3 Steps to Stock Investing - Quiz

Lesson 2 – 3 Steps to Stock Investing

1 / 20

What are the three steps to successful investing, as outlined in the lesson?

Buying high, selling low, and diversifying

Identifying good businesses, buying at the right price, and knowing when to exit

Investing in mutual funds, ETFs, and bonds

Buying undervalued stocks, selling overvalued stocks, and rebalancing annually

2 / 20

What is a good business defined by in this investing context?

Its ability to consistently increase in value over time

Its profitability in the short term

Its popularity among investors

Its size and market dominance

3 / 20

Over time, what does the price of a stock reflect?

The amount of shares bought and sold

The true value of the business

Short term market trends

The CEO’s public image

4 / 20

What does a sustainable competitive advantage or economic moat do for a business?

Guarantees constant stock price increase

Protects a company from losing customers to competitors

Provides a 100% success rate in the market

Reduces government interference and taxes

5 / 20

Which of the following is not a factor that contributes to a strong brand according to the lesson?

High Switching Cost

Low Entry Barriers

Brand Monopoly

Network Effect

6 / 20

According to the lesson, when should you consider selling an investment?

When the company wins an industry award

When the business fundamentals deteriorate or the stock is overvalued

When the company is bought by a larger corporation

When the stock price has doubled from your buying price

7 / 20

What is a contrarian view as suggested by Warren Buffett?

Being greedy when others are greedy and fearful when others are fearful

Being greedy when others are fearful and fearful when others are greedy

Being greedy all the time

Being fearful all the time

8 / 20

According to the lesson, what leads to overvaluation or undervaluation of a stock?

The physical size of the company

The CEO’s personality

Fluctuations due to optimism or fear

The location of the company’s headquarters

9 / 20

Why is it necessary to differentiate between temporary setbacks and long-term fundamental changes when deciding to exit an investment?

Because temporary setbacks can create buying opportunities

Because all businesses face setbacks

Because long-term fundamental changes never affect stock prices

Because short-term issues always impact the company’s long-term potential

10 / 20

According to the lesson, when is an ideal time to buy stocks?

When the stocks are overvalued

When the stocks are undervalued or fairly valued

When the stock market is at its peak

When the news about the company is bad

11 / 20

What is the Price to Earnings (P/E) ratio?

The company’s price per share divided by its annual revenue

The company’s price per share divided by its annual earnings per share

The company’s total assets divided by its total liabilities

The company’s market cap divided by its total outstanding shares

12 / 20

What can erode a company’s competitive advantage?

Increased competition

Lower prices for the company’s product or service

Higher dividend payments to shareholders

Increase in the number of shares outstanding

13 / 20

Why is it important to continually monitor a company’s fundamentals?

To ensure that the company is still a good investment

To keep up with the latest news about the company

To know when the company’s stock is overvalued

To predict the company’s future stock price

14 / 20

Which of the following is not an indicator that a stock might be overvalued?

High P/E ratio

High P/B ratio

Low dividend yield

Low market capitalization

15 / 20

In the context of investing, what is intrinsic value?

The actual or true value of a company as opposed to its current market price

The highest price a stock has reached in the past year

The total value of a company’s tangible assets

The price at which a company’s stock is currently trading on the stock market

16 / 20

How does the Price to Sales (P/S) ratio help in identifying overvalued stocks?

It shows how much investors are paying for each dollar of the company’s sales

It reveals the ratio of a company’s price per share to its earnings per share

It calculates the total value of a company’s sales relative to its net income

It measures the relationship between a company’s stock price and its dividend payments

17 / 20

What might increased competition do to a company’s earnings and growth potential?

It might increase both earnings and growth potential

It might decrease both earnings and growth potential

It might increase earnings but decrease growth potential

It might decrease earnings but increase growth potential

18 / 20

Why is it not always a good time to sell a stock when the price doubles from your buying price?

Because the company might be overvalued

Because the company might still have strong growth potential

Because the company’s fundamentals might have deteriorated

Because you might have to pay capital gains tax

19 / 20

How can technological disruptions affect a company’s future prospects?

They can make the company’s products or services obsolete

They can increase the company’s production costs

They can decrease the demand for the company’s products or services

All of the above

20 / 20

Why is it important to use valuation metrics in conjunction with other fundamental analysis tools?

Because valuation metrics alone can be misleading

Because valuation metrics don’t consider a company’s debt

Because valuation metrics don’t account for the company’s future growth potential

All of the above

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The average score is 12%