Choose wisely. There is only one correct answer to each question.
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1.
If a company does not have sustainable competitive advantages over others, then it is easier to estimate the value of its future cash flows.
False. It is harder, not easier, due to the unpredictability of its business.
2.
What does Warren Buffett think that diversification will do to your portfolio?
Lower returns and increase risk. Buffett does not accept the common view of diversification. Rather, he sees it being detrimental in a lot of cases.
3.
Warren Buffett, the world's most well-known investor, believes that one must have a high IQ to succeed at investing.
False. Buffett believes that one needs the right temperament and a successful framework, but not a high IQ.
4.
All of the following statements about Warren Buffett are false except _______.
Buffett believes that he has never made a good deal with bad people. Though the economics of a business is the most important factor, Buffett believes it's important to work with competent, honest managers. He believes that he has never made a good deal with a bad person.
5.
Warren Buffett takes the judgments of the market seriously when he decides whether to invest in a company.
False. Buffett prefers not to evaluate his business on the whims of the market.
6.
Warren Buffett prefers to invest in companies that _______.
He understands. He sticks to those companies that are within his circle of competence.
7.
In investing, a margin of safety is the difference between a company's estimated fair value and its stock price, where the price is lower than the fair value.
True. But whether that margin of safety is acceptable is a different issue.
