Big Fat Quiz #3 – STI ETF

Quiz

15 Sep Big Fat Quiz #3 – STI ETF

Test your knowledge about the STI ETF. Try out Big Fat Quiz #3 now!

In addition, here is a breakdown of the answers for Big Fat Quiz #2. If you have not tried it yet, do have a go before running through the answers.

1. The Confirmation Bias causes investors and traders to seek out evidence to reinforce their existing stand and reject evidence that may contradict what they think. This may lead to a skewed and unbalanced approach to investments and trades. True/False

True. To be a competent trader/investor one needs to be aware of the biases that could creep in and influence the decision making process. Read more about other biases here.

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2. A low Price to Book (P/B) ratio could indicate that a stock is undervalued. It normally signals a good buy. True/False

True. Read more about Financial Ratios here.

3. CFD stands for Contract for Differences. It is a derivative instrument which allows the investor to take a stand on the price of an asset (usually a stock) without actually owning the stock itself. The features of trading CFDs is the ability to leverage and also to short sell. True/False

True. The features of CFDs make them an essential instrument to have for any trader. Read about how to choose a CFD broker here.

4. Dollar Cost Averaging involves buying the same amount of an asset on a regular basis. This strategy allows one to passively invest without the need to time the market. True/False

True. An example of a good DCA strategy is the Share Builder Plan offered by POEMS. Read about how Alvin’s portfolio survived the sub-prime crisis.

5. Bonds are instruments of debt. Only accredited investors with more than $1 million in assets can purchase bonds through a small number of brokerages. True/False

False. Bonds used to be only accessible to institutions and high networth investors but that is no longer the case. Any investor with a CDP account will be able to purchase Singapore Government Bonds and corporate bonds through their brokers. Read more about how to buy Singapore Government Bonds here.

6. Corporate Bonds tend to have lower yields than Government Bonds. This is because they are less risky instruments to own. True/False

False. Corporate Bonds have higher yields than Government bonds. This is because corporations are deemed slightly more risky than governments and hence more prone to default. The higher yields is to compensate for taking up the additional risk.

7. Warren Buffett ranks amongst the world’s richest man and is often touted to be the world’s best investor. He is a firm believer in diversification and tries to buy different businesses in as many different sectors as he can to reduce his risk. True/False

False. Warren Buffet is hardly a big fan of diversification. He famously quotes ‘Diversification is protection against ignorance, it makes little sense for those who know what they are doing’.

8. The term XD stands for Ex-dividend. Purchasing a stock that is XD allows the investor to receive dividend that has been announced.

False. An investor will not be entitled to receive dividend once the stock goes XD.

9. During an uptrend, dwindling volume is often an indicator of weakness and prices may be due for a reversal. True/False

True. Simply put, when more and more people buy into a stock during an uptrend, there is strength and the trend is intact. When people stop buying and volume becomes less and less, a reversal might be imminent.

10. An asset that is volatile is a high risk investment. Purchasing a highly volatile asset would mean exposing oneself to higher risk. True/False

False. Many people confuse volatility for risk. Consider a low volatility ‘investment’ such as lending money to a not too reliable friend at 10% interest. The price of the investment does not change but should the ‘friend’ defaults, the entire investment fails. Such is the high risk involved. Conversely, a highly volatile asset if purchased in conjunction with other asset classes, could actually be used to balance out a portfolio and hence reduce risk. Read more about volatility and risk here.

Test your knowledge about the STI ETF. Try out Big Fat Quiz #3 now!



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