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4 Plrs
chap 2 & 3
| Question | Answer |
|---|---|
| DDM | discount dividend model |
| 4 factors that decrease present value | 1. # of years to wait 2. rate of inflation 3. impatience of society 4.risk itself |
| (DR) discount rate & (PV) present value | these two are inversely related. |
| gordon equation | uesed to estimate stock returns, only good for long term |
| bonds interest | this does not grow, it is a set rate |
| short term investing | purely speculative |
| long term investing | more predictable |
| chap 3 | Investors |
| 3 kinds of investors | 1. those that don't know where market is going 2. those that don't know they don't know, 3. analysts (don't know mkt, and job depends on apearing to know) |
| STOCK RESEARCH | not worth the cost or the effort put into it |
| Old orig. theory, "find a great man and have him pick your stocks" | there are no great men, only lucky chimpanzees |
| William Fause | started @ Melon Bank, evaluated money mgrs, created fund that bought all same stocks as S&P 500, went to wells fargo and in 1971 created first index fund which was a disaster, instead of stick to his idea they bought all stocks on NYSE |
| Index fund | all stocks in a given index |
| cap Weighted | |
| Vangard group | 1st to offer public index fund |
| Magellan | Lynches old fund, Index runs neck and neck with this fund. |
| S & P | only the largest stocks |
| what is the advantage of index funds over managed funds | 1-2% per year |
| small stock | indexing does not work as well |
| critisim of index find | you will never get exceptionally rich, you could get stuck in the mundane |