Issuu

THE SIMPLEST INTRODUCTION TO

STOCK MARKET LITERACY The world-renowned Trader Wizard lays the groundwork for students around the world, young and old in 120 Living Lessons

BILL CARA

Published by Greenfield Cara Attn: Bill Cara Etobicoke, Ontario M8X 3A3 Canada 647-868-6013 billcara@billcara.com Copyright @2022, @2023 by Bill Cara All rights are reserved, including the right to reproduce this book or portions thereof in any form. First edition January 2023 ISBN 978-0-9879770-3-8 (Paperback) ISBN 978-0-9879770-5-2 (eBook)

Typesetting and cover design by Andy Magee, AM Graphic Design LTD (amdesigner.co.uk)

Disclaimer The author and the publisher make no representations or warranties concerning the accuracy or completeness of the contents of this work and expressly disclaim all warranties, including warranties of fitness for a particular purpose, without limitation. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the author and publisher are not rendering financial, legal, accounting, or other professional services. In specific cases, if professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising therefrom. The fact that an organization or website referred to in this work is a potential source of further information does not mean that the author or publisher endorses the source. Readers should be aware that organizations and internet websites listed in this work may have changed or disappeared between when it was written and when it was read. At press time, this edition contains the most complete and accurate information currently available. However, due to the nature of capital markets, information frequently changes and may have been added recently to the latest text that does not appear in this edition. Please get in touch with the publisher by email should you believe that more current information is available.

Disclosures At the date of the initial publication of Stock Market Literacy, Bill Cara is a US-registered Financial Advisor and Canadian resident. Bill Cara’s opinions are his own and do not constitute financial or investment advice in any way whatsoever. The information Bill provides is solely for educational and informational purposes, not explicitly directed guidance.

Hyperlinks in eBook Hyperlinks can be harmful to your computer and data. To protect your computer, click only those hyperlinks from trusted sources. There are thousands of hyperlinks in this book’s digital form, and all can be trusted. Each one comes from my files, created by me. All chapters, illustrations, tables, and keywords have been bookmarked and hyperlinked for easy navigation. I make liberal use of market data from sources like Investing.com, FinViz. com, StockCharts.com, TipRanks.com, Finance.Yahoo.com, and MarketBeat.com. Each company has exceptional service levels, so I apologize in advance if I linked to anything behind a paywall. Also, some of these links will go dead in the future, but only a few of them with any luck, so I hope the digital version of this book will be helpful for many years. Buyers of the printed books should email billcara@billcara.com with details of the purchase, and I will send you a free copy of the eBook so you can access the links. Readers who spot errors can message me at billcara@billcara.com.

iii

From the author Stock market literacy is a life skill many people think is unattainable. This book provides the required education. It’s a book for teaching newbies and experienced investors alike. And, best of all, it doesn’t take that much time - you will feel its impact by committing 10 to 15 minutes daily. Successful investing involves applying simple business and economics principles to market prices and then using common sense. There is much common sense around, but securities investors ignore most of it. I hope my experience and proven abilities in capital markets will lead you to listen to mine. I am a registered investment advisor and successful entrepreneur. I have deep financial expertise in accounting, investments, and capital markets. When Forbes called me “Best of the Web” and “Our Favorite Blogger,” I earned the right to teach. I teach that an investment in yourself will be your most significant investment. To control your destiny and your path to success, you must become literate in the stock market. Education is so important to me. Professors at the University of Toronto, Wilfred Laurier University (Hons. BBA and Wall Street Journal Student Achievement Medal), and McMaster University (MBA) taught me about business. Then the partners and managers at PriceWaterhouseCoopers and KPMG (CA and CMA) taught me how to apply knowledge. I don’t use formal designations on my calling card because that’s the past, investing is about the future, and investing is my life. I learned how to invest at Dominion Securities, Dean Witter, and Canaccord. And even at 77, I passed the SEC/FINRA Series 65 exam. I had to understand US securities law when I moved my international business from the Bahamas to an office at Aragon Capital LLC in Fort Lauderdale. A teacher at one of the country’s most prestigious international day/boarding private schools was asked a pointed question by a parent. How was it that he had built a substantial company with many employees, yet his child knew more about the stock market than he did? The teacher replied: “Ask Bill Cara.” That teacher used my daily blogs in his teaching. This book offers readers 120 chapters on Stock Market Literacy based on what I learned in five decades and the sweat equity I invested in becoming “The Trader Wizard.” Complete courses in schools teach the contents of individual chapters. But that is a mistake. The market is a dynamic system, so students first need to get their heads around the subject matter before focusing on small pieces. Taken together, I intend these chapters to be a virtual survivor handbook for students of the market and a guide to success. This book encapsulates my advice that “preparation turns opportunity into success.” Risks in investing are omnipresent. So saying good luck is not an appropriate introduction to readers interested in capital markets. But I do wish everyone good fortune. May your hard work and risk-taking pay off as mine did.

PICTURE OF PAT AND I ON OUR ‘TIME & SPACE’ AND LIFE IN THE BAHAMAS

Dedication Stock Market Literacy is dedicated to independent thinkers and writers, a growing part of the literary landscape. May your publishing dreams come true.

Contents A Mindset for Successful Investing Chapter 1

Why stock market literacy is important............................................................. 22

Chapter 2

We trade prices....................................................................................................... 26

Chapter 3

Investors need structure........................................................................................ 29

Chapter 4

What should we buy.............................................................................................. 32

Chapter 5

What defines a Quality company ........................................................................ 35

Chapter 6

What is a value stock ............................................................................................ 40

Chapter 7

What is a growth stock.......................................................................................... 44

Chapter 8

What is an income security.................................................................................. 48

Chapter 9

Selling risk versus buying opportunity............................................................... 53

Chapter 10 Strategy and tactics ground rules........................................................................ 55 Chapter 11 Advice from the market gurus............................................................................. 59

Things to Know About Markets Chapter 12 Why do prices fluctuate........................................................................................ 69 Chapter 13 Drivers of price change ........................................................................................ 73 Chapter 14 Social media influencers ...................................................................................... 81 Chapter 15 Financial advice versus financial advisor ........................................................... 84 Chapter 16 Automated advice.................................................................................................. 91 Chapter 17 Corporate filings.................................................................................................... 97 Chapter 18 Seasonality data.................................................................................................... 100 Chapter 19 Market study 1: advance-decline data............................................................... 103 Chapter 20 Market study 2: moving average data................................................................ 106 Chapter 21 Market study 3: pe ratio data.............................................................................. 109 Chapter 22 Market study 4: yield data................................................................................... 114 Chapter 23 Market study 5: volume data.............................................................................. 117 Chapter 24 Market index study 6: bearish data.................................................................... 119 Chapter 25 Market index study 7: bullish data.................................................................... 121

vii

Funds and Non-Stock Assets Chapter 26 The ETF................................................................................................................. 125 Chapter 27 The inverse ETF .................................................................................................. 132 Chapter 28 Investing in closed-end funds............................................................................ 139 Chapter 29 Investing in mutual funds................................................................................... 141 Chapter 30 Investing in bonds............................................................................................... 150 Chapter 31 Bond yield or dividend yield.............................................................................. 155 Chapter 32 Currencies............................................................................................................. 160 Chapter 33 Cryptocurrencies ................................................................................................ 167

Essential Economic and Financial Data Chapter 34 Economic data that investors must understand ............................................. 174 Chapter 35 Economic data that moves market prices the most........................................ 180 Chapter 36 Macroeconomic study 1: US consumer data ................................................... 186 Chapter 37 Macroeconomic study 2: US jobs data ............................................................. 190 Chapter 38 Macroeconomic study 3: US housing data ...................................................... 194 Chapter 39 Macroeconomic study 4: us corporate & business data ................................. 197 Chapter 40 Macroeconomic study 5: us economy data ..................................................... 201 Chapter 41 Financial study 1: US treasury data .................................................................. 204 Chapter 42 Financial study 2: US Federal Reserve data ..................................................... 209

Fundamental Analysis of Companies Chapter 43 Corporate fundamentals overview.................................................................... 215 Chapter 44 Financial strength of a company........................................................................ 218 Chapter 45 Profitability of a company .................................................................................. 220 Chapter 46 Earnings quality .................................................................................................. 225 Chapter 47 Quality of financials ........................................................................................... 228 Chapter 48 Business predictability ....................................................................................... 232 Chapter 49 Volatility and beta ............................................................................................... 235 Chapter 50 Earnings and EPS revisions ............................................................................... 238 Chapter 51 The price earnings ratio ..................................................................................... 240

viii

Chapter 52 Dividend yield...................................................................................................... 246 Chapter 53 Enterprise value compared to market value..................................................... 248 Chapter 54 Corporate reporting ........................................................................................... 250 Chapter 55 Analyst ratings..................................................................................................... 252 Chapter 56 Analyst price targets............................................................................................ 255

Technical Analysis and Market Timing Tools Chapter 57 The need to develop timing skills ..................................................................... 258 Chapter 58 Introduction to technical analysis..................................................................... 263 Chapter 59 Trends and cycles analysis and application in trading.................................... 268 Chapter 60 Technical support and resistance....................................................................... 273 Chapter 61 Point & figure charting ....................................................................................... 278 Chapter 62 Introduction to technical indicators ................................................................ 280 Chapter 63 The Moving Average Convergence Divergence (MACD) indicator............. 283 Chapter 64 The Roc Indicator................................................................................................ 287 Chapter 65 The Stochastic Oscillator.................................................................................... 289 Chapter 66 The RSI Oscillator................................................................................................ 292 Chapter 67 The importance of volume in technical analysis............................................. 296 Chapter 68 Volume-based oscillators.................................................................................... 299 Chapter 69 Divergence between indicator and price is a vital alert.................................. 302

Trading Chapter 70 Is there a best investing style?............................................................................ 305 Chapter 71 Investing defensively .......................................................................................... 308 Chapter 72 Strategies for the higher risk-taking investor................................................... 311 Chapter 73 Potential upside.................................................................................................... 314 Chapter 74 Peer groups and why we study them................................................................. 317 Chapter 75 Using technical indicators when trading.......................................................... 321 Chapter 76 Accumulation Zone, Buy Alert, and Buy Signal.............................................. 327 Chapter 77 Distribution Zone, Sell Alert, and Sell Signal.................................................. 329 Chapter 78 Analytics I use for research and to support investment decisions................ 331 Chapter 79 Automating decision support for trading ....................................................... 337 ix

Investing by Sector Chapter 80 Investing in the Energy Sector........................................................................... 343 Chapter 81 Investing in the Materials Sector ...................................................................... 350 Chapter 82 Investing in the Commodities markets............................................................. 354 Chapter 83 The Gold & Silver markets.................................................................................. 360 Chapter 84 Precious Metal Royalty and Streaming Instruments....................................... 369 Chapter 85 Investing in the Industrials and Transports Sector ........................................ 372 Chapter 86 Investing in the Consumer Discretionary Sector ........................................... 377 Chapter 87 Investing in the Consumer Staples Sector ....................................................... 382 Chapter 88 Investing in the Health Care Sector ................................................................. 385 Chapter 89 Investing in the Financial Sector....................................................................... 389 Chapter 90 Investing in the InformationTechnology Sector.............................................. 395 Chapter 91 Investing in the Communication Services Sector........................................... 400 Chapter 92 Investing in the Utilities Sector.......................................................................... 404 Chapter 93 Investing in the Real Estate Sector..........................................................................

Investing in the US Chapter 94 The Dow Jones Industrial Average ................................................................... 414 Chapter 95 The Dow Jones Transport Average.................................................................... 420 Chapter 96 The Dow Jones Utilities Average (DJUA) ........................................................ 423 Chapter 97 Investing in US large-cap company stocks....................................................... 426 Chapter 98 Investing in US mid-cap company stocks........................................................ 431 Chapter 99 Investing in US small-cap company stocks...................................................... 435 Chapter 100 Investing in micro-cap and nano-cap company stocks................................ 439

Investing in International Markets Chapter 101 Investing in Canada.......................................................................................... 449 Chapter 102 Investing in Mexico........................................................................................... 455 Chapter 103 Investing in South America............................................................................. 460 Chapter 104 Investing in France............................................................................................ 466 Chapter 105 Investing in Germany....................................................................................... 472 Chapter 106 Investing in Italy................................................................................................ 478 Chapter 107 Investing in Spain.............................................................................................. 482 Chapter 108 Investing in the Netherlands........................................................................... 486 Chapter 109 Investing in Sweden and Norway.................................................................... 491 Chapter 110 Investing in Switzerland................................................................................... 497 Chapter 111 Investing in the United Kingdom (UK)......................................................... 502 Chapter 112 Investing in India.............................................................................................. 506 Chapter 113 Investing in Australia and New Zealand........................................................ 513 Chapter 114 Investing in Japan.............................................................................................. 521 Chapter 115 Investing in Singapore...................................................................................... 528 Chapter 116 Investing in Hong Kong................................................................................... 532 Chapter 117 Investing in China............................................................................................. 537 Chapter 118 Investing in the rest of the world.................................................................... 542 Chapter 119 Bellwether stocks for each country................................................................. 559 Chapter 120 Investing in a global stock portfolio............................................................... 565

Addendum Table 1 List of investor websites to help you get started Table 2 The world’s most essential stock exchanges Table 3 List of the leading indices of the world stock exchanges with Wiki descriptions Table 4 List of the international markets covered by Yahoo Finance Table 5 The world’s Forex currency pairs Table 6 Choices of market data Table 7 Keywords Index

xii

Illustrations Fig. 3.1

GICS eleven Sectors

Fig. 3.2

GICS 4-level coding for the Telecommunication Services Sector and a few examples

Fig. 5.1

Key elements that define a company’s Quality

Fig. 5.2

Desirable perspective for high-Quality

Fig. 5.3

List of high-Quality Cara 100 candidates in April 2022 if Timeliness is a consideration

Fig. 7.1

Cathie Wood’s nine ETFs to start 2022

Fig. 8.1

Dividend Yields of Russian companies after post-Ukraine invasion sanctions

Fig. 8.2

High-Quality Top Dividend payers

Fig. 12.1

Price Catalysts

Fig. 12.2

Correlation between High-Yield Corporate Bonds (HYG ETF) and Nasdaq Composite Index

Fig. 13.1

ESG topics at ETFDB.com

Fig. 13.2

BlackRock’s flagship USA ESG ETF

Fig. 14.1

Where Gen Z and millennial investors look for money tips

Fig. 15.1

A ranking of the best US online brokerage services and trading platforms

Fig. 18.1

Sector and Industry Seasonality

Fig. 19.1

Broad Market Advance-Decline Indices by Number

Fig. 19.2

Broad Market Advance-Decline Indices by Percent

Fig. 19.3

Sector Advance-Decline Indices by Percent

Fig. 20.1

Stocks that are over their Moving Averages

Fig. 21.1

Price-Earnings Ratios for various industries

Fig. 21.2

A selection of high-rated industries based on 5-year EPS Growth

Fig. 21.3

PE data and other essential fundamentals data for each GICS sector

Fig. 22.1

Yield-related market indices

Fig. 22.2

A ‘healthy’ yield curve for US Treasury Securities, dated Dec. 12, 2015

Fig. 22.3

A graph that depicts an ‘unhealthy’ downward-sloping yield curve

Fig. 22.4

A recession-indicating negative 10-2-year US Treasury yield spread

Fig. 23.1

Broad market volume-based indices

Fig. 24.1

Four phases of a stock cycle: Accumulation, Retail Markup, Distribution, Retail Markdown

Fig. 24.2

Indicators of Market Bearishness

Fig. 25.1

Indicators of Market Bullishness

Fig. 26.1

Links to the fundamental ETFs for all countries

Fig. 27.1

The 24 top-volume Inverse ETFs that trade in New York

Fig. 27.2

Smaller Cap Inverse ETFs that trade in New York

Fig. 27.3

A selection of Volatile 2x and 3x Leveraged Bull and Bear ETFs that trade in New York

Fig. 27.4

The enormous cost of Leveraged ETFs illustrated

Fig. 27.5

Single-Stock ETFs that trade in New York as of mid-July 2022

Fig. 28.1

Closed-End Fund Companies that trade in New York

Fig. 29.1

The world’s four largest Fund companies (aka asset managers) in 2022

Fig. 29.2

The 100 biggest US Mutual Funds in Net Asset ranking as of February 22, 2022

xiii

Fig. 29.3

Major Fund Buy/Sell summaries of Technical Indicators, Investing.com, April 10, 2022

Fig. 29.4

A plethora of information on the significant Mutual Funds in 63 countries

Fig. 30.1

Credit rating agencies

Fig. 30.2

Germany, Japan, UK, and US Treasury Bonds

Fig. 30.3

Highest sovereign credit ratings

Fig. 30.4

Lowest sovereign credit ratings

Fig. 31.1

10-2 Year US Treasury Bond Yield Spread chart, March 18, 2022

Fig. 32.1

US Dollar is used in 88% of global transactions, per BIS 2022 Triennial Survey

Fig. 32.2

Forex Pairs Trading and Indices

Fig. 32.3

EUR/USD trading chart reflects the Euro Bear

Fig. 32.4

10-year chart of the US Dollar Index

Fig. 32.5

Chart of plunging Eurodollar futures in 2022

Fig. 33.1

Links to Bitcoin and Ethereum trading in US Dollars

Fig. 33.2

Chart showing the rapid rise and fall of Bitcoin

Fig. 33.3

Listing with links to charts of the USD-denominated Cryptocurrencies on my watchlist

Fig. 33.4

Trading permitted at IBKR in Cryptocurrencies plus possibilities. Blockchain stocks I trade

Fig. 34.1

Seven economic analysis protocols investors could follow to see the big picture

Fig. 35.1

Family purchase items used to compare inflation over 67 years

Fig. 35.2

The primary datasets used to observe the impact of economic factors on market prices

Fig. 37.1

Industries likely to be most impacted by trend reversals in economic data

Fig. 38.1

Industries likely to be most impacted by trend reversals in housing data

Fig. 38.2

Graph showing the impact of falling Mortgage Rates on New Home Sales

Fig. 39.1

Supplementary list of significant corporate and business-related data to be monitored

Fig. 41.1

Seventy-year history of Fed rates

Fig. 41.2

The total value of negative-yielding bonds in the world rising since 2015 peaked in 2021

Fig. 41.3

List of information sources for global interest rates and debt instrument prices

Fig. 41.4

ETF database provides access to all types of Bonds

Fig. 42.1

List of Fed-related reports

Fig. 43.1

For trading Growth-oriented companies, the corporate fundamentals to focus on

Fig. 43.2

For Value-oriented companies, focus on

Fig. 43.3

For Income-oriented companies, focus on

Fig. 43.4

For all companies, the most important financial ratios to understand are

Fig. 45.1

Gross and Net Margins of Dow 30 companies

Fig. 46.1

Personal ranking of the Dow 30 companies (best to worst) for Earnings Quality (June 2016)

Fig. 47.1

Characteristics of companies with High-Quality Financials

Fig. 48.1

List of Dow 30 companies best able to predict earnings and analyst rating changes

Fig. 49.1

Broad Market Volatility Indexes

Fig. 51.1

Table of Dow 30 company PE Ratios and Forward Price Earnings Ratios

Fig. 51.2

General Electric Company chart showing a two-decade-long decline in market value

Fig. 52.1

Dividend Yields of High-Quality companies (April 2022)

Fig. 55.1

Highest to Lowest Analyst Consensus Ratings of Dow 30 stocks (April 2022)

Fig. 56.1

List of Analyst Ratings and Price Targets of Dow 30 stocks (April 2022)

Fig. 57.1

An illustration of how the stock cycle typically leads the economic cycle

xiv

Fig. 57.2

Different Time Series Data Periods of interest to investors

Fig. 57.3

Ian Notley Schematic Market Cycle Model (MCM) showing Accumulation/Distribution Zones

Fig. 58.1

An uptrend is a line joining HL points, and a downtrend is a line joining LH points

Fig. 58.2

Example of a Price staying on the right side of the Up Trendline

Fig. 58.3

A graphic example of how Price Cycles differ from Price Trends

Fig. 58.4

Schematic of Cyclic Wave Motion

Fig. 58.5

Notley Market Cycle Model schematically shows the structure of Cycles overlaying the Trend

Fig. 59.1

Chart example of Down Trendline connecting the lower highs breaking out

Fig. 59.2

Chart example of Up Trendline connecting the higher lows breaking out

Fig. 59.3

MCM illustrates the concept of selling peaks in Up Trend and buying troughs in Down Trend

Fig. 59.4

Schematic of the four Cyclic phases

Fig. 59.5

Schematic showing to Accumulate when prices are Oversold and Distribute when Overbought

Fig. 59.6

Schematic showing the time to accumulate and go long rallies and the time to liquidate

Fig. 60.1

‘Lower Low Breakdown’ Pattern

Fig. 60.2

‘Cup and Handle’ Continuation Pattern

Fig. 60.3

Pivot Point calculations for each Dow 30 company

Fig. 60.4

Links to Important Market Pivot Points

Fig. 61.1

Point and Figure graph

Fig. 63.1

MACD and MACD Histogram

Fig. 63.2

Chart of the % of S&P 500 stocks trading above their 200-day Moving Average

Fig. 63.3

Chart of the % of S&P 500 stocks trading above their 20-day Moving Average

Fig. 64.1

Investopedia chart showing Rate of Change (ROC)

Fig. 65.1

Stochastic Oscillator Indicator (%K) formula

Fig. 65.2

Slow Stochastic Indicator (%D) formula

Fig. 65.3

Investopedia chart of Stochastic Oscillator

Fig. 65.4

Example of Stochastic Cross-Over

Fig. 66.1

Relative Strength Index formula

Fig. 66.2

Example of using RSI Indicator to signal a Buy and Sell opportunity

Fig. 66.3

Chart of Relative Strength Index (RSI) Oscillator

Fig. 66.4

Chart of Money Flow Index (MFI) Oscillator

Fig. 66.5

Table of RSI-14 of the Dow 30 stocks on April 22, 2022

Fig. 67.1

Table of Relative Volume (RVOL) of the Dow 30 stocks on April 22, 2022

Fig. 68.1

Money Flow Index (MFI) Indicator Formula

Fig. 68.2

RSI and MFI indicators compared

Fig. 69.1

Example of Divergence in Money Flow Index (MFI) relative to Price

Fig. 71.1

Six financially sound S&P 500 candidates for defensive investing

Fig. 72.1

Features of High-Quality companies

Fig. 72.2

Diversified list of High-Quality companies

Fig. 72.3

List of financially sound companies acceptable to risk-tolerant investors

Fig. 73.1

Analyst Price Target Potential Upside in Dow 30 stocks

Fig. 74.1

Photo of an Orca whale stalking a herring ball

Fig. 75.1

Stochastic Oscillator %K Formula

Fig. 75.2

Stochastic Oscillator %D Formula

Fig. 78.1

Schema for Bill Cara’s “Decision Support System”

Fig. 79.1

Bill Cara’s Rules-based system

Fig. 80.1

GICS Sector 10 8-digit Coding (Energy)

Fig. 80.2

GICS Sector 10 Industry and Sub-Industry Indexes (Energy)

Fig. 80.3

List of International Integrated Oil Companies that trade in New York

Fig. 80.4

List of North American Oil Exploration & Production Companies that trade in New York

Fig. 80.5

List of North American Natural Gas Exploration & Production Companies trading in New York

Fig. 81.1

GICS Sector 15 8-digit Coding (Materials)

Fig. 81.2

GICS Sector 15 Industry and Sub-Industry Indexes (Materials)

Fig. 82.1

Major Indices in the Commodities market

Fig. 82.2

Commodity-based ETFs

Fig. 82.3

Commodity-based Mutual Funds

Fig. 82.4

Chart of the Dow Jones Commodity Index (DJCI)

Fig. 83.1

Major Indices for Gold Miners

Fig. 83.2

Major ETFs for Gold Miners

Fig. 83.3

Large Gold-related US Mutual Funds

Fig. 83.4

Largest Gold & Silver mining stocks by Market Cap that trade in New York

Fig. 83.5

Graphic illustrating the fewer Precious Metals projects based on strict criteria

Fig. 83.6

New Pacific Metals (NEWP)(NUAG.to) chart, September 20, 2022

Fig. 84.1

Major Indices for Gold-related investors

Fig. 84.2

Major ETFs for Precious Metals Miners

Fig. 84.3

Most prominent Precious Metals industry financiers

Fig. 85.1

GICS Sector 20 8-digit Coding (Industrials and Transports)

Fig. 85.2

GICS Sector 20 Industry and Sub-Industry Indexes (Industrials and Transports)

Fig. 85.3

Dow Jones Transports Average components

Fig. 86.1

GICS Sector 25 8-digit Coding (Consumer Discretionary)

Fig. 86.2

GICS Sector 25 Industry and Sub-Industry Indexes (Consumer Discretionary)

Fig. 87.1

GICS Sector 30 8-digit Coding (Consumer Staples)

Fig. 87.2

GICS Sector 30 Industry and Sub-Industry Indexes (Consumer Discretionary)

Fig. 88.1

GICS Sector 35 8-digit Coding (Healthcare)

Fig. 88.2

GICS Sector 35 Industry and Sub-Industry Indexes (Healthcare)

Fig. 89.1

GICS Sector 40 8-digit Coding (Financial Services)

Fig. 89.2

GICS Sector 40 Industry and Sub-Industry Indexes (Financial Services)

Fig. 89.3

GICS Sector 40 Industry and Sub-Industry Indexes (Banks)

Fig. 89.4

GICS Sector 40 Industry and Sub-Industry Indexes (Insurance Companies)

Fig. 89.5

Money and Money Supply Indexes

Fig. 90.1

GICS Sector 45 8-digit Coding (Technology)

Fig. 90.2

GICS Sector 45 Industry and Sub-Industry Indexes (Technology)

Fig. 90.3

Most significant holdings of the XLK ETF

Fig. 90.4

Most popular Technology ETFs

Fig. 91.1

GICS Sector 50 8-digit Coding (Communications and Media)

Fig. 91.2

GICS Sector 50 Industry and Sub-Industry Indexes (Communications and Media)

Fig. 91.3

The largest Telecom companies that trade in New York

xvi

Fig. 91.4

List of large-cap Communications sector company ETFs that trade in New York

Fig. 92.1

GICS Sector 55 Utility Industry Groups newly classified in 2022 by the GICS committee

Fig. 92.2

GICS Sector 55 8-digit Coding (Utilities)

Fig. 92.3

GICS Sector 55 Industry and Sub-Industry Indexes (Utilities)

Fig. 92.4

The 15 Dow Utilities Average stock components

Fig. 92.5

Ten large-cap Utility ETFs that trade in New York

Fig. 93.1

GICS Sector 60 8-digit Coding (Real Estate and REITs)

Fig. 93.2

GICS Sector 60 Industry and Sub-Industry Indexes (Real Estate and REITs)

Fig. 93.3

The largest NYSE-listed US Real Estate Companies

Fig. 93.4

The largest NYSE-listed REITs

Fig. 93.5

Critical data studied by Real Estate Sector Investors

Fig. 94.1

Dow Jones Industrials Average (DJIA) Components

Fig. 94.2

The 10 Dogs of the Dow over the years

Fig. 95.1

Dow Jones Transport Average (DJTA) Components

Fig. 96.1

Dow Jones Utilities Average (DJUA) Components

Fig. 97.1

Stock Capitalization Categories

Fig. 97.2

Large-Cap US ‘Value’ Companies [2022-03-19]

Fig. 97.3

Large-Cap US ‘Growth’ Companies [2022-03-19]

Fig. 97.4

Large-Cap US ‘Income’ Companies [2022-03-19]

Fig. 98.1

Mid-Cap US ‘Value’ Companies [2022-03-19]

Fig. 98.2

Mid-Cap US ‘Growth’ Companies [2022-03-19]

Fig. 98.3

Mid-Cap US ‘Income’ Companies [2022-03-19]

Fig. 99.1

Small-Cap US ‘Value’ Companies [2022-03-19]

Fig. 99.2

Small-Cap US ‘Growth’ Companies [2022-03-19]

Fig. 99.3

Small-Cap US ‘Income’ Companies [2022-03-19]

Fig. 100.1 Micro-Cap US Growth Companies [2022-03-19] Fig. 100.2 OTC Markets Group OTCQX® 2022 Best 50 Companies Fig. 100.3 Bill Cara 2021-2022 holdings in three OTCQX Best 50 Companies Fig. 101.1 Graphic symbolizing that the economies of Canada and the US are inseparably linked Fig. 101.2 The critical Canadian stock market indices Fig. 101.3 Leading ETFs in Canada Fig. 101.4 Toronto Exchange Market Sentiment Indexes Fig. 101.5 Key stocks in the S&P/TSX 60 Fig. 101.6 The indexes and Canadian currency pairs for international Forex trading Fig. 102.1 The critical Mexican stock market indices Fig. 102.2 Mexican Funds that are US listed Fig. 102.3 Mexican market ETFs Fig. 102.4 Noteworthy Mexican companies listed on the Mexican Exchange Fig. 102.5 Mexican companies listed on US markets Fig. 102.6 The indexes and Mexican currency pairs for international Forex trading Fig. 103.1 Links to all ETFs that trade in South America Fig. 103.2 South American market Indices Fig. 103.3 South American company ETFs

xvii

Fig. 103.4 Wikipedia.com links to South American country economies and stock exchanges Fig. 103.5 List of leading South American companies Fig. 103.6 List of 32 key Latin American companies with tickers for US and domestic exchanges Fig. 103.7 Currency charts for Brazil and Chile Fig. 104.1 French stock market Indices Fig. 104.2 French and neighboring country stock market ETFs Fig. 104.3 French market traded ETFs Fig. 104.4 List of thirty-five large-cap French stocks that trade in Euro on the Paris Exchange Fig. 104.5 List of French-headquartered companies that trade in the US Fig. 104.6 The indexes and French currency pairs for international Forex trading Fig. 105.1 German stock market Indices Fig. 105.2 German stock market ETFs Fig. 105.3 German and neighboring country stock market ETFs Fig. 105.4 German Bond or Commodity ETFs Fig. 105.5 List of thirty large-cap German stocks that trade in Euro on the Frankfurt Exchange Fig. 105.6 List of the German stocks traded in New York Fig. 105.7 The indexes and German currency pairs for international Forex trading Fig. 106.1 Italian stock market Indices Fig. 106.2 Italian and neighboring country stock market ETFs Fig. 106.3 List of the Italian stocks traded in New York Fig. 106.4 List of key Italian stocks that trade on the Milan Stock Exchange Fig. 106.5 The indexes and Italian currency pairs for international Forex trading Fig. 107.1 Spanish stock market Indices Fig. 107.2 Spanish and neighboring country stock market ETFs Fig. 107.3 List of twenty large Spanish company stocks that trade in Spain and the US Fig. 107.4 The most important currency pairs for trading in Europe Fig. 108.1 Netherlands stock market Indices Fig. 108.2 List of Dutch Sector Indices at Yahoo Finance Fig. 108.3 Netherlands and neighboring country stock market ETFs Fig. 108.4 Popular ETFs trading in Amsterdam Fig. 108.5 List of twenty large-cap Dutch stocks that trade in Euro on the Eurex in the US in USD Fig. 108.6 List of the Dutch stocks traded in New York Fig. 108.7 The most important currency pairs for trading in Europe Fig. 109.1 Swedish stock market Indices Fig. 109.2 List of Swedish Sector Indices available at Investing.com Fig. 109.3 List of Swedish equity ETFs that trade in Sweden Fig. 109.4 Swedish and neighboring country stock market ETFs Fig. 109.5 Companies that trade in Sweden and the US Fig. 109.6 Significant Swedish company stocks that trade in New York Fig. 109.7 Important currency pairs for trading in Sweden Fig. 109.8 Important currency pairs for trading in Norway Fig. 110.1 Swiss stock market Indices Fig. 110.2 Swiss and neighboring country stock market ETFs

xviii

Fig. 110.3 List of thirty large-cap Swiss company stocks Fig. 110.4 Swiss company stocks that trade in New York Fig. 110.5 The most important currency pairs for trading in Switzerland Fig. 111.1

UK’s stock market Indices

Fig. 111.2 UK and neighboring country stock market ETFs Fig. 111.3 The major UK companies that trade in New York Fig. 111.4 The most important currency pairs for trading in the UK Fig. 112.1 India’s stock market Indices Fig. 112.2 US-listed India-based ETFs Fig. 112.3 India and region ETFs that trade in New York Fig. 112.4 List of thirty-six large-cap stocks traded in Rupee in India Fig. 112.5 Projected Populations of India and China Fig. 112.6 List of Top Indian Origin CEOs in American Companies (3Q2022) Fig. 112.7 The most important currency pairs for trading in India Fig. 112.8 India Rupee currency trading at X-rates.com Fig. 113.1 Australian economic data (May 2022) Fig. 113.2 Australian stock market Indices Fig. 113.3 Australian ETFs listed on the Sydney market Fig. 113.4 Australian ETFs that trade in New York Fig. 113.5 List of twenty large-cap Australian companies Fig. 113.6 The ten largest Australian-headquartered companies that trade in USD in New York Fig. 113.7 The most important currency pairs for trading in Australia Fig. 113.8 New Zealand’s stock market Indices Fig. 113.9 List of New Zealand-based ETFs that trade on the NZSX market Fig. 113.10 List of larger New Zealand-based Companies that trade on the NZSX market Fig. 113.11 The most important currency pairs for trading in New Zealand Fig. 114.1 Japanese stock market Indices Fig. 114.2 Japanese ETFs listed on the Tokyo market Fig. 114.3 The most popular (in order) Japanese ETFs that trade in the US in US Dollars Fig. 114.4 Japan and region ETFs that trade in New York Fig. 114.5 List of vital Japanese stocks that trade in Tokyo Fig. 114.6 List of Japanese liquid stocks listed on the NYSE Fig. 114.7 The most important currency pairs for trading in Japan Fig. 115.1 Singapore’s stock market Indices and ETFs Fig. 115.2 Singapore-exchange listed companies Fig. 115.3 Singapore stocks that trade in New York in USD Fig. 115.4 The most important currency pairs for trading in Singapore Fig. 116.1 Hong Kong stock market Indices Fig. 116.2 Large-cap Hong Kong-headquartered companies that trade in Hong Kong Fig. 116.3 The largest cap Hong-Kong-headquartered companies that trade in New York Fig. 116.4 The most important currency pairs for trading in Hong Kong Fig. 117.1

List of large-cap China-headquartered companies whose stocks trade in many markets

Fig. 117.2 List of 24 US-listed China ETFs

xix

Fig. 117.3 US Dollar to Chinese Yuan currency trading Fig. 118.1 Country-based Indices of securities that trade in many countries not listed earlier Fig. 118.2 Country-based ETFs are available at Investing.com for countries not listed earlier Fig. 118.3 Other country ETFs that trade in New York Fig. 118.4 Regional Grouping of Country ETFs Fig. 118.5 ADRs from tier-two countries that trade in the US Fig. 118.6 Some large company stocks that trade in countries not written up in a separate chapter Fig. 118.7 Some large company stocks that trade in New York but are not written up earlier Fig. 118.8 Company ADR Stocks from these countries that trade in the US Fig. 118.9 Country-based Mutual Funds sold in many countries not listed in earlier chapters Fig. 118.10 All country Currency Pairs Fig. 119.1 To recap, the eleven stock market sectors Fig. 119.2 Table of international bellwether stocks in each sector (and sub-sectors) Fig. 119.3 In the US Consumer Discretionary sector, Amazon (AMZN) is the bellwether Fig. 119.4 Bellwether stocks are typically the top holdings of domestic market ETFs Fig. 120.1 Information on broad market indices, sectors, and vital stocks for tier-one countries Fig. 120.2 Links to (1) Performance, (2) Technical Analysis, (3) Snapshot for tier-one Country ETFs Fig. 120.3 S&P 1200 Country stocks composition Fig. 120.4 S&P Asia 50 Constituents as of May 12, 2022 Fig. 120.5 Portfolio of eight NYSE-listed stocks from the S&P Asia 50 Fig. 120.6 S&P Latin 40 Constituents as of January 20, 2022 Fig. 120.7 Twenty high-quality Mexican and South American Companies listed on NYSE Fig. 120.8 A plethora of data on stocks in 94 countries from Investing.com Fig. 120.9 Allocating stocks from various countries for a balanced global portfolio Fig. 120.10 Selection of twenty High-Quality companies for a balanced global portfolio

SECTION 1

A Mindset for Successful Investing 1

Why stock market literacy is important

We trade prices

Investors need structure

What should we buy

What defines a Quality company

What is a Value Stock

What is a Growth Stock

What is an Income Security

Selling Risk versus Buying Opportunity

10 Strategy and Tactics Ground Rules 11 Advice from the Market Gurus

CHAPTER 1

Why stock market literacy is important This chapter explains that a stock is the means for people to invest and trade in the stock market, while a company is a legal structure for businesspersons to create and sell goods and services. Understand this fundamental difference. Stock market literacy is a learned skill. Successful investors are the end product of learning, which is why I say we are all students of the market, including me, an acclaimed Trader Wizard. Stock market literacy is critical to successful participation in capital markets. What is required is the ability to read and write facts and figures that involve prices and companies. The key to survival and success in markets and financial freedom will come from studying (i) the securities you should invest in and (ii) the timing of when to buy and sell those securities. These tasks need specific skills and knowledge, which this book explains. I include as many hyperlinks to essential terms as possible throughout the book. Based on 50-plus years of experience trading in securities, I often take issue with some of the content presented in these educational links. But on balance, students need to do the reading. To cope with today’s capital markets’ volatility, you must do your homework – like in high school and college. Do not let Financial Entertainment Media and the self-conflicted Sellside of the investment industry mislead you. That takes discipline. So let’s get started with the important stuff. Investors in capital markets do not buy and sell Companies. We trade Prices. That simply means that we buy and sell current prices of what is called a security. A Security, also known as a tradeable Instrument, may be an Equity, a Bond, or a contract involving an Option, Future, Commodity, or Currency. Each type of security is a fungible medium of exchange, which I discuss in subsequent chapters. For simplicity purposes, let’s refer to all these securities as Stocks, but they are just prices that trade in a financial market. There is a market for each type of security, and for every need, there are stock exchanges for trading. 22

Why stock market literac y is important

There are about 100 countries with at least one exchange, and some, like Canada and the United States, with many. One of the functions of an exchange is to facilitate a capital market, which is a place where investors of all types meet governments and companies that need capital to operate. As these new funding transactions coincide with other securities trades, there is no difference between the capital and stock markets. The capital market of the world is enormous. Millions of prices trade every day. You will discover that each new price affects all others. That may seem daunting, but it shouldn’t. The only market prices that matter to you are the securities you own. The key to understanding the stock market is looking at it as risk trading when you buy or sell a price. It’s that simple, but most people do not understand the basic definition of the capital market. The process starts with investment banking. That is the function of raising capital for companies or governments by creating and selling securities at a price that is set based on risk. So, they sell risk and get buyers to buy risk. After the buyer and seller agree, every transaction sets a new price. One of the keys to investing in securities is understanding risk dynamics. We do that by studying and knowing the bigger picture and the inter-relationships of prices as money moves around the world between currencies, asset classes, and sectors/industries. Please assume any reference to a price in this book is US Dollars (USD) unless otherwise stated. Total amounts are usually M (Millions) or B (Billions). One of the first questions people ask me is about the difference between investing and trading. The difference between trader and investor might be confusing. I will explain the difference. Unlike the usual explanation, the time horizon is not the difference. Why do we trade in securities? We do it to increase our wealth. Our only possible wealthseeking objectives are (1) seeking capital appreciation via Growth or Value and (2) seeking Income from invested capital. We can achieve both objectives simultaneously, but let’s not get ahead. The question is, why are we investing? Why are we taking on risks? If you trade in securities to make a Capital Gain or Income after understanding the risk based on fundamental analysis of corporate financial statements and financial ratios as well as technical, quantitative, and macroeconomic analysis, then you are an investor. If you trade based on market price without considering the merits of the companies involved, then you are a trader. When executing a trade, every investor who trades in securities is, by definition, also a trader. So let’s agree that we are all traders, but only some are investors. Much of the material we cover is fundamental for many of you; however, bear with me. It’s all part of a holistic investment approach needed for success. To trade prices in a securities market, we must know how to invest appropriately. To determine risk, investors base every market price on studies of valuation and economics. 23

BILL CARA / STOCK MARKET LITERACY

For every trade in securities, there are two market prices in the form of a bid-and-ask. The market price is an auction price. If we are selling, which means we are selling risk, the critical price to us is the bid price. That is the risk a buyer is prepared to take at that moment. The only price vital to us is the offered price if we buy. When we often refer to Price, we refer to the last traded price or the End of Day (EOD) price, today or on a previous day. A Ticker identifies the Stock that we trade. For example, MSFT is the ticker (or symbol, if you will) that we use to buy and sell Microsoft stock. If we trade in Hong Kong, China, South Korea, or Japanese markets, the tickers would be numbers, not letters. Ticker numbers may be more appropriate as we buy prices, not companies. A company is a legal organization owned by shareholders and controlled by its shareholderelected board of directors. Management and employees produce goods or provide services to make a company profit. When we trade in securities, we are not trading companies. Wall Street tells you that shareholders own and control the company. The reality is that a small number of individuals and organizations control the company through its shareholder-elected Board of Directors and the Board’s appointed management, headed by the Chief Executive Officer (CEO) and other C-Suite officers. Microsoft, for example, is one of those companies. We do not buy and sell Microsoft. We buy and sell the price of the Microsoft ticker MSFT to make a personal trading gain. That gain might be in the form of Profit or Income. Regardless of the security, we own only the market price we paid, not a piece of the Company. If, on June 1, 2022, we paid $270.04 for one share, that is the price we own. If somebody else paid $277.69 for one share on the same day, that is their price. We don’t hold the same piece of the company. We own different prices. Our holding in a Stock is called a Position. That is the total number of shares we have bought (and held) times the average cost (as there may be more than one buy). Since we have no control over the Market Price, the trading profit or loss of our Position is called, for reference’s sake, an unrealized gain or loss. As soon as we close a Position (or part of it), we call the profit or loss a realized profit or loss, which is permanent. Individual investors may hold stock Positions for seconds or minutes, whereas others may hold Positions over many years. Some investors use taxable accounts, whereas others use tax-deferred accounts. Calculating gains and losses for tax purposes, a complex subject, is outside the topics we cover. Unless securities are held in an Individual Retirement Account (IRA), directly or in a 401K with an employer, or some other tax deferral scheme, all realized profits and losses have annual tax implications. So, investors with no tax deferral scheme must keep track of each position’s cost.

Why stock market literac y is important

The cost basis is the asset’s original value, or buy price, for tax purposes. Cost is adjusted for reinvested dividends and capital gains and maybe return of taxable capital distributions that are taxable in the year they occur. In my view, investors are overly concerned with unrealized profit or losses as these are in constant flux as market prices change. Too much focus on unrealized gain or loss shows impatience and ignorance that none of us controls the price. Bottom line: Few investors are interested in owning or controlling the company whose securities they trade. They are interested only in increasing wealth. They are trading various instruments in the market at their risk in search of capital growth or income.