Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Say you are considering two different companies to invest in. One is very risky and the other has only average risk. Which of the two would require a bigger margin of safety?
The very risky one. Given the bigger risk of loss, a bigger margin of safety will do more to protect you.
3.
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.
4.
According to fat-pitch strategy, the purpose of holding cash instead of being invested in stocks is that you are _______.
Waiting for the stock prices of strong companies to drop. According to fat-pitch theory, fat-pitch investments are likely to provide strong growth and absolute returns over time. Thus, you can afford to wait until the prices dip.
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.
