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                   I N V E S T I N G  B A S I C S
                     Wednesday, October 18, 2000

benjamin.rogers@enron.com
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ASK THE FOOL

-- Q. I've just learned that Levi Strauss is a private company,
so I can't buy shares of it. What other major companies are
privately held?

-- A. Take a gander at these biggies: Cargill, Mars, Bertelsmann
AG, Bechtel, Publix Supermarkets, IKEA International, Amway,
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McCain Foods, Hyatt, Hechinger and Domino's Pizza. Some of these
firms offer shares to employees, but individual investors are
out of luck.

-- Q. I've noticed that stocks jump in price when they're added
to the S&P 500 Index. Why is this, and is there any way to learn
which companies will be added in the future?

-- A. You've noticed correctly. When it was announced recently
that America Online would be added to the S&P 500, its shares
quickly rose about 12 percent.

Stocks get added to these indexes to replace ones deemed no
longer worthy of being included, or ones that have merged with
other companies and therefore disappear. The announcements draw
the attention of investors, sending share prices up. And once
the companies are added, index funds that will have to own these
stocks begin snapping up shares.

Unfortunately, the stocks begin moving as soon as the
announcements are made, before they're even officially added. So
there's little time to sneak in and benefit. But if you've
invested in high-quality, growing companies, chances are you may
eventually see some of them added to important indexes.

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INVESTING BASICS - STOCK SPLITS

Wondering whether to buy a stock before or after a split is like
asking, "Should I eat this peanut-butter-and-jelly sandwich
before or after Mom cuts it in half?

Stocks don't become more inexpensive when they split. True, you
get more shares. But each is worth less. Imagine you own 100
shares of Sisyphus Transport Corp. (ticker: UPDWN). They're
trading at $60 each and total $6,000. When Sisyphus splits
2-for-1, you'll own 200 shares, worth about $30 each. Total
value: (drum roll, please) $6,000. Yawn.

Some people drool over stocks about to split, thinking the price
will surge. Stock prices sometimes do pop a little on news of
splits. But these are artificial moves, sustainable only if the
businesses grow to justify them. The real reason to smile at a
split announcement is because it signals that management is
bullish. They're not likely to split their stock if they expect
the price to go down.

Splits come in many varieties, such as 3-for-2 or 4-for-1.
There's even a "reverse split," when you end up with fewer
shares, with each worth more. Reverse splits are usually
employed by companies in trouble, to avoid looking like the
penny stocks they are. If a stock is trading at a
red-flag-raising $2 per share and it does a reverse 1-for-10
split, the price will rise to $20 and those who held 100 shares
will then own 10.

Companies often split their stock so that the price will remain
psychologically appealing. Sometimes, not splitting would mean
that few people could afford even a single share. If Microsoft
hadn't split seven times in the last decade, each share would be
worth more than $6,500.

With stocks, just as with any purchase, examine what you're
getting for the price. Study the company and compare the stock
price to other numbers, such as earnings. A low price might be
inviting, but a $200 stock can be much more of a bargain than a
$20 one. If your funds are limited, you can just buy fewer
shares.

It's always fun to suddenly own more shares, but splits are like
getting change for a dollar. They're not cause for celebration.
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IN THE SPOTLIGHT

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A NOTE FROM THE AUTHOR(

I hope you're finding this product useful. The content
originally appeared as part of our nationally syndicated
newspaper feature (which I also prepare). Consider giving your
local editor a jingle and suggesting that they think about
carrying the Fool.
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Selena Maranjian
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