Test your knowledge

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

Keep studying!

Review your answers below to learn more.

Being a stubborn investor will always pay off.

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True

False

False. Often, being stubborn will lead to losses. If youre holding a stock whose company is foundering, it may not be wise to hold onto it.

When owning a stock, you should evaluate its price relative to the price you paid for it.

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True

False

False. The price you paid for it isnt very relevant. What is relevant for evaluating a stocks price is the estimated value of future cash flows.

Which of the following should you tune out?

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Whether company management owns stock or not

A prediction on television about where the market will be next year

Performance of a companys new product

A prediction on television about where the market will be next year. You should tune out the noise, which includes short-term predictions made by others concerning things that cant be predicted.

The future is unpredictable. But you can protect yourself against unpredictability by having a margin of safety built into a stock that you buy.

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True

False

True. A margin of safety -- for example, paying less for a stock than its book value -- can dampen the effect of the futures unpredictability.

A good investor ______.

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Goes along with the crowd

Is willing to go against the crowd

Never goes along with the crowd

Is willing to go against the crowd. The crowd is often -- but not always -- wrong.

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