Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
If an economic event affects every single stock in the country, it is likely an example of _______ risk.
Systematic. Systematic risk is the type that affects all stocks, not those of a particular company. It cannot normally be diversified away.
3.
The more diversification in your portfolio, the better your chance of beating the market.
False. After a certain number of stocks (12 to 20), the effect wears down. However, it will reduce your overall risk.
4.
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.
5.
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.
6.
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.
