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.
In general, the more frequently you trade, _______.
The higher your tax bill. The more frequently you trade, the higher your tax bill. This is because capital gains will be realized more often. Trading activity is actually inversely correlated to returns. The more you trade, the more commissions you will incur.
3.
Which of the following is the most important driver of a company's future profits?
Its competitive positioning. Competitive positioning will ultimately drive future profits, which in turn will drive the company's stock price.
4.
Investors have loads of tools at their disposal for analyzing the markets. Therefore, it is correct to say that _______.
We still cannot consistently and accurately predict market movements. No one has yet predicted the market consistently and accurately; there are too many unknowns. Still, we continue to try.
5.
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.
