Choose wisely. There is only one correct answer to each question.
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1.
If you decide to follow your circle of competence, your stock selections will gravitate to _______.
Either of the above. Either or perhaps both. But it is probably not wise to invest your entire portfolio that way.
2.
By holding a concentrated portfolio, your returns will be better than the stock market _______.
Some of the time. Assuming that you are a good stock-picker, your returns should be better than the market some of the time. It would be rare to beat the market every year.
3.
What is a good rule of thumb for deciding how to weight the stock holdings in your portfolio?
Use your confidence in each of the stocks as a guide. Be certain that the highest-weighted stocks are the ones you feel the most confident about.
4.
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.
5.
Which number of stocks in a portfolio is the most likely to let you outperform the market?
15. There is an optimum range of stocks, and it is 12 to 20.
6.
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.
