Stock Market Math

Stock Market Math shows you how to calculate return, leverage, risk, fundamental and technical analysis problems, price, volume, momentum and moving averages, including over 125 formulas and Excel programs for each, enabling readers to simply plug formulas into a spread sheet.

This book is the definitive reference for all investors and traders. It introduces the many formulas and legends every investor needs, and explains their application through examples and narrative discussions providing the Excel spreadsheet programs for each. Readers can find instant answers to every calculation required to pick the best trades for your portfolio, quantify risk, evaluate leverage, and utilize the best technical indicators.

Michael C. Thomsett is a market expert, author, speaker and coach. His many books include Mathematics of Options, Real Estate Investor's Pocket Calculator, and A Technical Approach to Trend Analysis. In Stock Market Math, the author advances the science of risk management and stock evaluation with more than 50 endnotes, 50 figures and tables, and a practical but thoughtful exploration of how investors and traders may best quantify their portfolio decisions.

Auteur

Michael C. Thomsett, Business and investment writer

Contenu

Chapter 1: Rates of Return on Investment: What Goes In, What Comes Out 1

Judging the Outcome - What Did You Expect? 2

The Basic Equation: Return on Cash Invested 4

Calculating Option Trading Returns 10

Taxes and Investment Return 13

Conclusion 17

Chapter 2: Returns on Capital: Putting Cash to Work 19

Calculating Returns from the Corporate View 19

Calculating Average Net Worth 22

Net Worth Versus Total Capitalization 24

Preferred Stock as Hybrid Capitalization 27

The Importance of "Use of Capital" 31

Conclusion 33

Chapter 3: Leverage and Risk Analysis: Maximizing Other People's Money 35

Calculating the Cost of Money 35

Annualized Return 38

Leverage-Based Risk-the P/E Ratio as a Way to Quantify 40

Using Options as a Form of Leverage 44

Conclusion 48

Chapter 4: Long-Term Trends: Patience Rewarded 49

A Realistic View: Long-Term Returns and Annual Rates 50

Total Net Annualized Return 53

Carryover Losses and Net Return 56

Realistic Expectations: Inflation and Taxes 58

Compound Return Calculations 60

Other Cash Flow Trends 63

Return Formulas 65

Useful Return Shortcuts 70

Estimating the Value of Deposits over Time 72

Conclusion 76

Chapter 5: Core Earnings and Net Worth Adjustments: Making the Numbers

Real 77

The Problem with Today's Accounting Rules 78

Flaws in the GAAP System - a Passive Approach to Reporting 80

Examples of Material Expenses 82

Balance Sheet Problems - Inaccurate Valuation 84

Recalculating the Key Ratios 85

Recalculating Net Worth 89

Finding Core Earnings - Comparative Analysis 92

Conclusion 93

Chapter 6: Fundamentals: Balance Sheet Tests You Need to Know 95

The Nature of Fundamental Analysis 96

Basics of the Balance Sheet 98

Working Capital Tests 101

Accounts Receivable Tests 105

Inventory Tests 108

Long-Term Asset Tests 110

Capitalization 112

Tangible and Total Book Value 116

Chapter 7: Fundamentals: Operating Statement Tests You Need to Know 121

The Basics of the Operating Statement 123

Revenue Trends 128

Earnings Trends 129

Revenue Compared to Direct Costs and Expenses 131

Conclusion 138

Chapter 8: Market Trend Calculations 139

Index Weighting 139

Breadth of the Market 143

Short Interest Ratio 146

New Highs and New Lows 148

Put/Call Ratio 151

Mutual Fund Ratios 152

Chapter 9: Price Indicators 159

The Basics of Technical Analysis 159

The Random Walk Hypothesis and the Efficient Market Theory 162

Basic Price Calculations 165

Chart Patterns and Interpretations 167

Technical Tests of Market Sentiment 171

Breadth of Trading 171

Chapter 10: Volume Indicators 175

Change in Volume 176

On Balance Volume (OBV) 178

Accumulation/Distribution (A/D) 180

Money Flow Index (MFI) 183

Large Block Ratio 186

Conclusion 187

Chapter 11: Momentum Oscillators and Moving Averages 189

Overview, Momentum Oscillators 189

Relative Strength Index (RSI) 192

Moving Average Convergence Divergence (MACD) 195

Stochastic Oscillator 197

Moving Averages 199

Bollinger Bands (BB) 201

Conclusion 204

Chapter 12: Combined Testing: Merging Price and Financial Tests 205

Effective Use of Combined Analysis 206

Valid Versus Invalid Forms of Testing 208

Identifying Important Combined Tests 209

Additional Price-Based Combined Tests 211

The Oddities of Hybrid Analysis 215

Appendix A Stock Market Formulas: Summarizing the Essentials 219

Appendix B: Excel Program Entries: Automating the Formulas 247

Index 267