Barrons Guide To Making Investment Decisions: Revised & Expanded

Library of Congress Cataloging-in-Publication Data Sease, Douglas. Barron’s guide to making investment decisions / Douglas R. Sease and John A. Prestbo.- Rev. and expanded. p. cm. Includes bibliographical references and index. ISBN 0-13-087377-2 1. Investments - Handbooks, manuals, etc. I. Prestbo, John A. II. Title. HG4527.S393 1998 332.6 - dc21 98-27594 CIP © 1999 by Prentice Hall, Inc. All rights reserved. No part of this book may be reproduced in any form or by any means, without permission in writing from the publisher. ISBN 0-7865-8701-6 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. …From the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations Prentice Hall International (UK) Limited, London Prentice Hall of Australia Pty. Limited, Sydney Prentice Hall Canada, Inc., Toronto Prentice Hall Hispanoamericana, S.A., Mexico Prentice Hall of India Private Limited, New Delhi Prentice Hall of Japan, Inc., Tokyo Simon & Schuster Asia Pte. Ltd., Singapore Editora Prentice Hall do Brasil, Ltda., Rio de Janeiro Contents Introduction 1 Setting Investment Objectives xi 1 Time and Risk 4 To Spend or Invest, That Is the Question 9 Making the First Cut 11 The Nature of Risk 12 The Psychology of Risk 13 Emotions and Investing 15 How Much Time Do You Have? 16 Taxes Aren’t Your Only Problem 18 The Hidden Costs of Small Stocks 22 Strategies for Getting Wet 23 Sources of Information 32 2 Asset Allocation: Spreading the Risk, Reaping the Reward 34 Ranking the Risks 41 Making Asset Allocation Work for You 44 The Rebalancing Act 49 Tilting the Balance 52 Salvaging the Wreckage 53 Suggested Reading 55 3 Stocks: The Investors’ Playground 56 The Menu, Please 57 Mother Knows Best 58 Economics for Idiots 60 How’s the Market Doin’? 62 Don’t Be Scared, Be Smart 70 Black and Blue Chips 72 Grown-Up Growth Stocks 76 Let’s Go Cycling 80 Riding the Small-Growth-Stock Rockets 81 Initial Public Offerings 88 Value Is Another Name for Cheap 89 Defensive Stocks 93 What’s So Special About Special Situations? 94 The Stock Picking Process 95 Keeping Track 99 Saying Good-bye Is Hard to Do 101 Raising the Risks 104 Mitigating Risk 106 Suggested Reading 107 4 Bonds: The Secure in Securities 109 The Menu, Please 119 Strategies 140 Short Is Better Than Long 141 Building a Bond Ladder 141 Bond Trading: Where Investors Fear to Tread 142 Suggested Reading 144 5 Mutual Funds Everyman’s Money Manager 145 147 Mutual Fund Mecha