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Stocks 203: Understanding the News

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1.
Hearing a negative event about a company that drives its stock price down but does not affect its fundamentals can be a welcome thing to many investors.
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True. If the fundamentals are strong, then this could be a buying opportunity.
2.
Why should you keep negative earnings surprises in context?
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All of the above. Estimates are just estimates, and they may not say much that is substantial about a company's underlying operations.
3.
What is one reason to be wary of a lawsuit against a company whose stock you are considering buying?
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Lawsuits tend to attract other lawsuits. This ultimately suggests not only monetary losses but perhaps also a waning interest in the product.
4.
Which of the following stock indexes is price-weighted?
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Dow Jones Industrial Average. The Dow is price-weighted. The Nasdaq Composite Index and the SP 500 Index are market-cap-weighted.
5.
Which of the following would most likely affect a company's long-term investment outlook?
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The Securities and Exchange Commission is investigating the company to determine if it fraudulently misstated its financial results for the past several years. A slight earnings miss or analyst downgrade would not explicitly change a company's intrinsic value, and both events are very short-term focused. An SEC investigation into accounting could materially impact the investment outlook, however.