Understanding Wall Street

This is a beginner's textbook in the best sense. It has been in print since 1978, and the fifth edition, published by McGraw Hill in 2009, is the current one. Jeffrey B. Little worked as a senior analyst at a Wall Street firm and as a vice president at the investment counsel firm T. Rowe Price Associates. His co-author Lucien Rhodes is a financial journalist who previously worked as an analyst and portfolio manager in commercial and investment banking.

The book's device is the NewBrite Lighting Company, a fictional business whose growth shows readers why companies sell shares, how directors and shareholders relate, and what drives a share price. Later chapters widen out to the exchanges, financial statements, bonds, technical analysis and derivatives. Earlier editions drew praise from Booklist as an introduction to the market's workings, and readers still describe it as a clear manual for novices.

The caveats are its age and level. The current text predates zero-commission trading, the rise of passive investing to dominance and the market structure that came after the financial crisis, so some numbers and practices are out of date. It offers little for anyone who already works in markets. For a student, a new hire in a non-investment role or a first-time investor, it is a quick way to learn how the parts fit together.

1. A share is a claim on a business. The NewBrite example shows that stock prices ultimately follow a company's earnings, dividends and growth, not the other way around.
2. Analyze the company before the stock. The book's chapters on analyzing a company and reading the financial pages teach the habit of checking the business's numbers before reacting to its price.
3. Markets run in cycles of excess. The chapter on manias, fads and panics is a reminder that crowds regularly overpay and then panic, and that this is normal market behavior.
4. Know the whole menu. Bonds, preferred stock, money-market instruments, funds and options carry different risks and returns, and a newcomer should understand each before mixing them.
5. Learn the language of every desk. Technical analysis, options and other derivatives get their own chapters, so a newcomer can follow what traders and strategists are talking about even before using those tools.

The book has 16 chapters that move from the basic unit of ownership to the wider market and then to specialized topics.

1. What is a share of stock? The NewBrite Lighting Company is founded, raises capital, elects directors, issues shares and declares dividends, showing how a corporation and its stock come into being.
2. How Wall Street works. The authors explain exchanges, brokers and how trades are executed, then teach readers to analyze a company and read the financial pages.
3. Investing styles and market history. Chapters on investing versus trading, growth stocks, and manias, fads and panics put stock picking in historical context, and a chapter connects Wall Street to Main Street.
4. Beyond common stock. Bonds, preferred stock and the money market are covered, followed by chapters on investing online, worldwide investing, and gold and silver.
5. Tools and players. The closing chapters introduce the principles of technical analysis, stock options and other derivatives, profiles of Wall Street personalities, and a guide to further sources.

Over the past quarter century, Understanding Wall Street has helped everyone from rookie investors to Wall Street veterans understand exactly how the market works and how to determine which stocks to buy ... and which to avoid. The fourth edition of this top-selling guide - still as easy-to-read, practical, and comprehensive as the first three - has been completely updated to help investors prosper in today's new, no-limits marketplace.--BOOK JACKET.