Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
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.
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.
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.
6.
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.
7.
To Warren Buffett, a stock is a candidate for purchase if its market price is _______.
Below the discounted cash-flow calculation of fair value. The ones to buy are those that are in this range.
