Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Imagine one of your companies misses quarterly earnings estimates. You should _______.
Determine why the company missed estimates and what its future growth prospects are. A company that misses earnings estimates may still have good growth prospects. Don't take the company's growth prospects for granted, though. Find out what the company's growth should be in the next year before doing anything.
3.
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.
4.
The price of one of your stocks shoots up. What should you do?
Determine why the stock is behaving the way that it's behaving. If the stock still meets your investment criteria, you'll want to hold on to it.
5.
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.
