CPS Investment Strategies and Asset Allocation 1 — Questions and Answers
Question 1: What is a 'growth investing' strategy focused on?
- Companies paying high dividends
- Companies expected to grow earnings faster than average (Correct answer)
- Undervalued companies trading below book value
- Government bond portfolios
Correct answer: Companies expected to grow earnings faster than average
Growth investing targets companies expected to increase earnings significantly above the market average, often at higher valuations.
Question 2: What characterizes a 'value investing' approach?
- Buying the most expensive stocks
- Buying securities believed to be undervalued relative to intrinsic worth (Correct answer)
- Only investing in growth sectors
- Frequent short-term trading
Correct answer: Buying securities believed to be undervalued relative to intrinsic worth
Value investing involves identifying and buying securities trading below their estimated intrinsic value, seeking a margin of safety.
Question 3: What is an 'income-oriented' investment strategy primarily focused on?
- Capital appreciation through growth stocks
- Generating regular income through dividends and interest payments (Correct answer)
- Short-term trading profits
- Currency speculation
Correct answer: Generating regular income through dividends and interest payments
Income-oriented strategies prioritize generating regular cash flow through dividends, bond interest, and other yield-producing investments.
Question 4: What is 'factor investing' (smart beta) based on?
- Random stock selection
- Targeting specific return-driving characteristics like value, size, or momentum (Correct answer)
- Tracking a market-cap-weighted index exactly
- Investing only in large-cap stocks
Correct answer: Targeting specific return-driving characteristics like value, size, or momentum
Factor investing targets specific characteristics (factors) such as value, size, momentum, or quality that have historically delivered excess returns.
Question 5: What is 'sector rotation' as an investment strategy?
- Diversifying across all sectors equally
- Shifting investments between sectors based on economic cycle stages (Correct answer)
- Avoiding cyclical sectors entirely
- Only investing in one sector at a time
Correct answer: Shifting investments between sectors based on economic cycle stages
Sector rotation involves moving investments between economic sectors to capitalize on different sectors that outperform at different points in the business cycle.
Question 6: What is a 'buy-and-hold' investment strategy?
- Buying at market highs and selling at market lows
- Purchasing securities and holding them long-term regardless of market fluctuations (Correct answer)
- Frequently trading to capture short-term gains
- Holding cash during market downturns
Correct answer: Purchasing securities and holding them long-term regardless of market fluctuations
Buy-and-hold involves purchasing securities and maintaining them long-term, based on the belief that long-term gains outweigh short-term volatility costs.
CPS Investment Strategies and Asset Allocation 1
What is a 'growth investing' strategy focused on?