Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Being a stubborn investor will always pay off.
False. Often, being stubborn will lead to losses. If youre holding a stock whose company is foundering, it may not be wise to hold onto it.
3.
The stock of a company that is in great shape financially will always be priced accurately.
False. Though that is the ideal, a stocks price is sometimes higher or lower than what is accurate (that is, what its book value is).
4.
All else equal, you should be most interested in buying _______.
A wide-moat company with mediocre management. Remember, the economics of a business usually trumps the competence of management.
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.
