Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
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.
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.
4.
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.
5.
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.
