Guide to Analysing Companies

C
COVER
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01 Essential Finance 10/11/06 2:21 PM Page 89

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Covered warrant
A financial instrument that bestows on the holder the
right, but not the obligation, to buy or sell an underlying asset
such as an ordinary share in a company. If the warrant is
European-style, it can be exercised only on the date it expires; if
it is American-style, it can be exercised at any time up to and in-
cluding the date of expiry. (See american-style option and
european-style option.) As with an option or a future,
a warrant gives the holder gearing, that is, exposure to the un-
derlying asset for less than the cost of buying it outright. So the
price (or premium) paid for a warrant is usually less than the
cost of the underlying asset; and the holder can lose only the
amount paid. Unlike warrants issued by a company, covered
warrants do not create extra shares.
When will the market bottom? 
Frankly, when investors stop asking the question.
Richard Bernstein
Crash
What happens when a stockmarket falls precipitously, as in
the United States in 1929 and on black monday in many
markets in 1987. J.K. Galbraith, in his classic book, 
The Great
Crash 1929, gave five main reasons for the 1929 fall.
1 The poor distribution of money in American society. The top
5% of the population was reckoned to be receiving 33% of all
personal income.
2 Bad corporate structure. The 1920s was a decade of stockmar-
ket fraud; crooks bled companies of huge amounts of money.
3 Bad banking structure. There were too many independent
units; the failure of one led others to collapse in a domino effect.
4 The United States’ foreign balance. There was a declining
trade surplus for the first time in modern history.