Choose wisely. There is only one correct answer to each question.
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1.
If you plan to add a mutual fund or two to your stock portfolio, what is a good way to start looking?
Look for gaps in your portfolio. Looking for gaps will help you identify countries and sectors that your portfolio lacks. They could be lucrative.
2.
If you want to buy the stock of a certain company but you find out its product is the target of frequent lawsuits, you are looking at what kind of risk?
Unsystematic. This is the unique risk of the company that can be offset through diversification.
3.
If your circle of competence in investing is within the software industry, then it is a good idea to have all the stocks you own be in the software industry.
False. Having your portfolio fully weighted in one industry can expose it to a lot of risk.
4.
How many stocks do you need to own in your portfolio to derive 90% of the benefits from diversification?
12 to 18. Ninety percent of the benefits of diversification are achieved by holding 12 to 18 stocks.
5.
You can increase your odds of beating the stock market index performance by _______.
Holding fewer than 20 stocks in your portfolio. If you hold a diversified portfolio, on average you should expect to achieve a market rate of return. By holding a concentrated portfolio you increase your chances of obtaining a better return than the market, but at the same time, you also increase your risk of obtaining a lower rate of return than the market.
6.
Portfolio weighting is all about what percentage of your portfolio each stock occupies.
True. As such, it adds a new dimension to your portfolio and can potentially enhance returns.
