Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
2.
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.
3.
What's the largest potential problem with owning too few stocks?
You run the risk that one bad stock pick could produce an extremely large loss. If you hold too few stocks, you run the risk that one bad stock pick could produce an extremely large loss. For example, if you owned three stocks, each worth one third of your portfolio, and one of your stocks went to zero, your portfolio would lose one third of its value. Swinging only at fat pitches is good, not bad.
4.
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.
5.
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.
6.
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.
