad cross section of Japanese 
    industries.  Japanese prices are translated without a currency conversion,
    so the index is not directly affected by dollar/yen changes.  JPN is
    closely related, but not identical, to the Nikkei Index.  Options are
    traded on US exchanges.

Europe, Australia, and Far-East (EAFE)
    Compiled by Morgan Stanley.

 [ Compiler's note: a few explanations are still missing.
   I would very much like to complete this article, please help! ]


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

Subject: Stocks - IPOs
Last-Revised: 7 Nov 1995
From: a_s_kamlet@att.com, billman@centcon.com

This article is divided into four parts:

	1. Introduction to IPOs     
	2. The Mechanics of Stock Offerings
	3. The Underwriting Process
	4. IPO's in the Real World


1.  Introduction to IPOs

When a company whose stock is not publicly traded wants to offer
that stock to the general public, it usually asks an "underwriter"
to help it do this work.  The underwriter is almost always an
investment banking company, and the underwriter may put together a
syndicate of several investment banking companies and brokers.    
The underwriter agrees to pay the issuer a certain price for a minimum
number of shares, and then must resell those shares to buyers, often
clients of the underwriting firm or its commercial brokerage cousin.
Each member of the syndicate will agree to resell a certain number of
shares. The underwriters charge a fee for their services.

For example, if BigGlom Corporation (BGC) wants to offer its privately-
held stock to the public, it may contact BigBankBrokers (BBB) to handle
the underwriting.   BGC and BBB may agree that 1 million shares of BGC
common will be offered to the public at $10 per share.   BBB's fee for
this service will be $0.60 per share, so that BGC receives $9,400,000. 
BBB may ask several other firms to join in a syndicate and to help it
market these shares to the public.

A tentative date will be set, and a preliminary prospectus detailing
all sorts of financial and business information will be issued by the
issuer, usually with the underwriter's active assistance.

Usually, terms and conditions of the offer are subject to change up
until the issuer and underwriter agree to the final offer.  The issuer
then releases the stock to the underwriter and the underwriter
releases the stock to the public.  It is now up to the underwriter to
make sure those shares get sold, or else the underwriter is stuck with
the shares.

The issuer and the underwriting syndicate jointly determine the price
of a new issue.  The approximate price listed in the red herring (the
preliminary prospectus - often with words in red letters which say
this is preliminary and the price is not yet set) may or may not be
close to the final issue price.

Consider NetManage, NETM which started trading on NASDAQ on Tuesday,
21 Sep 1993.  The preliminary prospectus said they expected to release
the stock at $9-10 per share.  It was released at $16/share and traded
two days later at $26+.  In this case, there could have been sufficient
demand that both the issuer (who would like to set the price as high
as possible) and the underwriters (who receive a commission of perhaps
6%, but who also must resell the entire issue) agreed to issue at 16. 
If it then jumped to 26 on or slightly after opening, both parties
underestimated demand.  This happens fairly often.

IPO Stock at the release price is usually not available to most of the
public.  You could certainly have asked your broker to buy you shares
of that stock at market at opening.  But it's not easy to get in on the
IPO.  You need a good relationship with a broker who belongs to the
syndicate and can actually get their hands on some of the IPO.  Usually
that means you need a large account and good business relationship with
that brokerage, and you have a broker who has enough influence to get
some of that IPO.

By the way, if you get a cold call from someone who has an IPO and wants
to make you rich, my advice is to hang up.   That's the sort of IPO that
gives IPOs a bad name.

Even if you that know a stock is to be released within a week, there is
no good way to monitor the release without calling the underwriters every
day.  The underwriters are trying to line up a few large customers to
resell the IPO to in advance of the offer, and that could go faster or
slower than predicted.  Once the IPO goes off, of course, it will start
trading and you can get in on the open market.


2.  The Mechanics of Stock Offerings

The Securities Act of 1933, also known as the Full Disclosure Act, the
New Issues Act, the Truth in Securities Act, and the Prospectus Act
governs the issue of new issue corporate securities.  The Securities
Act of 1933 attempts to protect investors by requiring full disclosure
of all material information in connection with the offering of new
securities.  Part of meeting the full disclosure clause of the Act of
1933, requires that corporate issuers must file a registration
statement and preliminary prospectus (also know as a red herring) with
the SEC.  The Registration statement must contain the following
information: 

  - A description of the issuer's business.  
  - The names and addresses of the key company officers, with salary
    and a 5 year business history on each.  
  - The amount of ownership of the key officers.  
  - The company's capitalization and description of how the proceeds
    from the offering will be used.  
  - Any legal proceedings that the company is involved in.


Once the registration statement and preliminary prospectus are filed
with the SEC, a 20 day cooling-off period begins.  During the
cooling-off period the new issue may be discussed with potential
buyers, but the broker is prohibited from sending any materials
(including Value Line and S&P sheets) other than the preliminary
prospectus.

Testing receptivity to the new issue is known as gathering
"indications of interest."  An indication of interest does not
obligate or bind the customer to purchase the issue when it becomes
available, since all sales are prohibited until the security has
cleared registration.

A final prospectus is issued when the registration statement becomes
effective (when the registration statement has cleared).  The final
prospectus contains all of the information in the preliminary
prospectus (plus any amendments), as well as the final price of the
issue, and the underwriting spread.

The clearing of a security for distribution does not indicate that the
SEC approves of the issue.  The SEC ensures only that all necessary
information has been filed, but does not attest to the accuracy of the
information, nor does it pass judgment on the investment merit of
the issue.  Any representation that the SEC has approved of the issue
is a violation of federal law.


3.  The Underwriting Process


The underwriting process begins with the decision of what type of
offering the company needs.  The company usually consults with an
investment banker to determine how best to structure the offering and
how it should be distributed.

Securities are usually offered in either the new issue, or the
additional issue market.  Initial Public Offerings (IPO's) are issues
from companies first going public, while additional issues are from
companies that are already publicly traded.

In addition to the IPO and additional issue offerings, offerings may
be further classified as:

  - Primary Offerings:  Proceeds go to the issuing corporation.  
  - Secondary Offerings: Proceeds go to a major stockholder who is
    selling all or part of his/her equity in the corporation.  
  - Split Offerings: A combination of primary and secondary
    offerings. 
  - Shelf Offering: Under SEC Rule 415 - allows the issuer to sell
    securities over a two year period as the funds are needed.

The next step in the underwriting process is to form the syndicate
(and selling group if needed).  Because most new issues are too large
for one underwriter to effectively manage, the investment banker, also
known as the underwriting manager, invites other investment bankers
to participate in a joint distribution of the offering.  The group of
investment bankers is known as the syndicate.  Members of the
syndicate usually make a firm commitment to distribute a certain
percentage of the entire offering a nd are held financially
responsible for any unsold portions.  Selling groups of chosen
brokerages, are often formed to assist the syndicate members meet
their obligations to distribute the new securities.  Members of the
selling group usually act on a " best efforts" basis and are not
financially responsible for any unsold portions.

Under the most common type of underwriting, firm commitment, the
managing underwriter makes a commitment to the issuing corporation to
purchase all shares being offered.  If part of the new issue goes
unsold, any losses are distributed among the members of the syndicate.

Whenever new shares are issued, there is a spread between what the
underwriters buy the stock from the issuing corporation for and the
price at which the shares are offered to the public (Public Offering
Price, POP).  The price paid to the issuer is known as the
underwriting proceeds.  The spread between the POP and the
underwriting proceeds is split into the following components:

  - Manager's Fee:  Goes to the managing underwriter for negotiating
    and managing the offering.  
  - Underwriting Fee: Goes to the managing underwriter and syndicate
    members for assuming the risk of buying the securities from the
    issuing corporation.  
  - Selling Concession - Goes to the managing underwriter, the
    syndicate members, and to selling group members for placing the
    securities with investors. 

The underwriting fee us usually distributed to the three groups in the
following percentages:

    Manager's Fee 10% - 20% of the spread
    Underwriting Fee 20% - 30% of the spread
    Selling Concession 50% - 60% of the spread

In most underwritings, the underwriting manager agrees to maintain a
secondary market for the newly issued securities.  In the case of "hot
issues" there is already a demand in the secondary market and no
stabilization of the stock price is needed.  However many times the
managing underwriter will need to stabilize the price to keep it from
falling too far below the POP.  SEC Rule 10b-7 outlines what steps are
considered stabilization and what constitutes market manipulation.
The managing underwriter may enter bids (offers to buy) at prices
that bear little or no relationship to actual supply and demand, just
so as the bid does not exceed the POP.  In addition, the underwriter
may not enter a stabilizing bid higher than the highest bid of an
independent market maker, nor may the underwriter buy stock ahead of
an independent market maker.

Managing underwriters may also discourage selling through the use of a
syndicate penalty bid.  Although the customer is not penalized, both
the broker and the brokerage firm are required to rebate the selling
concession back to the syndicate.  Many broke rages will further
penalize the broker by also requiring that the commission from the
sell be rebated back to the brokerage firm.


3.  IPO's in the Real World

Of course knowing the logistics of how IPO's come to market is all
fine and dandy, but the real question is, are they a good investment?
That does tend to be a tricky issue.  On one hand there are the Boston
Chickens and Snapples that shoot up 50% or 10 0%.  But then there is
the research by people like Tim Loughran and Jay Ritter that shows
that the average return on IPO's issued between 1970 and 1990 is a
mere 5% annually.

How can the two sides of this issue be so far apart?  An easy answer
is that for every Microsoft, there are many stocks that end up in
bankruptcy. But another answer comes from the fact that all the
spectacular stories we hear about the IPO market are usually basing
the percentage increase from the POP, and the Loughran and Ritter
study uses purchase prices based on the day after the offering hit the
market.

For most investors, buying shares of a "hot" IPO at the POP is next to
impossible.  Starting with the managing underwriter and all the way
down to the investor, shares of such attractive new issues are
allocated based on preference. Most brokers reserve whatever limited
allocation they receive for only their best customers.  In fact, the
old joke about IPO's is that if you get the number of shares you ask
for, give them back, because it means nobody else wants it.

While the deck may seem stacked against the average investor.  For an
active trader things may not be as bad as they appear.  The Loughram
and Ritter study assumed that the IPO was never sold.  The study does
not take into account an investor who bought an issue like 3DO (THDO -
NASDAQ), the day after the IPO and sold it in the low to mid 40's,
before it came crashing down.  Obviously opportunities exist, however
it's not the easy money so often associated with the IPO market.

Portions of this article are copyright 1995 by Bill Rini.


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

Subject: Stocks - Shorting
Last-Revised: 29 Jul 1994
From: a_s_kamlet@att.com

Shorting means to sell something you don't own.

If I do not own shares of IBM stock but I ask my broker to sell short
100 shares of IBM I have committed shorting.  In broker's lingo, I
have established a short position in IBM of 100 shares.  Or, to really
confuse the language, I hold 100 shares of IBM short.

Why would you want to short?

Because you believe the price of that stock will go down, and you can
soon buy it back at a lower price than you sold it at.  When you buy
back your short position, you "close your short position."

The broker will effectively borrow those shares from another client's
account or from the broker's own account, and effectively lend you
the shares to sell short.  This is all done with mirrors; no stock
certificates are issued, no paper changes hands, no lender is identified
by name.

My account will be credited with the sales  price of 100 shares of IBM
less broker's commission.  But the broker has actually lent me the stock
to sell; no way is he going to pay interest on the funds from the short
sale. (Exception:  Really big spenders sometimes negotiate a full or
partial payment of interest on short sales funds provided sufficient
collateral exists in the account and the broker doesn't want to lose
the client.  If you're not a really big spender, don't expect to receive
any interest on the funds obtained from the short sale.)  Also expect
the broker to make you put up additional collateral.  Why?

Well, what happens if the stock price goes way up?  You will have to
assure the broker that if he needs to return the shares whence he got
them (see "mirrors" above) you will be able to purchase them and "close
your short position."  If the price has doubled, you will have to spend
twice as much as you received. So your broker will insist you have
enough collateral in your account which can be sold if needed to close
your short position.  More lingo: Having sufficient collateral in your
account that the broker can glom onto at will, means you have "cover"
for your short position. As the price goes up you must provide more cover.

Since you borrowed these shares, if dividends are declared, you will be
responsible for paying those dividends to the fictitious person from
whom you borrowed.  Too bad.

Even if you hold you short position for over a year, your capital
gains are short term.

A short squeeze can result when the price of the stock goes up.  When
the people who have gone short buy the stock to cover their previous
short-sales, this can cause the price to rise further.  It's a death
spiral - as the price goes higher, more shorts feel driven to cover
themselves, and so on.

You can short other securities besides stock.  For example, every time
I write (sell) an option I don't already own long, I am establishing a
short position in that option. The collateral position I must hold in
my account generally tracks the price of the underlying stock and not
the price of the option itself.  So if I write a naked call option on
IBM November 70s and receive a mere $100 after commissions, I may be
asked to put up collateral in my account of $3,500 or more!  And if
in November IBM has regained ground and is at $90 [ I should be so
lucky ], I would be forced to buy back (close my short position in
the call option) at a cost of about $2000, for a big loss.

Selling short is seductively simple.  Brokers get commissions by
showing you how easy it is to generate short term funds for your
account, but you really can't do much with them.  My personal advice
is if you are strongly convinced a stock will be going down, buy the
out-of-the-money put instead, if such a put is available.

A put's value increases as the stock price falls (but decreases sort
of linearly over time) and is strongly leveraged, so a small fall in
price of the stock translates to a large increase in value of the put.

Let's return to our IBM, market price of 66 (yuck.) Let's say I strongly
believe that IBM will fall to, oh,  58 by mid-November.  I could short-sell
IBM stock at 66, buy it back at 58 in mid-November if I'm right, and make
about net $660.  If instead it goes to 70, and I have to buy at that price,
then I lose net $500 or so.  That's a 10% gain or an 8% loss or so.

Now, I could buy the IBM November 65 put for maybe net $200.  If it
goes down to 58 in mid November, I sell (close my position) for about
$600, for a 300% gain.  If it doesn't go below 65, I lose my entire
200 investment. But if you strongly believe IBM will go way way down,
you should shoot for the 300% gain with the put and not the 10% gain
by shorting the stock itself.  Depends on how convinced you are.

Having said this, I add a strong caution:  Puts are very risky, and
depend very much on odd market behavior beyond your control, and you
can easily lose your entire purchase price fast.  If you short options,
you can lose even more than your purchase price!

One more word of advice.  Start simply.  If you never bought stock
start by buying some stock.  When you feel like you sort of understand
what you are doing, when you have followed several stocks in the
financial section of the paper and watched what happens over the course
of a few months, when you have read a bit more and perhaps seriously
tracked some important financials of several companies, you might --
might -- want to expand your investing choices beyond buying stock. 
If you want to get into options (see FAQ on options) start with writing
covered calls.  I would place selling stock short or writing or buying
other options lower on the list -- later in time.


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

Subject: Stocks - Shorting Against the Box
Last-Revised: 14 Apr 1995
From: rlcarr@animato.pn.com

Shorting-against-the-box is the act of selling short securities that
you already own.  For example, if you own 200 shares of FON and tell
your broker to sell short 200 shares of FON, you have shorted against
the box.  Note that when you short against the box, you have locked in
your gain or loss, since for every dollar the long position gains, the
short position will lose and vice versa.

An alternative way to short against the box is to buy a put on your
stock.  This may or may not be less expensive than doing the short
sale.  The IRS considers buying a put against stock the same as
shorting against the box.

* Where does the name come from?

It comes from the idea of selling short the same stock that you are
holding in your (safety deposit or strong) box.  The term is somewhat
meaningless today, with so many people holding stock in street name
with their brokers, but the term persists.

* What is the point of this?  Why not just sell the stock if you
  don't want it anymore?

The sole rationale for shorting-against-the-box is to delay a taxable
event.  Let's say that you have a big gain on some shares of XYZ.  You
think that XYZ has reached its peak and you want to sell.  However,
the tax on the gain may leave you under-withheld for the year and
hence subject to penalties.  Perhaps next year you will make a lot
less money and will thus be in a lower bracket and therefore would
rather take the gain next year.  Or maybe you have some other reason.

In any case, the IRS says that a gain/loss is not realized until the
asset is sold (or a short position is covered) [we are ignoring things
like Section 1256 contracts that are marked to market each year].
When you short against the box, you have locked in a gain or loss, but
have not closed a position.  In fact you have two open positions --
your long shares and the shares you sold short.  Until you unwind
these positions, there is no taxable event.  In theory you could leave
the positions open forever.

* This is great!  I have a stock that I've held for 9 months but I
  think has peaked out.  Now I can lock in my gain, hold it for 3 more
  months, and then get a long-term gain instead of a short-term gain,
  saving me a bundle in taxes!

ABSOLUTELY NOT!  Unfortunately, the IRS has already thought of this
idea and has set the rules up to prevent it.  From IRS Publication 550:

  "If you held property substantially identical to the property sold
   short for one year or less on the date of short sale or if you
   acquire property substantially identical to the property sold short
   after the short sale and on or before the date of closing the short
   sale, then: 

     Rule 1.  Your gain, if any, when you close the short sale is a
              short-term capital gain; and 
     Rule 2.  The holding period of the substantially identical
              property begins on the date of the closing of the short
              sale or on the date of the sale of this property,
              whichever comes first."

So if you have held a stock for 11 months and 25 days and sell short
against the box, not only will you not get to 12 months, but your
holding period in that stock is zeroed out and will not start again
until the short is closed.  Note that your holding period is not
affected if you are already holding the stock long-term.

* How do I close out my short-against-the-box?

The obvious way is to buy to cover the short position and to sell off
the long.  This will cost you two commissions.  The better way is to
simply tell your broker to deliver the shares you own to cover the
short.  This transaction is free of commission at some brokers.


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

Subject: Stocks - Splits
Last-Revised: 1 Mar 1993
From: egreen@east.sun.com, schindler@csa2.lbl.gov, a_s_kamlet@att.com

Ordinary splits occur when the company distributes more stock to holders
of existing stock.  A stock split, say 2-for-1, is when a company simply
issues one additional share for every one outstanding.  After the split,
there will be two shares for every one pre-split share. (So it is called
a "2-for-1 split.")  If the stock was at $50 per share, after the split,
each share is worth $25, because the company's net assets didn't increase,
only the number of outstanding shares.

Sometimes an ordinary split is referred to as a percent.  A 2:1 split is
a 100% stock split (or 100% stock dividend).   A 50% split would be a 3:2
split (or 50% stock dividend).  You will get 1 more share of stock for
every 2 shares you owned.

Reverse splits occur when a company wants to raise the price of their
stock, so it no longer looks like a "penny stock" but looks more like a
self-respecting stock.  Or they might want to conduct a massive reverse
split to eliminate small holders.  If a $1 stock is split 1:10 the new
shares will be worth $10.  Holders will have to trade in their 10 Old
Shares to receive 1 New Share.

Often a split is announced long before the effective date of the split,
along with the "record date."   Shareholders of record on the record
date will receive the split shares on the effective date (distribution
date). Sometimes the split stock begins trading as "when issued" on or
about the record date.   The newspaper listing will show both the pre-
split stock as well as the when-issued split stock with the suffix "wi." 
(Stock dividends of 10% or less will generally not trade wi.)

Theoretically a stock split is a non-event.  The fraction of the company
each of your shares represents is reduced, but you are given enough
shares so that your total fraction of the company owned remains the same. 
On the day of the split, the value of the stock is also adjusted so that
the total capitalization of the company remains the same.

In practice, an ordinary split often drives the new price per share up,
as more of the public is attracted by the lower price.  A company might
split when it feels its per-share price has risen beyond what an individual
investor is willing to pay, particularly since they are usually bought
and sold in 100's.  They may wish to attract individuals to stabilize the
price, as institutional investors buy and sell more often than individuals.


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

Subject: Stocks - Warrants
Last-Revised: 11 Dec 1992
From: a_s_kamlet@att.com

There are many meanings to the word warrant.

The marshal can show up on your doorstep with a warrant for your arrest.

Many army helicopter pilots are warrant officers, who have received
a warrant from the president of the US to serve in the Army of the
United States.

The State of California ran out of money earlier this year and
issued things that looked a lot like checks, but had no promise to
pay behind them.  If I did that I could be arrested for writing a
bad check.  When the State of California did it, they called these
thingies "warrants" and got away with it.

And a warrant is also a financial instrument which was issued with
certain conditions.  The issuer of that warrant sets those conditions. 
Sometimes the warrant and common or preferred convertible stock are
issued by a startup company bundled together as "units" and at some
later date the units will split into warrants and stock.  This is a
common financing method for some startup companies.  This is the
"warrant" most readers of the misc.invest newsgroup ask about.

As an example of a "condition," there may be an exchange privilege
which lets you exchange 1 warrant plus $25 in cash (or even no cash
at all) for 100 shares of common stock in the corporation, any time
after some fixed date and before some other designated date.
(And often the issuer can extend the "expiration date.")

So there are some similarities between warrants and call options for
common stock.

Both allow holders to exercise the warrant/option before an
expiration date, for a certain number of shares.  But the option is
issued by independent parties, such as a member of the Chicago Board
Options Exchange, while the warrant is issued and guaranteed by the
corporate issuer itself.  The lifetime of a warrant is often
measured in years, while the lifetime of a call option is months.

Sometimes the issuer will try to establish a market for the warrant,
and even try to register it with a listed exchange.  The price can
then be obtained from any broker.  Other times the warrant will be
privately held, or not registered with an exchange, and the price
is less obvious, as is true with non-listed stocks.


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

Subject: Software - Investment-Related Programs
Last-Revised: 20 Aug 1996
From: cml@cs.umd.edu

 +  Ed Savage maintains an archive of programs which are available here:
    <ftp://sunsite.unc.edu/pub/archive/misc.invest/programs>

 +  The compiler of this FAQ maintains an archive of source code for a
    number of investment-related programs.  All are written in C and
    depend somewhat on a UNIX environment.  The programs include:

    401-calc:       compute value of a 401(k) plan over time
    commis:         compute commisions for trades at selected discount brokers
    fv:             compute future value
    irr:            compute rate of return of a portfolio
    loan:           calculate loan amortization schedule
    prepay:         analyze prepayments of a mortgage loan
    pv:             calculate present value
    returns:        analyze total return of a mutual fund
    roi:            compute return on investment for mutual funds
    
    These programs are available from the invest-faq web site:
    <http://www.cs.umd.edu/users/cml/invest-faq>


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

Subject: Software - Tracking Your Portfolio
Last-Revised: 25 Aug 1995
From: oliver@cs.berkeley.edu, 72144.1223@compuserve.com, wssd@netcom.com,
	MARKU@delphi.com, au729@yfn.ysu.edu, jottis@caribou-code.com

The following software packages help an investor track his portfolio.
A far more comprehensive guide to these packages appears in a yearly
compendium that is part of AAII's Computerized Investing Newsletter.
Note that these programs change versions quite quickly.

Product:	Quicken
Company:	Intuit, +1 415 322 0573
Platform:	PC, Macintosh
Price:		$39
Features:	Manages budget, checkbook, and tracks portfolio; generates
		graphs and tables that reflect changes in the portfolio.

Product:	Managing Your Money
Company:	MECA
Platforms:	?
Price:		?
Features:	A personal finance program with solid portfolio support.
		Tracks both cash flow and assets, but it lacks annualized
		return information for individual asset when dollar cost
		averaging and reinvesting both dividends and capital gains.

Product:	PFROI / Captool
Company:	?
Platforms:	?
Price:		PFROI is shareware, Captool is the commercial, extended version
Features:	?

Product:	OWL Personal Portfolio Manager
Company:	Otto-Williams Ltd, PO Box 794, Lanham MD 20703, +1 301 306-0409,
		owl@DGS.dgsys.com
Platforms:	PC
Price:		shareware; search for OPPM50.ZIP, OPPL*.ZIP
Features:	Tracks stock, bond and mutual fund transactions, computes
		capital gains and losses, tracks cash accounts, liabilities,
		and payments of interest, dividends, rents, and royalties.
		Produces charts and will import data from data services.

Product:	Wall Street Direct CD-ROM
Company:	W.S. Software Digest, 11664 National Blvd #128, LA CA 90064,
		+1 310-915-8006, wssd@netcom.com
Platforms:	PC
Price:		not yet announced; CD available Fall 1994.
Features:	Back issues of the Wall Street Software Digest with its
		product reviews and descriptions, and over 100 executable
		demos of investment- and portfolio-management software.

Product:	QTRADER 3.0
Company:	Caribou CodeWorks, HCR3 Box 71, Lutsen MN 55612, USA,
		+1 218 663-7118, jottis@caribou-code.com
Platforms:	PC; Mac version is forthcoming
Price:		$249.00
Features:	Helps the trader focus on current trends dynamically.
		Offers "Paper Trade" plotting capabilities to help learning,
		as well as "TradeSignal Bands" and "StudyMatrix" filter to
		screen potential trades.
		Demo version available at ftp://ftp.winternet.com/users/jottis


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

Subject: Tax Code - Short-Term and Long-Term Gains/Losses
Last-Revised: 14 Apr 1995
From: rlcarr@animato.pn.com

While reading misc.invest.*, you may have seen people talking about
"long-term gains" or "short-term losses."  Despite what it sounds
like, they are not talking about investment strategies, but rather a
potentially important part of the United States tax code.

* What is "holding period" ?

For reasons explained later, the IRS cares about how long you have
held capital assets that you have sold.  The holding period is
measured in months.  The nominal start of the holding period clock is
the day after the trade date, *not* the settlement date.  (I say
nominal because there are various IRS rules that will change the 
holding period in certain circumstances.)  For example, if your trade
date is March 18, then you start counting the holding period on March
19.  On April 19 your holding period is one month.  On May 19 your
holding period is two months, and so on. 

* What is a "short-term" gain or loss?

A short-term gain or loss is a gain or loss on a capital asset that
was held for less than 12 months before being sold.

* What is a "long-term" gain or loss?

A long-term gain or loss is a gain or loss on a capital asset that
was held for 12 months or more before being sold.

Note that a short-sale is considered short-term regardless of how long
the position is held open.  This actually makes a kind of sense, since
the only time you actually held the stock was between when you bought
the stock to cover the position and when you actually delivered that
stock to actually close the position out.  This length of time is
somewhere from minutes to a few days.

* Why does it matter?

It matters because the IRS taxes short- and long-term gains
differently.  Currently, a short-term gain is considered "ordinary
income," just like wages, interest, and dividends.  As such it gets
taxed at whatever tax bracket you are in.

Long-term gains, however, are never taxed at a rate higher than 28%,
no matter what tax bracket you are in:

Tax Bracket    S-T Rate      L-T Rate    Difference
   15%          15%           15%          0%
   28%          28%           28%          0%
   31%          31%           28%          3%
   36%          36%           28%          8%
   39.6%        39.6%         28%         11.6%

As you can see, this can be significant as you move into the higher
brackets.  If someone in the 36% bracket has a $10,000 gain, he'll pay
$800 more in taxes if it is a short-term gain.  While you should never
let the income tax "tail" wag the prudent investing "dog," the
long/short term distinction is something to keep in mind if you are 
considering selling at a gain and are getting close to having a 12
month holding period.


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

Subject: Tax Code - Tax swaps
Last-Revised: 12 Aug 1996
From: billman@centcon.com, travis@lombard.com

A tax swap is an investment strategy usually designed for municipal
bond portfolios.  It is designed to allow you to take a tax loss in
your portfolio while at the same time adjusting factors such as credit
quality, maturity, etc. to better meet your current needs and the
outlook of the market.  A tax swap can create a capital loss for tax
purposes, can maintain or enhance the overall credit quality of your
portfolio, and can increase current income.

It's important to note that tax swaps are not for everyone.  And as
always, you should consult with a tax professional before making any
investment desicion that is designed to produce tax benefits.

Here is an example of a hypothetical tax swap.  I have not factored
accrued interest to keep the calculations fairly simple.

Current Bond - You will sell this bond to generate a capital loss

$10,000 par value "ABC" Tax Free bond, A rated, with a coupon of
4.70%. maturing 09/01/03 originally purchased for $10,000 (100) but
with a current market value of only $9030 (90.30).

Replacement Bond - The bond you will buy to replace your current bond

$10,000 par value "XYZ" Tax Free bond, AAA rated, with a coupon of
5.20% maturing 12/01/12 The current selling price of this bond is
$8724 (87.24)

Sell "ABC" Bond $9030.00 
Buy  "XYZ" Bond $8724.00
                --------
Difference:      $306.00

The tax swap accomplished the following.  First, you received $306.00
cash.  Second, you upgraded the credit quality of your single-bond
portfolio from A to AAA.  Third, you generated a capital loss of
$970.00 (original purchase price minus the sellin price).  Fourth,
you've increased the bond's maturity and coupon, so its duration will
be greater.  This swap will increase the portfolio's sensitivity to
interest rate changes, which may or may not be what the investor had
in mind.  In particular, it might be not appropriate for a short-term
investment.  If the bond is held to maturity, then no risk is assumed
other than default risk.  (Although unrealized value would change wildly,
and perhaps that's taxable in some circumstance).

Portions of this article are copyright 1995 by Bill Rini.


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

Subject: Tax Code - Uniform Gifts to Minors Act (UGMA)
Last-Revised: 4 Dec 1994
From: a_s_kamlet@att.com, schindler@csa1.lbl.gov, eck@panix.com

The Uniform Gifts to Minors Act allows you to give $10,000 per year
to any minor, tax free.  You must appoint a custodian.

Some accountants advise that one person should make the gift and
that a different person should be the custodian.  The reason is
that if the donor and custodian are the same person, that person
is considered to exercise sufficient control over the assets to
warrant inclusion of the UGMA in his/her estate.  For more info,
see Lober, Louis v. US, 346 US 335 (1953) (53-2 USTC par. 10922);
Rev Ruls 57-366, 59-357, 70-348.

All of these are cited in the RIA Federal Tax Coordinator 2d, volume
22A, paragraph R-2619, which says (among other things) "Giving cash,
stocks, bonds, notes, etc., to children through a custodian may result
in the transferred property being included in the donor's gross estate
unless someone other than the donor is named as custodian."

To give such a gift, go to your friendly neighborhood stockbroker,
bank, mutual fund manager, or (close your eyes now: S&L), etc. and
say that you wish to open a Uniform Gifts (in some states "Transfers")
to Minors Act account.

You register it as:
  [ Name of Custodian ] as custodian for [ Name of Minor ] under the
  Uniform Gifts/Transfers to Minors Act - [ Name of State of Minor's
  residence ]

You use the minor's social security number as the taxpayer ID for this
account.  When you fill out the W-9 form for this account, it will
show this form.  The custodian should certify the W-9 form.

The money now belongs to the minor and the custodian has a legal
fiduciary responsibility to handle the money in a prudent manner for
the benefit of the minor.

So you can buy common stocks but cannot write naked options.  You
cannot "invest" the money on the horses, planning to donate the
winnings to the minor.  And when the minor reaches age of majority -
usually 18 - the minor can claim all of the funds even if that's
against your wishes.  You cannot place any conditions on those funds
once the minor becomes an adult.

Until the minor reaches 14, the first $600 earned by the minor is
tax free, the next $600 is taxed at the minor's rate, and the rest
is taxed at the higher of the minor's or the parent's rate.  After
the minor reaches 14, all earnings over $600 are taxed at the
minor's rate.

Note that if you want to continue doing your childs taxes even after
they turn 18, there is no reason they need to know about their UGMA
account that you set up for them.  They certainly can't blow their
college fund on a Trans Am if they don't know about it.  However, 
note that at least one state (NY) allows the donor to establish a
"turnover" age of 21 by making an express statement to that effect
when the account is created.  See New York Estates, Powers & Trusts
Law sec. 7.4-11 ("Age twenty-one election").

Even if your child does his/her own taxes, you can still give them
gifts through a trust without them knowing about it until they are
more mature.  Call and ask Twentieth Century Investors for information
about their GiftTrust fund.  The fund is entirely composed of trusts
like this.  The trust pays its own taxes.


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

Subject: Tax Code - Wash Sale Rule
Last-Revised: 14 Dec 1992
From: acheng@ncsa.uiuc.edu

From IRS publication 550, "Investment Income and Expenses" (1990). 
Here is the introductory paragraph from p.37:

    Wash Sales
    You cannot deduct losses from wash sales or trades of stock or
    securities.  However, the gain from these sales is taxable.

    A wash sale occurs when you sell stock or securities at a loss and
    within 30 days before or after the sale you buy or acquire in a
    fully taxable trade, or acquire a contract or option to buy,
    substantially identical stock or securities.  If you sell stock and
    your spouse or a corporation you control buys substantially
    identical stock, you also have a wash sale.  You add the disallowed
    loss to the basis of the new stock or security.

It goes on explaining all those terms (substantially identical, stock
or security, ...).  It runs on several pages, too much to type in.  You
should definitely call IRS for the most updated ones for detail.  Phone
number:  800-TAX-FORM (800-829-3676).


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

Subject: Trading - Discount Brokers
Last-Revised: 22 Aug 1996
From: davida@bonnie.ics.uci.edu, edwardz@ecs.comm.mot.com, gary@intrepid.com,
	aaner001@maroon.tc.umn.edu, barrett@asgard.cs.colorado.edu,
	donaldj@sonic.net

A discount broker offers an execution service for a wide variety of
trades.  In other words, you tell them to buy, sell, short, or
whatever, they do exactly what you requested, and nothing more. 
Their service is primarily a way to save money for people who are
looking out for themselves and who do not require or desire any advice
or hand-holding about their forays into the markets.

However, discount brokering is a highly competitive business.  As a
result, many of the discount brokers provide virtually *all* the
services of a full-service broker with the exception of giving you
unsolicited advice on what or when to buy or sell, but some do provide
monthly newsletters with recommendations.  Virtually all will execute
stock and option trades, including stop or limit orders and odd lots,
on the NYSE, AMEX, or NASDAQ.  Most can trade bonds and U.S. treasuries.  
Most will *not* trade futures; talk to a futures broker.  Most have
margin accounts available.  Most will provide automatic sweep of
(non-margin) cash into a money market account, often with check-
writing capability.  All can hold your stock in "street-name", but
many can take and deliver stock certificates physically, sometimes for
a fee.  Some trade precious metals and can even deliver them!

Many can buy "no-load" mutual funds for a low (e.g. 0.5%) commission.
Increasingly, many even offer free mutual fund purchases through
arrangements with specific funds to pay the commission for you; ask
for their fund list.  Many will provide free 1-page Standard and
Poor's Stock reports on stocks you request and 5-10 page full research
reports for $5-$8, often by fax.  Some provide touch-tone telephone
stock quotes 24 hours / day.  Some can allow you to make trades this
way.  Fewer provide computer quotes and trading and others say "it's
coming".

The firms can generally be divided into the following categories:

   1) "Full-Service Discount"
      Provides services almost indistinguishable from a full-service
      broker such as Merryl Lynch at about 1/2 the cost.  These
      provide local  branch offices for personal service, newsletters,
      a personal account representative, and gobs and gobs of literature.

   2) "Discount"
      Same as "Full-Service", but usually don't have local branch
      offices and as much literature or research departments.
      Commissions are about 1/3  the price of a full-service broker.

   3) "Deep Discount"
      Executes stock and option trades only; other services are minimal.
      Often these charge a flat fee (e.g. $25.00) for *any* trade of
      any size. 

   4) Computer
      Same as "Deep Discount", but designed mainly for computer users
      (either dial-up or via internet).  Some brokers offer an online
      trading option that is cheaper than talking to a broker.

Examples of firms in all categories:

   Full-Svc. Discount	Discount	Deep Discount	Computer
   ------------------   --------	-------------	---------
   Fidelity		Aufhauser	Brown 		E-broker
   Olde			Bidwell		Ceres	 	E-trade
   Quick and Reilly	Lombard		National	JB Online
   Charles Schwab	Scottsdale	Pacific		Wall St. Eq.
   Vanguard		Waterhouse	Stock Mart
			Jack White	Scottsdale

The rest often fall somewhere between "Discount" and "Deep Discount" and
include many firms that cater to experienced high-volume traders with 
high demands on quality of service.  Those are harder to categorize.

All brokerages, their clearing agents, and *any* holding companies
they have which can be holding your assets in "street-name" had better
be insured with the S.I.P.C.  You're going to be paying an SEC "tax"
(e.g. about $3.00) on any trade you make *anywhere*, so make sure your
getting the benefit; if a broker goes bankrupt it's the *only* thing
that prevents a total loss.  Investigate thoroughly!

In general, you need to ask carefully about all the services above
that you may want, and find out what fees are associated with them (if
any).  Ask about fees to transfer assets out of your account, inactive
account fees, minimums for interest on non-margin cash balances,
annual IRA custodial fees, per-transaction charges, and their margin
interest rate if applicable.  Some will credit your account for the
broker call rate on cash balances which can be applied toward
commission costs.

Sources for additional information:
  - "Delving Into the Depths of Deep Discounters," _The Wall Street Journal_, 
    Friday, February 3, 1995, pp. C1, C22.
  - A free report on a broker's background can be requested from the
    National Association of Securities Dealers; phone (800) 289-9999
  - An 85 page survey of 85 discount brokers revised each October and
    issued each January is available for $34.95 + $3.00 shipping from:
    Andre Schelochin / Mercer Inc. / 379 W. Broadway, Suite 400 / 
    New York, NY 10012 / +1 (212) 334-6212

Here is an alphabetical list of US discount brokers with contact information:

Accutrade		800 494 8949
Atlantic Financial	800 559 2900	 	    http://www.af.com/af.html
Aufhauser		800 368 3668
Bidwell			800 547 6337 
Block, Marsh		800 366 1500
Brown			800 822 2021
Ceres			800 669 3900 		    http://www.ceres.com
E-Broker		No phone.		    http://www.ebroker.com
E-Trade 		800 786 2573, 415 326 2700  http://www.etrade.com
Fidelity		800 544 7272		    http://www.fid-inv.com  
Fleet Brokerage		800 221 8210
Investex		800 392 7192		    http://investexpress.com.
JB Oxford		800 656 1776		    http://www.jboxford.com
JB Online		800 468 1876
Kennedy-Cabot		800 252 0090, 213 550 0711
Lombard			800 LOMBARD		    http://lombard.com
Murphy, Barry		800 221 2111
National		800 888 3999
Net Investor		800 NET 4250		    http://pawws.com/broker/how
Olde Discount		800 USA OLDE
Pacific Brokerage 	800 421 8395, 213 939 1100  http://www.tradepbs.com/
Peck, Andrew		800 221 5873, 212 363 3770
Quick and Reilly	800 456 4049		    http://www.quick-reilly.com
Regal			800 786 9000
Schwab Online, Charles	800 E-SCHWAB
Schwab, Charles		800 442 5111
Scottsdale		800 727 1995, 818 440 9957
Siebert, Muriel		800 872 0711
Stock Cross		800 225 6196, 617 367 5700
Stock Mart		800 421 6563
Vanguard Discount	800 662 SHIP
Wall Street Equities	800 795 3456
Waterhouse		800 765 5185
White, Jack		800 233 3411
York Securities		800 221 3154

Below are a number of tables to help you compare commissions at
various discount brokers, with dates to mark when the information was
obtained.  Although it appears that commissions are not that volatile,
this information is still highly dated.  These tables are for stocks
only, not bonds or other investments, and are sorted by the brokerage
house's name.  A perl script written by Dave Barrett to calculate
commissions for a number of these brokerage houses is also available,
sample output from which is shown next.  See also the article titled
"Software - Investment-Related Programs" for more information about
that script.  Please also notice the "Date" column, which shows the
date when this data was last checked/verified with the company.

                               ---  $2000 trades ---
          Firm    400@5   200@10   100@20    50@40    25@80 Date  
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $  48.00 $  48.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $  37.49 $  27.49 $  27.49 $  27.49 $  27.49 Jul-94
       Bidwell $  41.25 $  31.25 $  27.25 $  25.25 $  23.25 Aug-94
         Brown $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $  63.50 $  63.50 $  54.00 $  54.00 $  54.00 Aug-94
         Fleet $  44.62 $  44.62 $  44.62 $  44.62 $  44.62 Aug-94
  Full Service $  88.37 $  70.51 $  53.70 $  52.13 $  51.34 Aug-94
 Kennedy Cabot $  33.00 $  33.00 $  33.00 $  23.00 $  23.00 Jul-94
       Lombard $  36.50 $  36.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $  32.29 $  26.04 $  25.00 $  25.00 $  25.00 Aug-94
  Barry Murphy $  41.00 $  34.00 $  31.50 $  30.75 $  28.88 Jul-94
      National $  33.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $  35.00 $  50.00 $  40.00 $  40.00 $  40.00 Aug-94
    J B Oxford $  23.00 $  23.00 $  23.00 $  23.00 $  23.00 Sep-94
       Pacific $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $  72.00 $  56.00 $  48.00 $  44.00 $  42.00 Jul-94
  Quick Reilly $  50.00 $  50.00 $  49.00 $  49.00 $  49.00 Aug-94
         Regal $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $  64.00 $  64.00 $  55.00 $  55.00 $  55.00 Aug-94
    Scottsdale $  36.00 $  31.50 $  31.50 $  31.50 $  31.50 Jul-94
Muriel Siebert $  47.40 $  47.40 $  45.00 $  37.50 $  37.50 Jul-94
   Stock Cross $  59.00 $  42.00 $  33.50 $  29.25 $  27.12 Jul-94
      Vanguard $  57.00 $  57.00 $  48.00 $  40.00 $  40.00 Aug-94
    Waterhouse $  35.00 $  35.00 $  35.00 $  35.00 $  35.00 Aug-94
    Jack White $  45.00 $  39.00 $  36.00 $  34.50 $  33.75 Jul-94
          York $  41.00 $  37.00 $  35.00 $  34.00 $  33.50 Jul-94

                               ---  $8000 trades ---
          Firm   1600@5   800@10   400@20   200@40   100@80 Date  
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $  48.00 $  48.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $  95.50 $  61.50 $  37.49 $  27.49 $  27.49 Jul-94
       Bidwell $  79.25 $  55.25 $  45.25 $  37.25 $  29.25 Aug-94
         Brown $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  25.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $ 109.00 $ 102.70 $ 102.70 $ 102.70 $  54.00 Aug-94
         Fleet $  91.83 $  84.67 $  84.67 $  84.67 $  47.70 Aug-94
  Full Service $ 264.18 $ 208.04 $ 170.24 $ 151.34 $ 133.49 Aug-94
 Kennedy Cabot $  83.00 $  43.00 $  33.00 $  33.00 $  33.00 Jul-94
       Lombard $  36.50 $  36.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $ 104.70 $  83.52 $  69.41 $  62.35 $  58.82 Aug-94
  Barry Murphy $  83.00 $  55.00 $  45.00 $  42.00 $  34.50 Jul-94
      National $  33.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $  67.50 $  95.00 $  70.00 $  60.00 $  40.00 Aug-94
    J B Oxford $  23.00 $  23.00 $  23.00 $  23.00 $  23.00 Sep-94
       Pacific $  31.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $ 120.00 $  92.00 $  72.00 $  56.00 $  48.00 Jul-94
  Quick Reilly $  79.00 $  79.00 $  79.00 $  79.00 $  49.00 Aug-94
         Regal $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $ 120.00 $ 103.20 $ 103.20 $ 103.20 $  55.00 Aug-94
    Scottsdale $  84.60 $  54.00 $  45.00 $  36.00 $  31.50 Jul-94
Muriel Siebert $  74.40 $  74.40 $  74.40 $  74.40 $  45.00 Jul-94
   Stock Cross $ 161.00 $  93.00 $  59.00 $  42.00 $  33.50 Jul-94
      Vanguard $  82.00 $  82.00 $  82.00 $  82.00 $  48.00 Aug-94
    Waterhouse $  79.25 $  62.41 $  51.07 $  45.40 $  40.05 Aug-94
    Jack White $  81.00 $  57.00 $  45.00 $  39.00 $  36.00 Jul-94
          York $  65.00 $  49.00 $  41.00 $  37.00 $  35.00 Jul-94

                               ---  $32000 trades ---
          Firm   6400@5  3200@10  1600@20   800@40   400@80 Date  
-------------- -------- -------- -------- -------- -------- ------
     Accutrade $ 192.00 $  96.00 $  48.00 $  48.00 $  48.00 Jul-94
     Aufhauser $ 130.50 $  66.50 $  36.50 $  36.50 $  36.50 Jul-94
       Bidwell $ 223.25 $ 127.25 $  84.25 $  70.25 $  53.25 Aug-94
         Brown $  93.00 $  29.00 $  29.00 $  29.00 $  29.00 Jul-94
       E Trade $  73.00 $  25.00 $  25.00 $  25.00 $  25.00 Jul-94
      Fidelity $ 301.00 $ 173.00 $ 169.90 $ 169.90 $ 169.90 Aug-94
         Fleet $ 288.75 $ 158.62 $ 158.62 $ 158.62 $ 158.62 Aug-94
  Full Service $ 806.61 $ 609.81 $ 511.41 $ 455.28 $ 368.00 Aug-94
 Kennedy Cabot $ 131.00 $  99.00 $  83.00 $  43.00 $  33.00 Jul-94
       Lombard $ 130.50 $  66.50 $  36.50 $  36.50 $  36.50 Jul-94
   Marsh Block $ 321.16 $ 245.87 $ 208.22 $ 187.05 $ 172.93 Aug-94
  Barry Murphy $ 251.00 $ 139.00 $  99.00 $  87.00 $  57.00 Jul-94
      National $  97.00 $  33.00 $  33.00 $  33.00 $  33.00 Jul-94
          Olde $ 187.50 $ 215.00 $ 135.00 $ 115.00 $  90.00 Aug-94
    J B Oxford $  87.00 $  23.00 $  23.00 $  23.00 $  23.00 Sep-94
       Pacific $  79.00 $  47.00 $  31.00 $  25.00 $  25.00 Jul-94
   Andrew Peck $ 192.00 $ 100.00 $ 100.00 $ 100.00 $ 100.00 Jul-94
  Quick Reilly $ 222.00 $ 131.40 $ 131.40 $ 131.40 $ 131.40 Aug-94
         Regal $  29.00 $  29.00 $  29.00 $  29.00 $  29.00 Aug-94
Charles Schwab $ 360.00 $ 200.00 $ 170.40 $ 170.40 $ 170.40 Aug-94
    Scottsdale $ 185.00 $ 105.00 $  65.00 $  50.00 $  50.00 Jul-94
Muriel Siebert $ 192.00 $  96.00 $  75.00 $  75.00 $  75.00 Jul-94
   Stock Cross $ 569.00 $ 297.00 $ 161.00 $  93.00 $  59.00 Jul-94
      Vanguard $ 156.00 $ 156.00 $ 156.00 $ 156.00 $ 156.00 Aug-94
    Waterhouse $ 241.98 $ 182.94 $ 153.42 $ 136.58 $ 110.40 Aug-94
    Jack White $ 161.00 $  97.00 $  81.00 $  57.00 $  45.00 Jul-94
          York $ 161.00 $  97.00 $  65.00 $  49.00 $  41.00 Jul-94

Finally, Don Johnson <donaldj@sonic.net> maintains a list of discount
brokers that includes feedback, praise, complaints, and comments from
customers of many of the discount brokerage houses discussed in this
article.  He posts it to misc.invest.stocks regularly.


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

Subject: Trading - Dollar Cost and Value Averaging
Last-Revised: 11 Dec 1992
From: suhre@trwrb.dsd.trw.com

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.


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

Compilation Copyright (c) 1996 by Christopher Lott, cml@cs.umd.edu
-- 
Christopher Lott	Compiler of the FAQ for misc.invest, misc.invest.stocks
cml@cs.umd.edu		http://www.cs.umd.edu/users/cml/
