Choose wisely. There is only one correct answer to each question.
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1.
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.
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.
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.
4.
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.
5.
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.
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.
