Choose wisely. There is only one correct answer to each question.
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1.
The future is unpredictable. But you can protect yourself against unpredictability by having a margin of safety built into a stock that you buy.
True. A margin of safety -- for example, paying less for a stock than its book value -- can dampen the effect of the futures unpredictability.
2.
When owning a stock, you should evaluate its price relative to the price you paid for it.
False. The price you paid for it isnt very relevant. What is relevant for evaluating a stocks price is the estimated value of future cash flows.
3.
A good investor ______.
Is willing to go against the crowd. The crowd is often -- but not always -- wrong.
4.
A patient stock investor watches her _______ most of all.
Companies. A patient investor pays attention to the companies that issue the stock. Watching stock prices is less helpful.
5.
Which of the following activities is most likely to improve your investing skills?
Reading one of your companys annual reports. Reading annual reports will help you know more about your companies, which will make you a better investor. By constantly looking at unrealized capital gains, you may be anchoring on an irrelevant data point--the price you paid--concerning the future value of a stock.
