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Sunday, February 22, 2009

Security Analysis:Chapter 3

In this chapter we learn about the behavior of the security markets. We learn that the price of high-grade bonds goes up when the interest rates go down, and vice versa (this is to keep the yield low). We learn that the call provision is a way to recall the bonds at a specific price, a "heads I win, tails you lose" arrangement. We learn that high-grade preferred-stock are very similar, and their price does not fluctuate much. We learn that both high-grade bonds and high grade preferred stock are high-grade because there are no doubts as to the company's ability to pay what is due.

We learn about second-grade senior securities, which are subject to large fluctuations, and are below the rating of high-grade senior securities. There is a maximum price, which is the amount the bond or stock is worth.

We learn that there are many factors that influence the price of common stock, both quantitative and qualitative. Also, people's opinion of the stock influences the price. There is a central value, which is the average of what the stock is worth on its particular trend. We learn that the stock's intrinsic value and market value converge over time. We learn that, when the general market is very high, one should be wary of buying even good deals. Finally, we learn that marketability is always secondary to value.

The information in this chapter is pretty basic, feel free to make test materials for yourself if you are having trouble remembering what was said.

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