Choose wisely. There is only one correct answer to each question.
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1.
The stock market tends to _______.
Be temperamental, over-reacting to near-term news. "Mr. Market" tends to be temperamental, over-reacting to near-term news. If the market were perfectly efficient and correctly valued future cash flows at all times, stock prices would not be so volatile.
2.
A stock investor should learn to think most like a _______.
Business owner. Given that buying and owning stocks is ultimately about owning businesses, it is wisest to think like a business owner, and that means learning how businesses work.
3.
What will drive the price of a company's stock the most over the long term?
The future profits and cash flow a company can generate. The future profits a company can generate will drive the price of its stock over the long term. Over the short term, any number of factors may influence a company's stock price.
4.
To be a successful stock investor, you need _______.
Patience and the ability to think about future trends. Remember that successful stock investing is like chess, where thought, patience, and the ability to peer into the future are rewarded. Stock investing is not about trading.
5.
As a stock investor, what should you pay the most attention to?
A company's competitive positioning. You should pay the most attention to a company's competitive positioning, which in turn will determine future profits.
