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.
Imagine you have plenty of stocks in the software sector, the energy sector, and the agriculture sector, but you want to add some mutual funds to your portfolio to gain some breadth. Which of the following sectors would make the most sense to look into?
Manufacturing. Begin by looking for gaps. Here, manufacturing would be a gap. It may have some promising opportunities for you.
3.
An advantage of investing within your circle of competence is that it is fairly easy to find companies to invest in.
True. When you know an industry, it is usually fairly easy to evaluate potential investments in it.
4.
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.
5.
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.
6.
Unsystematic risk can be diversified away by _______.
Holding a larger number of stocks. Unsystematic risk is the risk involved in holding individual companies. It can be diversified away by holding a larger number of stocks.
