Specialists: Test your Knowledge About Them

And How They Act In The Market Place

To those many investors who have read my
articles on both this website and others I have
written a test so that you can exercise your
knowledge and skills. This test will allow you
to see first hand if you have the necessary
understanding of my low risk system for
investing.
The best way to take this test is to print out
the entire document and then circle your
answers as you move through the printed
material.
The first set of exercises is designed to
reinforce the investor’s understanding of my
theory’s and ideas. The questions will
proceed from the very simple to the more
complex. Thus we begin in Session 1 with
easy-to-understand True – False questions.
We next proceed to multiple-choice
questions, which have been divided into
Sessions 2,3, and 4. In some cases there is
more than one correct answer. The investor
should select the best possible answer. An
answer sheet will follow each section. This
will allow the investor to make sure he or she
is on the right course before proceeding to
more complex problems.
I am confident that any investor who carefully
works his way through this test material will
come away with a much greater facility for
applying my ideas of successful stock market
investing.

Section 1
Each of the following statements is either true or false. Mark T for true, F for false. Check your
answers against the correct answers at the end of this section.

1) Specialists know the markets major trends a long time in advance. (T or F)

2) The single most important determinate of what constitutes a good investment is good
earnings. (T or F)
3) A careful analysis of a single stock can give the investor an indication of the trend of the
market. (T or F)
4) What has happened in the market in the past has very little to do with what happens in the
market today. (T or F)
5) The market declines from retail to wholesale price levels as a consequence of public selling.
(T or F)
6) As a trader or investor, the best way for you to succeed in the market is to follow the
transactions of specialists. (T or F)
7) The Dow Jones average is the barometer investors should follow because it provides them
with an excellent indication of the trend of the broader markets. (T or F)
8) The stocks in the Dow are no longer a true representative of industry as a whole. The
movements of the Average are, therefore, of no consequence. (T or F)
9) The Dow can establish new highs despite the fact that most stocks in the Dow have been
moving lower for months. (T or F)
10) It’s more important to watch the price and volume movements of the five most active
stocks in the Dow than it is the Dow itself. (T or F)
11) One of the constructive features of owning Dow stocks is the probability that, in the
course of a bull market, most Dow stocks will be among those that are the first to advance
and the last to decline. (T or F).
12) On of the good features of Dow stocks is that they provide more certain growth and
better income than most other stocks. (T or F)
13) Different investors should have different portfolios. Some should have portfolios
oriented toward growth, others toward income. (T or F)
14) So long as the income from your portfolio remains unchanged, it is of little
consequence what happens to the stock prices of an income-oriented portfolio. (T or F)
15) Institutional transactions play a major role in determining a stocks trend. (T or F)
16) Heavy institutional buying is a major reason stock price’s advanced in the first half of
2007. (T or F)
17) Heavy institutional selling is a major cause of the volatility that has existed in the
market place since the beginning of the 1960’s. (T or F)
18) Institutions tend to perform much better in the market than the average individual
because they can afford to pay big fees for investment advice. (T or F)
19) Because they by in big blocks, the costs of purchasing and selling stocks are much
lower for institutions. (T or F)
20) The trust departments of banks like Chase Bank have lost billions of dollars in 2007
for investors who utilized their services. (T or F)
21) The stock markets most important function is as a major source of equity capital. (T
or F)
22) The Exchange Act of 1934 was responsible for instituting major reforms of the stock
exchange. (T or F)
23) Specialists are allowed to keep the specifics of all their transactions secret. (T or F)
24) The investor can only obtain two-month-old data on specialist short sales from the
SEC. (T or F)
25) The 1963 Special Study Report of the SEC maintained that the specialist’s short sale
transactions in specific stocks should be made public knowledge. (T or F)

Answers to questions in Section 1

01) T 02) F 03) T 04) F 05) F 06) T

07) F 08) F 09) T 10) T 11) T 12) T
13) F 14) F 15) F 16) F 17) F 18) F
19) F 20) T 21) F 22) F 23) T 24) T
25) T
 Section 2
The following multiple-choice questions are designed to reinforce the investor’s understanding of
concepts relating to portfolio selection. Always choose the best answer and then check your
selections against the answers at the end of this section.

1) The individual with $25,000 to invest should select a portfolio of

a) No more than three stocks and no less than two.
b) Three stocks.
c) No more than four and no less than three stocks.

2) In pursuing a policy geared to the preservation of capital, an investor with $20,000 to $200,000 should
select a portfolio of no less than four and no more than five or six stocks, which of the following sets of
four would qualify for inclusion
d) IBM, Kohl’s Corporation, General Motors, Bristol Myers Squibb.
e) IBM, General Motors, Eastman Kodak, Coca-Cola.
f) Procter & Gamble, General Motors, Eastman Kodak, Sears Holdings.
g) General Motors, Anadarko, Coca-cola, Kohl’s Corporation.

3) Investment advisory services supervising portfolios should be viewed skeptically when their
advertisements include any but one of the following statements about their operating techniques.
Choose the exception:
a) We coordinate our investment strategies with client objectives.
b) We constantly monitor the economy and capital market.
c) We determine investment strategies based on analysis of Exchange insider activities.
d) We utilize fundamental as well as technical analysis.
4) The special fees paid to the Exchange by institutions to execute their big block trades have run as
high as:
a) 10 times the minimum commission rate.
b) 29 times the minimum commission rate.
c) 19 times the minimum commission rate.
d) 50 times the minimum commission rate.
5) It is a good policy to select the stocks most favored by institutions for one’s portfolio because:
a) Continuing institutional demand for stock will keep their stock prices up.
b) The companies they invest in are here to stay.
c) Exchange insiders have a greater incentive to advance these stock’s prices.
d) They provide a better income.
6) Another good feature of buying Dow stocks is that if they decline in price, chances are:
a) Their dividends will remain relatively unchanged.
b) They will ultimately advance again in price once the new bull market gets underway.
c) They will not stay down for long.
7) In order to buy and sell big blocks of the best high-quality stocks at optimum price levels, institutional
portfolio managers:
a) Try to establish good relationships with Stock Exchange insiders.
b) Do extensive research to determine which companies have the best management
teams.
c) Pay insiders large fees.
d) Try to select the stocks with the best future earnings.
 8) Many institutions customarily trade in big blocks that are transacted off of the floor of the Stock
exchange. They, therefore, by-pass the specialist in that they conduct their business with large-block
positioning firms such as Merrill Lynch and Goldman Sachs. These big block houses:
a) Set the prices of their stocks independently of the price established by the Exchange
specialist in the stock.
b) Save the institution commissions and special fees.
c) Compete with the specialist in the ability to set prices of stocks.
d) Conform to the approximate price level established by the specialist when they cross
their blocks.
9) Institutions prefer stocks like General Motors and Microsoft because:
a) They know it is easier to sell these stocks to the public.
b) These stocks protect the reputation of the portfolio manager by providing a built-in
cushion against possible losses.
c) They like to invest in stocks other portfolio managers prefer.
d) These stocks are the leaders in their industries.
10) A major reason bank-managed portfolios have poor performance records is because the managers of
these portfolios:
a) Tend to look for growth situations.
b) Base their decisions on corporate fundamentals, such as earnings.
c) Can’t sell their stocks without depressing the market.

Answers to questions in Section 2

01) C 02) C 03) C 04) B 05) C

06) B 07) C 08) D 09) B 10) B

Section 3
The following multiple-choice questions and answers were designed to strengthen the investor’s
understanding of the principles concerning the specialist’s role and function in the market place.
Always select the best answer and then check your choices against the answers at the end of this
session.
1) According to the SEC’s Special Study Report of 1963:
a) Specialists should be commended for the manner in which they stabilized the market
during the bear market of 1962.
b) Specialists are at the heart of the problem of organization, management, and
disciplinary procedures of the Exchange.
c) Too much is expected of Specialists.
2) To become a specialist the best course of action to take is to:
a) Be the son or daughter of a specialist.
b) Learn how to handle the job through long years of working with specialists.
c) Pass a special examination for specialists.
d) Have enough capital to become a specialist.
3) The average specialist controls as few as:
a) 3 stocks and as many as 10.
b) 10 stocks and as many as 45.
c) 5 stocks and as many as 30.
4) The number of specialists operating on the floor of the Stock Exchange is approximately:
a) 560
b) 380
c) 160
5) Investors can only succeed in making consistent gains in the market if:
a) They learn to look at the market as a merchandising operation controlled by insiders.
b) They do their homework and learn which companies are favored by institutions.
c) They learn what and when stocks are being sold by Exchange insiders.
6) Investors can do better in the market by sticking exclusively to stocks in which specialists:
a) Maintain a small spread between the bid and ask price.
b) Have proven to be more predictable in their price movements because they control
highly active stocks.
c) Have more capital to support their stocks in the face of public selling.
d) Are honest.
7) In the course of the bear market from 1990 to 1994 the income data provided on 28 specialist firms
showed that they:
a) Were in desperate need of capital to support their stocks.
b) Took multimillion-dollar losses.
c) Had an income of $1.297 billion in one year alone.
8) In the following list of specialist activities, which is the one thing that is not true?
a) He invests for his family, friends, and customers.
b) He will meet with heads of companies to discuss their stocks.
c) He will discuss his stock with institutional traders in order to get them to do business
with him.
d) He adheres to strict Exchange rules, which prohibit his showing his book to
investment bankers and underwriters.
9) If a specialist runs short of capital he can:
a) Sell stock to raise money.
b) Borrow money from another specialist.
c) Borrow the money interest free from the Federal Reserve.
d) Get a loan on his personal property.
10) The specialist access to information and privileges enjoyed by specialists:
a) Enables then to better serve their customers and perform their duties.
b) In no way interferes with their right to invest and trade for themselves.
c) Enables them to take greater risks to support the market.
11) In all likelihood, any Exchange reforms such as a central market or competing specialists would
provide the investor:
a) With no additional benefits.
b) With lower prices when buying and higher prices when selling.
c) A more liquid market for stocks.
12) There are no basic differences between the practices of specialists in one stock and those of
specialists in another stock, since:
a) The financial objectives of the two are always the same.
b) They all have to observe the same rules and regulations of the Stock Exchange.
 c) They are closely regulated by the SEC.
d) Each specialist tries to maintain as fair and orderly a market as humanly possible.
e) Once they have sold short at their stock’s high, they are anxious to re-accumulate
stock at the bottom.
13) In the course of a rally, if a specialist doesn’t have enough stock in his trading account to supply
investor demand:
a) He will supply it from his investment account.
b) He will buy the stock from other investors by dropping prices to clean out his book.
c) He will borrow the stock needed.
14) Specialists know, a long time in advance, the trend of stock prices because:
a) They can guess the future trend from the information on their books.
b) They know what the demand for stock will be.
c) They are better able to gauge the future of interest rates than most investors.
d) They are the ones who determine what the trend is going to be.
e) They have charts that tell them what the trend will be.
15) The Board of Governors of the Stock Exchange has a broad-based selection of businessmen who are
not stockbrokers. As heads of the media and major utilities they:
a) Seek to protect investor interests.
b) Serve their own interests by working closely in support of Stock Exchange practices
and policies.
c) Feel investors would be better protected if the public had greater representation on
the Board.
16) The rules preventing specialists from demoralizing the market by effecting short sales at or below the
last sale price:
a) Have been strengthened by the SEC.
b) Have exemptions allowing them to do this.
c) Were written by specialists.
d) Protect the investor against “bear raids.”
17) The 1963 Special Study Report of the SEC pointed out that in the past specialists had sold short major
blocks of stock from their trading accounts at a stock’s high and then subsequently:
a) Sold short additional stock in the course of the decline in order to pull the market
down.
b) Bought stock from institutional portfolio managers on payment of a special fee to
cover their short sales.
c) Delivered over their personal investment accounts to their trading accounts in order
to establish a long-term capital gain.
18) A major reason for the regulatory problems in the investment industry is that:
a) The SEC is not given enough power to do their job properly.
b) Members of the SEC top brass cooperate with the Stock Exchange in order to move
into top jobs in the securities industry.
c) The SEC is inadequately staffed.
19) The SEC maintains a tight rain over investment advisors and stockbrokers across the country. In this
same regard, the commission’s regulations concerning specialists:
a) Is a major source of investor protection and investor confidence?
b) Contain many loopholes.
 c) Are even more stringent than those governing anyone else in the investment
business.
20) The stock market is:
a) Controlled by the forces of supply and demand.
b) An internal operation manipulated by Stock Exchange insiders for their own personal
profit.
c) Controlled by the trend of interest rates.
21) The long-term trend of stock prices can be altered overnight:
a) Because insiders have accumulated all the stock that they want.
b) Because of an important economic announcement.
c) Because of “technical” corrections.
22) The market advances in response to:
a) Public demand.
b) Insider buying.
c) Lower interest rates.
23) One of the major factors the investor must contend with is that when the majority of Dow stocks
decline in price:
a) The majority of all other listed stocks are also declining.
b) The market is reflecting the existence of negative economic news.
c) The Dow Average can still be making new rally highs.

Answers to questions in Section 3

01) B 02) A 03) B 04) A 05) A 06) B

07) C 08) D 09) C 10) B 11) A 12) E
13) C 14) D 15) B 16) B 17) C 18) B
19) B 20) B 21) A 22) B 23) C

Section 4
The following multiple-choice questions are designed to test the investor’s ability to recognize the
purpose and effect of specialist’s merchandising strategies on stock prices. Always select the best
answer and then check your choices against the answers at the end of this section.

1) From the following list, choose the factors that can tell the investor when specialists are covering their
short sales and going long. (More than one right answer)
a) The information will be published in the Wall Street Journal.
b) The SEC provides investors with this information.
c) There will have been a decline in stock prices.
d) There will be an increase in Dow and NYSE volume.
e) There will be heavy big block activity following the decline.
2) Once the specialist has sold his investment account at a rally high, he will then want to:
a) Establish a major short position.
b) Clear out his book so that he can acquire the stock needed to go higher.
c) Move as soon as possible to wholesale price levels in order to re-accumulate a new
investment account for himself.
3) The main purpose of the short sales is that it:
 a) Provides investors with a chance to profit in a down market.
b) Enables specialists to control stock prices.
c) Enables specialists to profit in a declining market place.
4) The sharp increase in volume that took place in the Dow at the end of September 2007 was in direct
response to:
a) Public demand.
b) The facts that stock prices were raised dramatically.
c) Investor optimism.
d) Individual economic factors signaling an economic upturn.
e) The lowering interest rates.
5) When stock prices advance after heavy volume on the downside it is because:
a) Specialists want to unload inventory before taking stock prices to lower price levels.
b) There was a great deal of public short covering, which caused prices to advance.
c) Institutional buyers took advantage of the decline in prices to accumulate stock at
bargain prices.
6) Changes in the price of a stock are a reflection of:
a) A change in the public supply-demand factors.
b) A change in economic factors.
c) A change in the specialists inventory objectives.
d) A change in trend.
7) Heavy volume on the downside indicates that:
a) Market conditions are deteriorating rapidly.
b) Market conditions are being influenced by negative economic factors.
c) A reversal in stock prices is in the offing.
8) When specialists want to merchandise their stock, one of the things they have to do is:
a) Create demand for their stock.
b) Conduct a sale by lowering their stocks prices.
c) Conduct a sale by raising their stock prices sharply.
9) When there is a sharp decline in stock prices, specialists do all of the following except:
a) Clear out their books of stock.
b) Cover their short sales.
c) Accumulate stock.
d) Take big losses.
10) The significance of a decline in Dow volume as stock prices decline is:
a) An indication of underlying strength.
b) That stock prices will continue going lower.
c) That the specialist has covered his short sales.
11) To indicate a temporary reversal, Dow volume should exceed:
a) 1.8 billion shares a day.
b) 2.5 billion shares a day.
c) 3.0 billion shares a day.
12) Specialists short covering and accumulation for a major reversal could be indicated by three to four or
more consecutive day’s of Dow volume in excess of:
 a) 1.8 billion shares.
b) 3.0 billion shares.
c) 3.8 billion shares.
13) An increase in volume after a run-up in price:
a) Indicates underlying strength caused by investor demand.
b) Indicates specialist short selling.
c) Is a consequence of good corporate or economic news?
14) The specialist is aware of how the public conforms to certain behavior patterns. Hence, if he is raising
prices from 70 to 100, he will:
a) Distribute big block at just above the 100 levels.
b) Distribute big block just below the 100 levels.
c) Examine his book to see whether there are more buy orders or sell orders above the
100 levels.
15) If very big blocks appear at the 59 price level and still more at the 60 level after a sharp advance from
the 25 price level, it is an indication:
a) The stock is going higher.
b) The stock is being set up for a decline.
c) Institutional interest is coming into the stock.
16) The appearance of big blocks at the 20 price level after a sharp decline from the 50 price level is:
a) A bullish signal suggesting the stock could make a good trading vehicle.
b) Bearish.
c) A signal the stock should be sold short.
17) When a stock declines from the 90 level, touched the 60 level on high volume, and then after
proceeding to 59, advances to 70 and declines once more to the 60 level on light volume, chances are:
a) It will bounce off the 60 levels.
b) It will go down through the 60 levels.
c) It will test the 59 levels again.
18) Chances are that, if there are a lot more sell orders at 60 than buy orders, a specialist who has
advanced his stock from the 30 price level to 59 will do the following:
a) Advance it just above 60 to collect the sell orders and then proceed higher to unload
them.
b) Open his stock above the 60 levels to avoid the sell orders.
c) Advance his stock no higher than 59 7/8.

Answers to questions in section 4

01) CDE 02) A 03) B 04) B 05) A 06) C

07) C 08) C 09) D 10) B 11) A 12) B
13) B 14) C 15) B 16) A 17) B 18) C

A final note to the investors who took this test and did poorly on answering the questions. Don’t
despair, go back to the informational tabs on my website and re-read the individual articles listed
on the site. All of the information necessary for you to answer these questions properly is
contained within those articles. Remember, the more information you can acquire and retain in
memory on how specialists and their system manipulate the market place and individual stocks,
the better your chances are of making substantial profits in the market place by pig-backing their
movements.

Richard W. Wendling
12/25/07
wendling_r@yahoo.com
comments@bearfactsspecialistreport.com