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Stock Market Math

Book Description

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.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Contents
  5. 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
    3. Calculating Option Trading Returns
    4. Taxes and Investment Return
    5. Conclusion
  6. Chapter 2: Returns on Capital: Putting Cash to Work
    1. Calculating Returns from the Corporate View
    2. Calculating Average Net Worth
    3. Net Worth Versus Total Capitalization
    4. Preferred Stock as Hybrid Capitalization
    5. The Importance of “Use of Capital”
    6. Conclusion
  7. Chapter 3: Leverage and Risk Analysis: Maximizing Other People’s Money
    1. Calculating the Cost of Money
    2. Annualized Return
    3. Leverage-Based Risk—the P/E Ratio as a Way to Quantify
    4. Using Options as a Form of Leverage
    5. Conclusion
  8. Chapter 4: Long-Term Trends: Patience Rewarded
    1. A Realistic View: Long-Term Returns and Annual Rates
    2. Total Net Annualized Return
    3. Carryover Losses and Net Return
    4. Realistic Expectations: Inflation and Taxes
    5. Compound Return Calculations
    6. Other Cash Flow Trends
    7. Return Formulas
    8. Useful Return Shortcuts
    9. Estimating the Value of Deposits over Time
    10. Conclusion
  9. Chapter 5: Core Earnings and Net Worth Adjustments: Making the Numbers Real
    1. The Problem with Today’s Accounting Rules
    2. Flaws in the GAAP System – a Passive Approach to Reporting
    3. Examples of Material Expenses
    4. Balance Sheet Problems – Inaccurate Valuation
    5. Recalculating the Key Ratios
    6. Recalculating Net Worth
    7. Finding Core Earnings – Comparative Analysis
    8. Conclusion
  10. Chapter 6: Fundamentals: Balance Sheet Tests You Need to Know
    1. The Nature of Fundamental Analysis
    2. Basics of the Balance Sheet
    3. Working Capital Tests
    4. Accounts Receivable Tests
    5. Inventory Tests
    6. Long-Term Asset Tests
    7. Capitalization
    8. Tangible and Total Book Value
  11. Chapter 7: Fundamentals: Operating Statement Tests You Need to Know
    1. The Basics of the Operating Statement
    2. Revenue Trends
    3. Earnings Trends
    4. Revenue Compared to Direct Costs and Expenses
    5. Conclusion
  12. Chapter 8: Market Trend Calculations
    1. Index Weighting
    2. Breadth of the Market
    3. Short Interest Ratio
    4. New Highs and New Lows
    5. Put/Call Ratio
    6. Mutual Fund Ratios
  13. Chapter 9: Price Indicators
    1. The Basics of Technical Analysis
    2. The Random Walk Hypothesis and the Efficient Market Theory
    3. Basic Price Calculations
    4. Chart Patterns and Interpretations
    5. Technical Tests of Market Sentiment
    6. Breadth of Trading
  14. Chapter 10: Volume Indicators
    1. Change in Volume
    2. On Balance Volume (OBV)
    3. Accumulation/Distribution (A/D)
    4. Money Flow Index (MFI)
    5. Large Block Ratio
    6. Conclusion
  15. Chapter 11: Momentum Oscillators and Moving Averages
    1. Overview, Momentum Oscillators
    2. Relative Strength Index (RSI)
    3. Moving Average Convergence Divergence (MACD)
    4. Stochastic Oscillator
    5. Moving Averages
    6. Bollinger Bands (BB)
    7. Conclusion
  16. Chapter 12: Combined Testing: Merging Price and Financial Tests
    1. Effective Use of Combined Analysis
    2. Valid Versus Invalid Forms of Testing
    3. Identifying Important Combined Tests
    4. Additional Price-Based Combined Tests
    5. The Oddities of Hybrid Analysis
    6. Appendix A Stock Market Formulas: Summarizing the Essentials
  17. Appendix B: Excel Program Entries: Automating the Formulas
  18. Index