Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Warren Buffett avoids technology stocks for all of the following reasons except _______.
Although they offer the highest returns, technology stocks are too volatile. Buffett is not scared of volatility. Rather, he does not invest in companies that are outside his circle of competence, which includes many technology companies.
3.
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.
4.
To Warren Buffett, anytime a stock is selling for less than its fair value, it therefore has an acceptable margin of safety.
False. Not just any discount is acceptable. It must be substantial and satisfactory to him.
5.
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.
6.
Companies with sustainable competitive advantages are highly likely to generate _______ with the passage of time.
Higher cash flows. Strength and predictability help.
7.
Warren Buffett believes that he has never made a good deal with bad people.
True. Though the economics of a business is the most important factor, Buffett believes it's important to work with competent, honest managers.
