Choose wisely. There is only one correct answer to each question.
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1.
The most relevant tool that will help you develop your criteria for investing is _______.
An investment policy statement. Though you will glean some important information from the other choices, an investment policy statement will lay down the criteria that will guide how you select and maintain your investments.
2.
If the price/earnings ratio of one of your stocks shrinks significantly, what should you do?
Figure out why the price/earnings ratio fell. If the company is still financially sound, a shrinking price/earnings ratio can be a buying opportunity. If the company's fundamentals are deteriorating, though, you may no longer want to own the stock. You need to determine why the multiple is falling before you do anything else.
3.
When a company that normally pays regular dividends decides to cut its dividend payments, that is _______.
Usually a bad sign. Companies that pay regular dividends tend to be relatively stable. If a company cuts its dividend, that is probably a bad sign. Exactly how bad, or for how long, may be difficult to tell in the near term.
4.
If a stock no longer meets one of your investment criteria, what should you do?
Place it on a "watch" list. Just because an investment no longer meets one of your criteria is no reason to sell it. Put it on your "to watch" list instead. But if a stock no longer clears most of your hurdles, it is a sell candidate.
5.
Which statement is true?
Changes tend to happen more quickly with stocks than with mutual funds. Because mutual funds are a collection of stocks, changes happen more slowly. With individual stocks, things can shift more quickly. As a result, you have to monitor your stocks more closely and frequently than your mutual funds.
