. Diversiﬁcation may be boring, but so is quietly making consistent, smallproﬁts. An effectively diversiﬁed portfolio will weather all kinds ofmarkets. In exceptionally strong bull markets diversiﬁed investorswill not make the same double-digit proﬁts that speculators willmake, but in ﬂat or falling markets they will do much better.6. You should ﬁnd a bargain stock and buy as much as you cantoday. A popular approach in the past has been to move 100-shareor higher increments into stock positions. One reason was thatround-lot trading was more affordable than odd-lot trading. Buttoday, with low-cost online brokerage services, you can buy anynumber of shares, even single shares, and not pay much more thanyou pay for 100-share trades. But this is a myth for another reason:It often makes more sense to buy smaller increments of a stock, waitfor short-term declines in price, and then buy more at relativelybargain-level prices. All stocks move around short term, rising andfalling from day to day even when the longer-term trend is upward.You can easily identify peaks and valleys and time incremental purchases. This is more prudent than buying an entire position in asingle trade.7. The entry price is ‘‘zero’’ and the stock has to rise from there.This myth has been referred to a few times in past chapters, but isworth emphasizing again. Many people wrongly believe that theprice at which shares are bought is the starting point; they expectthe price to go up from there. As a consequence, they are taken bysurprise when the price falls. In fact, any price is simply the latestreﬂection of a never-ending struggle between buyers and sellers.Prices rise and fall over time and trends get established. It is a bigerror to fall into the belief that a particular price is ‘‘zero.’’In seeking value for your dollar, you may begin with a fundamental analysis of the stock to determine what you would consider‘‘fair market value’’ for the stock, including growth potential (especially as reﬂected in the P/E ratio level, for example, in which youlimit the selection criteria to a speciﬁc range). Once you decide on
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what you believe is a fair price per share, you seek opportunities inthe price movement. For example, a company may have a recordsetting year of higher revenues and proﬁts and all indicators arestrong. But if the EPS were two or three cents lower than estimatespublished by Wall Street analysts, the stock price might fall on theday earnings are published. In some cases, the price may fall severalpoints. It is important to realize that such a price decline is an extreme overreaction to news. This means that within the comingtrading days, the price is very likely to return to a more rationallevel. If the cause of the decline were due to excessive selling andthe recognition of the price as a bargain level brings in buyers, it willdrive the price back up. This is typical of how prices move shortterm and why they change at all. But no price is ‘‘zero’’ for thebuyer; it is an ongoing struggle between buyers and sellers. Recognizing this gives you an advantage in the market, because you willbe able to sit on the sidelines and recognize when the price dipsbelow the rational trading range and then make your move.
Determining the Validity of Information and ApplyingIt Correctly: The Right AssumptionsStockholders are often information junkies who, in addition to operating on many myth-based assumptions, often do not know whatto believe or how much weight to give to information. The distinction between reliable action-generating news and everything elsecan be an impediment to making sound investment decisions.There is so much information available that it is difﬁcult to sortthrough it. This is why the suggestion makes sense to limit youranalysis to a short list of a few fundamental and technical indicators.By applying these consistently, you keep the list of stocks short andconsider only the highest-caliber listed companies.Even a promising bit of news or ﬁnancial report can be misleading. You only need to go back to 2000 and 2001 and read the glowing reports about Enron—as a company and as a stock—to realizethat you do not always get the truth. If you read annual reports,you also get a slanted view of matters. Companies whose ﬁnancial
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strength has declined over the past decade continue to make boldclaims in their annual reports about how much everything is aboutto improve. Read the annual reports of Eastman Kodak (whosestock values have plunged as its primary product, ﬁlm, has becomeincreasingly obsolete), and you will discover just how severe theproblem is with what companies tell their investors.Eastman Kodak’s 2006 annual report made bold claims. Thiscompany, whose stock price during 2006 ranged between $19 and$31 per share versus 1997 levels between $53 and $95, claims tobe in the middle of an impressive turnaround; this remains to beseen. Kodak’s problems are profound. For example, its debt ratiorose over 10 years from 15.6 percent up to 66.2 percent by 2006,primarily due to its inability to recognize the importance of emerging digital camera technology. With its major product old-style ﬁlm,for many years Kodak continued to believe it would remain a dominant force in that market, failing to see that the market itself wasrapidly disappearing. In the 2006 annual report, Kodak’s chairmanwrote that ‘‘We have met unprecedented challenges in the company’s history and we are becoming a stronger company in theprocess. Moreover, we’re within sight of completing what will beone of the most remarkable turnarounds in corporate history.’’2If you knew nothing about the history of Eastman Kodak andthe only information you had available was its annual report, whatwould you think? It is clearly foolish to buy stock in a companybased on the hype written in the annual report, which is part regulatory compliance and part public relations. It would make moresense to apply a short list of sensible fundamental and technicaltests. If you were to use the tests recommended in Chapter 5, companies like Eastman Kodak would not qualify as a viable investment.Those 10 key fundamental and technical indicators are:1. P/E ratio2. Trading range3. Trading volatility4. Current ratio and debt ratio5. Current yield
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6. Dividend growth7. Revenue and net proﬁts8. Fundamental volatility9. Net income and core net income10. Competitive status, management, and credit ratingIt is always prudent in studying indicators to not only check thecurrent status, but to look for the trend over a 10-year period. Thisreveals the direction of improvement or deterioration. Clearly, a 10year study of these indicators for extremes (such as Wal-Mart versus General Motors, or Altria versus Eastman Kodak) make the following point: Financial strength and performance is important, butthe 10-year trend reveals the whole story. If a company’s numbersare sliding for 10 years, why should you believe they will turnaround? They might, but there comes a point where a company’scondition has deteriorated so far that recovery becomes unlikely.With General Motor’s debt ratio above 100 percent it means theequity value of the company is negative. How does a company recover from that and how long will it take?It is true that a weakened company may be priced at bargainlevels. But a very weak company, especially one with extraordinarydebt levels, has burdened itself with problems that will not turnaround in a few months or even a few years. The assumptions youuse should make sense, and when you see falling proﬁts, fallingstock prices, and rising long-term debt, those companies are clearlynot worthwhile long-term value investments.
The Market of the Future: A Triple-Digit Norm?Moving beyond the analysis using a short list of indicators, you alsoneed to consider what the stock market is going to look like in thefuture. The market is dynamic and reﬂects a constantly changingglobal market and economy. Many factors have changed the marketitself as well as its accessibility. Major changes over the past twodecades include:
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1. Expansion of world markets. With the end of the Communistregime that lasted about 70 years, barriers to international tradecame down, most notably in Europe. This alone vastly expandedtrade potential and increased interaction in worldwide markets. Theinvolvement of China, the last remaining major Communist state inthe world, in international trade has only accelerated the rate ofexpansion.2. Internet access and improved information and communications. Before the Internet, transactions as simple as placement of atrade on the market was cumbersome and expensive. An individualinvestor had to telephone a stockbroker, ask for quotes, and makea trade decision. The stockbroker had to either telephone a traderon the ﬂoor of the exchange or communicate via a very slow andlimited quotations and order-placement system, which was usuallylocated in a ‘‘wire house,’’ a specialized area of the brokerage ﬁrm.This was time-consuming for everyone involved and when the ordervolume was heavy, there were numerous places along the way thatprevented fast order placement. These included the stockbroker’stelephone and all subsequent steps.Today, every investor can easily place his or her own trades froma home computer with Internet access, or at a system in the workplace. It is virtually immediate, cheap, and fast. The requirement forold-style trading became obsolete in less than two decades.In the days when orders had to be placed by telephone and relied on several steps between investor and exchange ﬂoor, it wasimpossible to have heavy volume days when indices would movemany points. This was true simply because the systems could nothandle heavy trade volume; so on those days when high volume oforders were being placed, the delays spilled over to after-hours andthe following trading day. The resources simply were not available.Up until 1972, the DJIA had not moved above 1,000. By theend of 1990 the DJIA was around 2,600, and in 1995 the indexwent above 5,000 for the ﬁrst time. Most of the upward movementin the years since occurred after Internet access to markets becameavailable. This does not mean the Internet was solely responsible formovement of the index. But it does mean that the Internet made it
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much easier for big point movement to occur, where it could nothave done so before.In the past, one-day price movement in the double digits wasconsidered signiﬁcant, but today triple-digit change is not at all unusual. In the future, triple-movement days will very likely be morethe norm than the exception. However, this does not mean that themarkets today are more volatile than in the past. During the 1980s,when the market was between 1,000 and 2,000, movement of 15 to20 points was a big day. But 20 points relative to a DJIA at 1,500 isa 1.3 percent move. When the Dow is at 13,000, a 1.3 percentchange equals about 170 points.With Internet access, millions of individual investors get tradesexecuted right on the exchange ﬂoor, making it cheaper and fasterthan ever before, which opens up a range of new markets beyondlong-position stocks. These include short-position stocks, long andshort trades in options and futures, REITs, exchange-traded funds,mortgage-backed securities, and many other products that were noteven conceived of 20 years ago. In some respects, greater accesshas made the stock market more volatile than ever before, butcheaper, faster access has also made the market more efﬁcient. Intimes of high volatility, a greater number of individual investors haveopportunities to trade price swings that often move 200 points ormore in a matter of an hour or less. Only a few decades ago, whenthe market was under 1,000, such wide point swings were simplyunimaginable.Given ever-faster systems and improved communications speedit is likely that in the future, even bigger point spreads will occur inthe markets. What used to be a fairly cumbersome trading system isso efﬁcient today that the markets have had to employ programmedtrading curbs simply to prevent runaway prices in either direction.Trading in a speciﬁc stock is halted, for example, if news of amerger or other major event will likely affect price. Restrictions arelifted and trading allowed to resume once the news dies down, or isconﬁrmed. Market-wide trading curbs (also called circuit breakers)are put in place whenever indices move a predetermined number ofpoints or change by a speciﬁed percentage, either upward or downward within a single time frame (such as a trading day or number
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of hours). With these curbs, large point changes seen during timesof market panics are prevented in a single day. Within the spacebetween trading days the panic is likely to cool off, allowing marketsto maintain some equilibrium and a more sensible and orderly levelof change from day to day.
Online Investing: Practical, Cheap, and AccessibleThe amazing changes in access to the market—speed, accessibility,and information—have created a revolution. It is important to realize that until the late nineteenth century, the ordinary citizen did nothave access to the stock exchange in any manner. Only brokerscould make trades. The only way for people to put money intostocks was to befriend a broker. There was no public exchange access. In fact, there were no telephones or computers either. A seriesof key inventions have revolutionized investing over the past 150years. These include the telegraph, telephone, computer, and theInternet.All of these inventions were obvious advantages, but only inhindsight. At the time, resistance to change was strong and it tookan entire generation to overcome older ways of thinking. An illustration of this occurred as this book was nearing completion:I met with a friend from the days when I worked in a small securitiesﬁrm. She is a professional planner with many years’ experience, and isprobably the most knowledgeable businessperson I know. She is in hermid-60s, meaning she was not raised using computers.The discussion turned to investing and she commented that herstock market activity was not as much as she would like, because shewas concerned about paying $30 per trade to her broker. The ﬁrm shementioned was the same one I use and I pay only $10 per online trade.I asked why she was paying $30, and she said she always madetrades by phone. The reason was twofold: First, she did not trust computers. Second, she wants to deal with a real person directly so that ifher trade was ill-advised, that person could tell her so.
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Remember, this is an experienced and intelligent person. But ourdiscussion is quite revealing. An entire generation of people, often themost active investors, were not raised with the Internet and there remains a trust issue that most younger investors do not suffer from. Butmore revealing was the reliance on person-to-person contact. The truthis, the order-placement person on a discount broker’s phone line is notan adviser, and is unlikely to question a client’s trade decisions. Evenso, this exceptionally experienced investor was unable to accept thespeed, convenience, economy, and obvious beneﬁts of the computerand the Internet. The need for old-style contact was more powerful.3
The lesson to be learned from this is that change, especiallymajor change, can be invariably hard to accept. When the telephonewas ﬁrst introduced, most people insisted they would never placeone in their homes. ‘‘Why,’’ they asked, ‘‘would a person want toput a box in their homes allowing anyone to summon them at allhours or during meals?’’Similar resistance applied to the invention of the typewriter. Theﬁrst such machine, the Sholes & Glidden Type Writer, was manufactured by Remington in the 1870s, and hoping to get publicity forthe new technology, one of the ﬁrst models was sent to Mark Twain.He tried to get accustomed to it, but did not take to it right away.Later, he was the ﬁrst author to submit a book manuscript in type(Life on the Mississippi, 1883). But even then, he did not type it uphimself. The book was a typed copy of his handwritten manuscript.For most people, the new technology was simply too complicated.Twain wrote about his experience:Please do not even divulge the fact that I own a machine. I have entirelystopped using the Type-Writer, for the reason that I never could write aletter with it to anybody without receiving a request by return mail that Iwould not only describe the machine but state what progress I had madein the use of it, etc., etc. I don’t like to write letters, and so I don’t wantpeople to know that I own this curiosity-breeding little joker.4
Writers also resisted the advent of word processing in the1980s. Some believed that using a computer would take away from
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their typewriter-focused creativity, or somehow that the computerwould replace their art. This belief quickly vanished, however, whenthe automated cut-and-paste feature made endless retyped draftsobsolete.Even today, many investors suffer from the same resistance tocomputerization of trading transactions, and the Internet is viewedsuspiciously. This is understandable among older people, who wereraised without the Internet and lack computers in any form. Todaythis age group represents a disproportionate segment of the individual investing world, because those in baby-boomer ages and up area large part of the U.S. population. However, the obvious advantages of automation will eventually dominate the investing world.The fact that efﬁciency makes it possible to experience triple-digittrading days makes the point well. In the ‘‘old days,’’ hand-placedorders communicated by telephone limited the potential volume oftrades in the few hours the market is open. Today, no one evenblinks at record-level volume, and no one pauses to ask how theexchange and brokerage systems can handle that volume. It is takenfor granted that automated systems are lightning fast, and trade execution occurs in most cases within seconds of the order beingplaced.
Unexpected Losses and Planned ProﬁtsOf course, there is a downside to super-fast order placement in thestock market. If mistakes are made, they are made very quickly intoday’s speed-of-light technological world. Few people speak directly to a broker about their trade decisions, so there are no opportunities for someone to warn you about errors. However, in reality,the old system was no better than today’s. Stockbrokers were neverknown to give good advice to clients. In fact, they were more likelyto telephone clients and push speciﬁc stocks (invariably those theﬁrm was underwriting itself), whether they were sound investmentsor not. The track record of stockbrokers and advisers was dismal.Widely publicized abuses by big Wall Street ﬁrms like Merrill Lynchresulted in billion-dollar ﬁnes. In fact, the whole system of advisory
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services was so poor that the value of relying on someone was highlyquestionable.The ‘‘experts’’ continued recommending Enron stock even afterthe company’s problems began to emerge. Overall, traditional ﬁrmsissued overwhelming ‘‘buy’’ recommendations with only a few‘‘hold’’ and virtually no ‘‘sell’’ recommendations to their clients. Theadvice was often the result of glaring conﬂicts of interest, with theinvestment advisory services coming from the same company underwriting large blocks of stock for client companies. The result wasextremely poor advice to clients, and millions of dollars were lostbetween 2000 and 2002 as a consequence.Today, many wise investors have confronted a reality: When itcomes to managing your money wisely, you are on your own. It wouldbe nice if there were experts out there who could provide you withthe kind of advice you would like and often need. But even thatminority of exceptionally honest and talented brokers and ﬁnancialplanners, who know what they are taking about, cannot be expectedto care for your money as well as you will.When you experience losses in stock positions, which you haveto expect in some number of trades, you can write them off to theodds. But if you are taken by surprise, this is a sign that you did notprepare yourself well enough. Even for those relying on advice fromother people, losses are a surprise. But when you do your ownhomework, losses can be viewed as part of the game. The key, however, is to create a system of analysis that reduces the rate of lossesso that you can beat the averages. Thus, losses will not have to beseen as surprises. The overall proﬁts will be the result of a wellexecuted plan.Everyone deserves a fair chance at building wealth. This occursthrough a program of budgeting and savings, an understanding ofyour own risk tolerance, and building a portfolio that is a goodmatch for you. It also involves owning your home and carrying theappropriate kinds of insurance that everyone needs: life, health,homeowners, and other essential protection. But in the stock market, you cannot get a guarantee for the safety of your money. Thereare no guarantees. Because you are on your own, you have to pickinvestments with great care; risks cannot be avoided, but they can
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be managed well. As you build your wealth over time, the combination of your family home and a growing portfolio of exceptionalstocks will build the security and safety everyone wants and deserves.
Notes1 Sources: Department of Health and Human Services, National Center forHealth Statistics; National Vital Statistics Reports, vol. 54, no. 19, June 28,2006. Web site: www.dhhs.gov.2 Source: Eastman Kodak 2006 annual report.3 Author’s discussion with a friend shortly before completion of this book.4 Mark Twain, Letter, March 19, 1875.
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GLOSSARY
acid test alternate name for the quick assets ratio, which is current ratioexcluding inventory.annual report a report issued by publicly held corporations, includingﬁnancial statements and footnotes; management discussion; and additional disclosure and promotional sections.annualized return the return on investment calculated on a full-yearbasis, meaning increasing the rate if held less than one year, or reducing the rate if held for more than one year. To calculate, divide returnby the holding period (in months, and multiply the result by 12months).asset allocation a form of diversiﬁcation, in which emphasis is placed ondividing capital among separate markets (stocks, bonds, real estate,money markets).back-end sales load a type of charge assessed by a mutual fund at afuture date rather than at the time funds are invested.balance sheet a report issued by a corporation as of a ﬁxed date, usuallythe end of a quarter or ﬁscal year, in which the ending balances arereported for all asset, liability, and shareholders’ equity accounts.balanced fund a mutual fund including both equity and debt in its portfolio.breakaway gap a type of gap in trading in which the price range movesabove or below the previously established trading range, including aspace between a previous day’s closing price and the current day’sopening price.227
228
Glossary
break-even return a calculation of the return required to break even afterallowing for both inﬂation and taxes.breakout a movement of price of a stock above or below an establishedtrading range.call a type of option granting its owner the right, but not the obligation,to buy 100 shares of a speciﬁed stock, at a ﬁxed price and on orbefore a speciﬁed expiration date in the future.capital gains or losses investment gains or losses; short-term refers toholding periods of one year or less, and long-term capital gains orlosses (with a favorable tax rate) refers to holding periods beyondone full year.capital value-weighted index a market index in which companies withgreater dollar value of capital hold greater weight within the index.closed-end fund a type of mutual fund that does not accept funds fromnew investors.common gap a trading gap, or space between one day’s close and thenext day’s opening price, which occurs periodically and not necessarily as part of a change in the trading range or trend.compound return the return on investment including reinvested dividends used to purchase additional partial shares, so that each quarter’s dividend return is based on a greater overall base.congestion a trading pattern in which price action pauses or moves sideways.Consumer Price Index (CPI) statistic published by the Bureau of LaborStatistics, combining many economic trends; most often used as thedeﬁnitive level of inﬂation.contrarian investing a strategy involving making decisions contrary tothe prevalent opinion, due to an observation that in the market, themajority is wrong more often than right.core earnings developed by Standard & Poor’s, an adjustment to reported earnings to reﬂect only the revenues, costs, and expenses of thecorporation’s primary business, and excluding nonrecurring items.covered call a type of call sold by an investor who owns 100 shares ofstock; in the event the call is exercised, the investor has the shares todeliver, so that risk is lower than that with an uncovered call.current assets and liabilities those assets convertible to cash within oneyear, and liabilities due and payable within one year.
Glossary
229
current ratio a calculation of working capital, in which the total of allcurrent assets is divided by all current liabilities; the resulting ratio isreported as a single digit.current yield the yield from dividends on a stock investment, whichchanges each time the market value of stock rises or falls.day trading activity involving moving in and out of positions within asingle trading day.debt capitalization a form of capitalization from borrowings, most commonly reported as long-term notes or corporate bonds.debt ratio the percentage of long-term debt to total capitalization (longterm debt plus stockholders’ equity).distribution fee (12b-1) a fee charged by many mutual funds to pay forthe cost of advertising, allowed under SEC rule 12b-1.diversiﬁcation investing capital in enough different stocks, sectors, ormarkets to avoid large losses from any single event, such as a declinein price following a negative earnings surprise, poor economic news,or consumer buying trends.dividend yield also called current yield, the amount of dividends dividedby the market value of stock.dollar-cost averaging a technique in which investors place the sameamount of capital into the market periodically, regardless of whetherprices rise or fall.Dow Theory a technical theory used to predict long-term market sentiment and trends (bull or bear markets), ﬁrst described by S.A. Nelson in his book, The ABC of Stock Speculation, and based on thewritings of Charles Dow.earnings per share (EPS) the total earnings of a company (usually perquarter or per ﬁscal year), divided by the number of outstandingshares, and expressed in a dollar-and-cent value.effective tax rate the rate individuals pay based on taxable income (totalincome minus adjustments, exclusions, and deductions), expressedas a percentage.efﬁcient market hypothesis a theory stating that all crucial informationabout a company and its stock is known by the market at large, andreﬂected in the current price at all times.enterprise value the estimated value of a company if it were to be liqui-
230
Glossary
dated, and not considering any value for future growth or proﬁts;current tangible assets minus liabilities.equity capitalization the total of capitalization raised from the sale ofstock, adjusted upward or downward by retained earnings, dividendsdeclared and paid, and other equity adjustments; distinguished fromdebt capitalization, which is raised from issuing bonds and otherlong-term debt obligations.equity fund a type of mutual fund focusing on stock ownership, andexcluding bonds and other debt holdings.exchange fee a fee charged to move mutual fund investments within afamily of funds.exchange-traded fund (ETF) a type of mutual fund with a preidentiﬁedbasket of stocks, traded on the public exchanges instead of throughthe fund’s management.exercise the act of buying stock at a ﬁxed price through ownership of acall (calling away stock), or selling stock at a ﬁxed price throughownership of a put (putting stock to the seller).exhaustion gap a type of gap (between a previous closing price and current opening price) occurring at the end of a price run, signaling achange in price direction.expiration date the date when an option becomes worthless, followingthe third Friday of the expiration month.ﬁxed income fund a type of mutual fund focusing on bonds, in whichincome is contractually promised by the issuing agency or company.footnotes a section of the annual report expanding on reported ﬁnancialresults, disclosing items not shown on the ﬁnancial statements (suchas contingent liabilities), or discussing risks of business activity; usually the longest section of the annual report.front-end sales load the most common type of load mutual fund, inwhich the sales fee is deducted from invested capital at the time it isdeposited with the fund.fundamental analysis the analysis of a company concentrating on itscapital strength and earnings, especially established trends, compared with technical analysis, which focuses mostly on a stock’s pricetrends.fundamental volatility the degree of consistency and predictability fromyear to year in reported revenues and earnings; low fundamental vol-
Glossary
231
atility is more desirable for most investors because it is easier to calculate likely future trend entries.gap any trading pattern in which space is seen between the trading rangein one day and the trading range of the next day, either above orbelow.global fund a mutual fund investing its portfolio in many markets outsideof the United States.growth fund a mutual fund emphasizing a portfolio believed to offer thebest chance for growth in the market value of its stocks.head and shoulders a pattern in technical analysis in which three priceincreases occur, with the middle level (the head) higher than the ﬁrstand third levels (shoulders), believed to anticipate coming pricemovement downward and away from those tops.income fund a mutual fund investing in income-producing stocks (viadividends) and debt instruments (via bonds and money market instruments).income statement a ﬁnancial report summarizing revenues, costs, expenses, and proﬁts during a speciﬁed period of time, usually a quarter or full ﬁscal year.index fund a mutual fund based on the components on an index such asthe Dow Jones Industrial Average or the S&P 500.inﬂation risk the risk of loss in purchasing power resulting from inﬂation; if an investment’s yield is lower than the rate of inﬂation, itcreates such a loss.large-cap fund a mutual fund investing in larger companies, measuredby the total dollar value of its capital.leverage the use of money to control a greater dollar value of investments, achieved through borrowed money (on margin, for example)or through the use of options.liquidity risk (a) the risk that the value in a portfolio will be fully invested,so that no funds are available for further purchases; (b) in terms of acompany’s working capital, the risk that available funds will not besufﬁcient to continue paying current liabilities or to expand operations.load fund a mutual fund that charges a sales commission to investors.long-term assets a company’s investment in real estate, autos and trucks,
232
Glossary
tools, machinery, furniture, and other assets that are depreciated overa speciﬁed recovery period.long-term liabilities any liabilities payable beyond the next 12 months asof the date of the balance sheet.lost opportunity risk the risk that newly discovered and potentiallyproﬁtable investments cannot be made because available funds arefully invested.market risk the best-known form of risk that a stock’s value will fallrather than rise.mid-cap fund a mutual fund seeking investments in mid-size companies,believed to offer the most advantageous growth potential.money market fund a mutual fund with portfolio holdings in money market instruments only (certiﬁcates of deposit, treasury obligations,short-term notes, bankers acceptances, and other instruments).mortgage pool an investment similar to a mutual fund, but holding mortgages rather than stocks or bonds