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.
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.
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.
4.
If the price of one of your stocks falls, you should buy more of it right away. Correct?
Maybe, maybe not. First, find out why it fell. The fall may be due to deterioration of the company, for example. Or it may actually be a welcome correction.
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.
