Choose wisely. There is only one correct answer to each question.
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1.
The fat-pitch approach to stock investing is best described as _______.
Buying above-average companies at below-average prices. The fat-pitch approach is best described as buying above-average (wide-moat) companies at prices that provide a margin of safety to your fair value estimate.
2.
Which of the following is not a reason that investors should refrain from trading often?
Once a stock is purchased, it should never be sold. Although it's possible that you could purchase a stock that will never need to be sold, there are occasions that investors should sell stocks. The other two answers are both reasons that investors should not trade very often.
3.
A wide-moat company is typically characterized as having _______.
Long-term structural advantages over its competition. A wide-moat firm typically has a return on capital above its cost of capital. Also, just because a firm has a wide moat, it does not mean its stock price is always cheap. On the contrary, because wide-moat firms are typically very strong and stable, they often trade at premium prices. This is why you should not be afraid to swing away on those rare occasions a fat pitch does come your way.
4.
Is it a detriment to fat-pitch investors to hold cash when the market is rising?
No. It may be difficult to patiently sit on cash when the stock market is rising and you feel as if you're missing out on the fun. However, holding cash is akin to holding an option for when the market provides opportunities to buy at lower prices.
5.
If you are going to succeed at holding a concentrated portfolio of stocks (say, fewer than 20), then your stocks should be held _______.
At least 3 years. It may take this long (or longer) for the market to recognize the value of a company.
