Choose wisely. There is only one correct answer to each question.
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1.
If you are going to succeed at holding a concentrated portfolio of stocks (say, fewer than 20), then you should buy only wide-moat companies.
True. Companies with wide moats will increase in intrinsic value over time. Therefore, a small portfolio will generally succeed.
2.
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.
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.
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.
5.
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.
