Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Warren Buffett believes that portfolio diversification _______.
Probably increases risk for informed investors by diluting the effect of their top choices, the companies with the least risk and highest potential returns. Buffett rejects the idea that diversification is helpful to informed investors. He thinks the additional investment into your best ideas is likely to yield a better result than investment into your 20th or 30th favorite company.
3.
Warren Buffett prefers to invest in companies that _______.
All of the above. Companies like this are very likely to produce higher cash flows over time.
4.
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.
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.
How does Warren Buffett determine a company's value?
He estimates the company's future cash flows and discounts them at an appropriate rate. His method is actually common among investment professionals, and is very accurate.
7.
Warren Buffett has written that he _______ when he misses out on big returns in areas he doesn't understand.
Isn't bothered. Rather, he sticks to what he knows, despite new trends.
