Choose wisely. There is only one correct answer to each question.
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1.
Buying the stocks of wide-moat companies provides an automatic margin of safety because _______.
The companies' stock prices will likely appreciate in value anyway. Given the competitive advantages of wide-moat companies, their stock prices will likely rise, eventually catching up to your fair value estimate of them.
2.
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.
3.
Fat-pitch strategy argues that you should be comfortable holding cash instead of being invested in stocks when the market is already rising.
True. Fat-pitch strategy argues that it is an advantage to forego buying strong companies when their prices are rising and instead wait with your cash in hand for when their stock prices dip.
4.
If you want to succeed with a concentrated portfolio of stocks (say, fewer than 20), you should _______.
All of the above. A concentrated portfolio will generally only work if you do all three of these things.
5.
An argument against trading wide-moat company stocks often is that they are already rising in value over time, so it's more advantageous to hold them for the long term.
True. A buy-and-hold strategy works well because the odds are that the underlying value will continue increasing over time.
