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Stocks 104: Stocks: What Matters and What Doesn't

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1.
In general, the more frequently you trade, _______.
Choose wisely. There is only one correct answer.
The higher your tax bill. The more frequently you trade, the higher your tax bill. This is because capital gains will be realized more often. Trading activity is actually inversely correlated to returns. The more you trade, the more commissions you will incur.
2.
As a stock investor, what should you pay the most attention to?
Choose wisely. There is only one correct answer.
A company's competitive positioning. You should pay the most attention to a company's competitive positioning, which in turn will determine future profits.
3.
A stock investor should learn to think most like a _______.
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Business owner. Given that buying and owning stocks is ultimately about owning businesses, it is wisest to think like a business owner, and that means learning how businesses work.
4.
To be a successful stock investor, you need _______.
Choose wisely. There is only one correct answer.
Patience and the ability to think about future trends. Remember that successful stock investing is like chess, where thought, patience, and the ability to peer into the future are rewarded. Stock investing is not about trading.
5.
The stock market tends to _______.
Choose wisely. There is only one correct answer.
Be temperamental, over-reacting to near-term news. "Mr. Market" tends to be temperamental, over-reacting to near-term news. If the market were perfectly efficient and correctly valued future cash flows at all times, stock prices would not be so volatile.