Michael Brett - How To Read The Financial Pages

Michael Brett

Fifth Edition

This eBook is copyright material and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors and publishers rights and those responsible may be liable in law accordingly.

Version 1.0

Epub ISBN 9781409068280

www.randomhouse.co.uk

RANDOM HOUSE

BUSINESS BOOKS

9 10

Copyright Michael Brett 1987, 1989, 1991, 1995, 2000

All rights reserved

Michael Brett has asserted his right under the Copyright, Designs and
Patents Act, 1988, to be identified as the author of his work

Published by Random House Business Books
Random House, 20 Vauxhall Bridge Road, London SW1V 2SA

Random House Australia (Pty) Limited
20 Alfred Street, Milsons Point, Sydney
New South Wales 2061, Australia

Random House New Zealand Limited
18 Poland Road, Glenfield
Auckland 10, New Zealand

Random House (Pty) Limited
Isle of Houghton, Corner of Boundary Road & Carse OGowrie,
Houghton 2198, South Africa

Random House Publishers India Private Limited
301 World Trade Tower, Hotel Intercontinental Grand Complex,
Barakhamba Lane, New Delhi 110 001, India

Random House UK Limited Reg. No. 954009

A CIP catalogue record for this book is available from the British Library

ISBN 9780712662598

Cartoon: Nick Newman

This book could not have been written without a great deal of help and advice from City institutions as well as from colleagues in the financial press. A full list of those who have assisted would be impossibly long, but I would like to thank first the Financial Times, The Independent and the Investors Chronicle for permission to reproduce material from their respective publications and Datastream International for the use of its charts.

Detailed comments and advice on the text from John Plender and Danny OShea were invaluable and I am also very grateful to Liisa Springham for casting a fresh eye over the typescript. I had the benefit of information and advice on individual sections from, among others, Adrienne Gleeson, Andrew Goodrick-Clarke, Helen Fearnley and Peter Wilson-Smith and considerable help from Prudential Assurance, The Takeover Panel and the press offices of The London Stock Exchange and the Securities and Investments Board. I am also grateful to Hugh Partridge and Brian Roy for technical help with the second and third editions. Many of those already named helped again with the fourth edition and I also very much appreciate Susan Bevans helpful comments.

For the fifth edition I would again like to thank many of those mentioned above, and particularly acknowledge the help given by Capital DATA Bondware and Capital DATA Loanware with the euromarkets chapter. And I am very grateful to Antonia Oprita for reading the print-out and picking up my more careless errors and omissions. The views expressed and the mistakes that remain are my own.

Money is not complicated. The principles behind financial transactions are simple enough. It is usually the detail that confuses by obscuring the principles.

The money world, like many others, develops its own practices and jargon, which are usually incomprehensible to the layman. Even an intelligent watcher of the financial scene is at a disadvantage. Sometimes the financial world likes to keep it that way, because an aura of mystique can enhance the value of its services.

The financial press, at its best, attempts to bridge this comprehension gap, but it is often forced to satisfy two different markets. It is writing both for those in the money business and for the outsiders who like to follow the financial and economic scene and who, in their personal or business lives, have to choose among many financial services and investment products. A first-time reader of the Financial Times or the business pages of the national dailies or Sunday papers may still feel he is faced with a foreign language.

The escalating popularity of the Internet covered for the first time in this edition may help. Many of its financial pages are targeted very clearly at the general public. But even here, a little understanding of the basic investment principles can be a great advantage.

This book sets out to explain the language of money. It does so by explaining the principles and practices behind the markets and financial institutions that deal with money and investments. Understand the principles, and the jargon falls quickly into place. The book consists of two main parts. The narrative chapters provide a guide to the workings of the financial system and its main components. This is suitable for the newcomer to the financial scene, though will also serve as an aide-mmoire for those with existing knowledge. At the end of the book comes a combined glossary and index, which either provides explanations of financial terms or points to where they are explained in the text. Since the financial community often risks taking itself too seriously, an antidote is provided between the two parts in the form of a light-hearted look at some of the more oblique terms and techniques that financial journalists use in putting their message across.

The approach is intended to be practical. The explanations of financial terms are not aimed at the professional economist or banker and should not be taken as legal definitions. They explain the sense in which these terms are most likely to be encountered in the financial press.

The book follows the pattern of financial press coverage. Much of what is written concerns companies and the stockmarket, which therefore require explanation in detail. The sections on company accounts help to explain the background to the main investment yardsticks in use they can be skipped if you are familiar with the concepts. Other areas such as the euromarket warrant less space. Though far larger than the domestic stockmarket, the euromarket or international market impinges less on the general public in Britain and attracts less coverage in the national press.

One point of detail: tax rates can change rapidly and examples incorporating tax calculations therefore risk being outdated soon after they are written. The tax rates adopted in this edition are those applying in the 2000-01 financial year. Thus, the basic rate of income tax is 22 per cent, the higher rate is 40 per cent and the corporation tax rate is 30 per cent. The dividend tax is deemed to be 10 per cent, with a higher rate of 32.5 per cent.

A final word of warning: in times of boom, investment markets become infected by their own enthusiasm. The money men forget the existence of the word bust.

Journalists who write about the City are not immune to this enthusiasm. It sometimes colours their judgement, as it colours that of the Citys professionals. The way to read the financial pages during a stockmarket boom is with a modicum of caution. Booms do not go on for ever and some journalists, like brokers, are better at advising when to buy than when to sell.

If you had to characterize in a single word the financial developments of the last five years of the second millennium, the word would be globalization. Money is now truly international. And it is a global business not only for the banks and other financial institutions that have operated for a long time in an international marketplace. Globalization has now come down to the level of the individual investor who, with a home computer and an Internet connection, can track share prices in New York as easily as those in London.