Are you baffled by the stock markets and investing? Would you like to learn how to take control of your financial future? Then you should definitely start by reading this investment bible.

This book is invaluable to both new investors and those with some experience. It explains investment in easy to understand terms. It is split into three sections. The first section explains the markets, including the stock market, the guilt market and the futures markets.

Section 2 explains how to invest and covers topics including financial planning, shares and tax efficient investments. The final section talks about companies and covers subjects such as valuing shares, new issues, takeovers and the explains what actually moves share prices.

Read extracts from this book (below)

Contents

Extracts

Chapter 10: Shares

Valuing Shares

Investors apply two main yardsticks to shares. They measure the income they expect to get by the dividend yield. Companies normally pay dividends twice a year and the half-time 'interim' dividend is normally lower than the 'final'. Yields are calculated on the total payout before income tax, and tell you what rate of income the share will produce at its current market price, which then enables investors to compare it with other shares, or even other forms of investment. The second measure used is the price/earnings ratio which tells investors how highly a share is priced relative to its earning power. Put crudely, it divides the company's market capitalization by its earnings, and so tells investors how many times they would have to multiply the company's profits to equal the market value of the company. As a result, the PE ratio is sometimes known as the earnings multiple. If the earnings ratio is higher than average, it usually suggests that the company is expected to produce above average earnings growth. If the share price of a company falls, the PE ratio will fall, and the dividend yield rise as investors lower their expectations for the company. A third measure used for companies is the Net Asset Value and this is normally applied to some specialist companies like investment trusts, property companies or ordinary companies which are likely to be taken over (See chapter 19) or in some danger of going bust (See chapter 20). Investors compare a company's yield and PE ratio with those of the relevant sector index to see how the company is rated relative to its peers.

Chapter 21: What Moves Share Prices?

IN A NUTSHELL

1. Investors are more interested in what is going to happen than in what has happened; share prices are trying to discount future events. Markets also tend to exaggerate price movements.

2. Long-term market moves are affected by fundamental factors like economics; in the medium term technical supply and demand factors can be decisive, and investor psychology can be the most powerful short-term influence.

3. Investors can profit from backing a long-term market trend, or by opposing a shorter-term over-reaction. But it is expensive to mistake one for the other.

4. Sectors broadly follow the overall market trend, but do diverge from it. Spotting which sectors are going to show relative strength can be profitable, but relying on sectors too much is dangerous.