<SPECIAL FEATURE>
April 9, 1999

Fools in Newsprint

Ask the Fool Samples

Q. On TV stock tickers, I've often wondered what the "10.000s" is when I see something like "BLAH10.000s15 3/8." -- Jon Walker, Oxford, PA

A. The "10.000" means 10,000 shares of BLAH have traded. For trades of 10,000 or more, the comma is changed to a period. If fewer than 10,000 shares are traded, the number is rounded to the nearest hundred and the last two zeros are removed. So, BLAH 9s15 3/8 means 900 shares traded at a price of $15 3/8 per share. If no number of shares is indicated, it means that it's a "round lot" of 100 shares or an "odd lot" rounded to 100. (Hey -- we don't make up this logic -- we just explain it.)

~.~

Q. I've been reading on your website that you generally think low inventory levels are good and high ones are bad. This doesn't make sense to me, though. Can you explain? -- Albert Shahinian, Rhinebeck, NY

A. While a high inventory level might make a company appear well-positioned to meet demand, it's risky because demand may suddenly plunge. Indeed, a large inventory may signal that demand has already slackened.

Products end up sitting on the shelves all the time. Fashion trends change, technological advances make current products obsolete, and the functional utility of some products is gone after a certain time. A PC manufacturer with a large stock of older computers probably can't sell many of them because buyers want newer models. (A warehouse full of Christmas ornaments in January faces similarly bleak prospects.)

Any product left sitting on a warehouse shelf costs money to hold; it may never be sold at all. Efficient companies increasingly try to maintain low levels of inventory. These levels permit them to react quickly to market changes and minimize the chance that they will get stuck with extra goods.

~.~

Q. What's dollar-cost averaging? -- Loretta Garland, Martinez, GA

A. Dollar-cost averaging is the discipline of regularly buying shares of stock. Whereas Joanie Investor might plop $4,000 at one time into a particular stock, Chachi Investor might dollar-cost average, investing $100 into it every month. Joanie needs to make sure she's buying that stock at an attractive price, because she's making her investment at one time. Chachi, though, is content to buy even when the price is on the high side, knowing that he'll still be buying if the stock slips in price.

Dollar-cost averaging is a good way to protect yourself from a volatile market by continually buying small bundles of stock through ups and downs. It's also a good way for those with limited funds to invest. Don't drown in commission costs, though -- dollar-cost average only if you can keep commissions below 2% or if you're buying through direct-purchase plans.

~.~

Q. Why does the stock market often tank when there's good economic news reported? That doesn't seem to make sense. -- K. L., St. Louis, MO

A. It's all related to interest rates. Alan Greenspan and his buddies at the Federal Reserve set interest rates, trying to keep inflation at bay and promote a healthy economic environment. When positive economic news is released, such as falling unemployment, rising wages, or growing national productivity, the specter of possible inflation is raised. Economies growing too quickly can spur inflation, with too much currency in the marketplace leading to the weakening of the dollar and rising prices.

To stem inflation, the Fed notches up interest rates to decrease the amount of borrowing and slow down the economy. The possibility of rising interest rates renders bonds more attractive, as they offer fixed income. Investors pull money back from stocks, which are hit doubly with the threat of shrinking corporate earnings and with the attractiveness of growing bond yields.

~.~

Q. Can you explain what arbitrage is? -- S. H., Kokomo, Ind.

A. You betcha. Arbitrage is the practice of profiting from short-term differences in price. Imagine that you can buy stock in Rent-to-Own Underwear Inc. (Ticker: EWWW) for $25 per share -- in the United States. Meanwhile, you see that it's currently selling for $25.50 per share in England. If you simultaneously buy shares in America and sell the same number of shares in England, you've earned a profit of 50 cents per share (not counting commissions). This may not seem like much, which is why those who practice arbitrage are usually institutional investors with millions to invest.

Next: Fool Take Samples

</SPECIAL FEATURE>