Choose wisely. There is only one correct answer to each question.
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1.
Warren Buffett believes that good managers are likely to turn around a bad business.
False. Buffett does not believe that good managers are likely to turn around a bad business.
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.
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.
4.
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.
5.
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.
6.
Warren Buffett rejects the idea that diversification is helpful to informed investors.
True. He actually thinks it is likely to lower your returns and increase risk.
7.
All of the following statements about Warren Buffett are false except _______.
Buffett believes that stock market prices are sometimes much too high or too low. Buffett focuses on the intrinsic value of businesses, not stock prices and the behavior of "Mr. Market."
