Thursday, October 21, 1999

Pop Quiz!

By Robert T. Duffey (duffsafool)

When I told my girlfriend that I was a Fool, she looked at me funny. Then I explained it, and she said she was really interested in learning about the stock market but didn't know anything about it. Being the good, loving, Foolish boyfriend, I got her a copy of The Motley Fool's 13 Steps to Investing Foolishly. I told her that she had two weeks to read through the 64-page mini-book, and there would be a small quiz at the end of the two weeks. Here's the quiz I gave to her:

13 Questions to Test Your Foolishness

  1. Who is the most qualified person to manage your finances?

  2. True or False: Most mutual funds outperform the stock market's average every year.

  3. True or False: In the last decade, about 90% of mutual funds have beaten the market.

  4. Let's say you've got $5,000 in credit card debt, but you have $2,500 in extra cash lying around. Your best option is to:

    1. Place your money in an aggressive mutual fund, planning that the aggressive investment style will turn your money into more than $5,000, and hoping you'll have more left over after you pay off the card.

    2. Put all of the money towards the credit card debt.

    3. Put half of the money towards the card, and the other half in technology stocks, spreading out your investment risk.

    4. See a financial advisor to figure out what to do with the $2,500.

  5. What is the S&P 500?

    1. The Salt & Pepper 500, a major NASCAR race in Tennessee.

    2. The 500 major investment firms in America.

    3. An index of the 500 premier companies in America, otherwise known as the Standard & Poor's 500.

    4. The 500 standards for Wall Street, set by the major governing body, the Standards & Processes Group, Inc.

  6. Which is a better investment option?

    1. An index fund.

    2. A mutual fund.

    3. A U.S. Treasury bond.

    4. A savings account.

  7. What's a DRP? (Also called a DRiP)

    1. Acronym for Daddy's Really in Peru.

    2. Things that come out of your kitchen faucet, at a steady pace. Drip... Drip... Drip...

    3. A dividend reinvestment plan.

  8. What is the Dow?

    1. The "Big Board" on Wall Street that shows stock prices rolling across it all day long.

    2. An index that tracks 30 American multinational conglomerates, mostly the cream of American business.

    3. A famous financial planner whose nickname is "Dow." He's often seen "climbing up" or "falling down" the stairs at the New York Stock Exchange.

  9. A public company's "Balance Sheet" is a great place to find

    1. Information concerning the company's cash, inventories, and debt.

    2. Information confirming the fact that the company's executives make 500% more than their regular employees, keeping things "balanced" according to employee value.

    3. Information containing the "balance" between the company's market share versus leading competitors' market share.

  10. True or False: The best way to determine a stock's value is to examine charts of a stock's price movements and its volume in trading.

  11. What is one of the major components of a Rule-Maker company?

    1. Super-strong brand-name recognition and repeat mass-market purchases.

    2. Large market capitalization.

    3. Lots of cash laying around, making it a "Cash King."

    4. Very large gross margins (e.g., above 60%)

    5. All of the above.

  12. True or False: A Rule-Breaker stock is one that has good management, is considered "overvalued" by financial experts, a "top dog and first mover," small market capitalization, and has sustainable competitive advantage.

  13. "Day trading," the practice of buying thousands of dollars of stock at a time and selling it a few hours later, over and over again, is

    1. A great investment practice because with today's technology you can get up-to-date information instantaneously, enabling you to make a more informed gamble with your hard-earned money.

    2. A good investment practice, even though you normally have to pay a commission and taxes on each and every trade.

    3. Not nearly as smart as researching a strong, proven company, and holding on for a long period of time, paying two commission fees (one when you buy, and one when you finally sell, way down the road), and getting hit with taxes only once (also when you sell).

For the answers to this quiz, head over to 13 Steps to Investing Foolishly.

(Ninety-five percent of information taken from The Motley Fool's "13 Steps to Investing Foolishly: An Investment Primer," 1999. The other five percent were just bad jokes that I wrote.)

[Be fully Foolish by giving some of it away to a worthy cause. Find out more here.]

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