Stock Advisor Trainer 3 — Questions and Answers
Question 1: A Stock Advisor trainer warns against 'chasing momentum.' What risk does this describe?
- Buying after large run-ups and getting caught in a reversal (Correct answer)
- Selling too early during a rally
- Holding cash too long
- Diversifying too broadly
Correct answer: Buying after large run-ups and getting caught in a reversal
Chasing momentum means buying assets that have already surged, exposing investors to sharp pullbacks.
Question 2: What is the key difference between fundamental and technical analysis?
- Fundamental studies business value; technical studies price patterns (Correct answer)
- They are identical approaches
- Technical analysis ignores price data
- Fundamental analysis only uses charts
Correct answer: Fundamental studies business value; technical studies price patterns
Fundamental analysis evaluates financial health and intrinsic value, while technical analysis focuses on price and volume patterns.
Question 3: A trainee asks about a 'dividend aristocrat.' What defines one?
- A company that has raised dividends for 25+ consecutive years (Correct answer)
- Any stock that pays a dividend
- A stock with the highest yield in its sector
- A company that just started paying dividends
Correct answer: A company that has raised dividends for 25+ consecutive years
Dividend aristocrats are S&P 500 companies with at least 25 straight years of dividend increases.
Question 4: Why might a trainer caution against over-relying on past performance?
- Past returns do not guarantee future results (Correct answer)
- Past performance is always repeated
- It is the only reliable indicator
- It removes the need for research
Correct answer: Past returns do not guarantee future results
Historical returns can reflect conditions that no longer apply, so they are not a reliable predictor of future outcomes.
Question 5: What does a high P/B (price-to-book) ratio often suggest?
- The market expects strong future growth or values intangibles (Correct answer)
- The company is bankrupt
- The stock is always undervalued
- Book value is irrelevant
Correct answer: The market expects strong future growth or values intangibles
A high price-to-book ratio typically reflects growth expectations or significant intangible assets not on the balance sheet.
Question 6: A trainer explains 'rebalancing.' What does it involve?
- Adjusting holdings back to target allocations (Correct answer)
- Selling all stocks during a downturn
- Buying only the best performer
- Avoiding any portfolio changes
Correct answer: Adjusting holdings back to target allocations
Rebalancing restores a portfolio to its intended asset allocation by trimming winners and adding to underweight positions.
Question 7: Which factor most directly affects a bond's price?
- Changes in interest rates (Correct answer)
- The company's stock split
- The CEO's salary
- Dividend yield of unrelated stocks
Correct answer: Changes in interest rates
Bond prices move inversely to interest rates, falling when rates rise and rising when rates fall.
Stock Advisor Trainer 3
A Stock Advisor trainer warns against 'chasing momentum.' What risk does this describe?