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1.
According to Benjamin Graham, the father of value investing, in the long run the market is like a _______.
Weighing machine. In the long run, the market sees the substance of a company rather than its popularity. A weighing machine assesses the substance of a company.
2.
In return for getting a relatively low rate of return on their bond investments, bondholders enjoy _______ shareholders.
Less risk than. Besides less risk, they also get an earlier claim on a company's assets should it go bankrupt.
3.
A company's return on stock is calculated by _______.
Adding capital gains and dividends. This is also known as total return.
4.
All else equal, if a company's total number of shares outstanding is increasing, your ownership stake in that company is _______.
Decreasing. As a company adds shares outstanding, your ownership interest in the firm decreases. Shareholders can benefit more from owning one share of a billion-dollar company that has only 100 shares (a 1% ownership interest) than by owning 100 shares of a billion-dollar company that has a million shares outstanding (a 0.01% ownership interest).
5.
What is the purpose of a company?
To take money from investors and generate profits on their investments. Companies do not guarantee that they will make investors rich quickly. Although bad management teams spend money on lavish corporate expenses, that shouldn't be the purpose of a company.
