BigFatQuiz #1 – How did you fare?

Quiz

05 Sep BigFatQuiz #1 – How did you fare?

BigFatQuiz #2 is now available here!

A couple of weeks ago we sent out a quiz to our subscribers. It was a simple quiz that required a True/False response to ten questions. For the benefit of all our readers, we will reproduce the entire set of questions and answers here.

1. A company’s stock is trading at $12. Its dividend payout is $0.6. The PE Ratio of the company is 20. True/False

False. PE ratio is the company’s share price to its earnings per share. Dividend does not play a direct role in the determination of the PE Ratio. Read more about financial ratios here.

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2. Quantitative Easing involves pumping huge amounts of cash into the economy by the government. As a result the currency of the country strengthens and increases in value. True/False

False. QE involves pumping huge amounts of cash into the economy by the government that is correct. However, the effect of this is that it devalues the currency and the value of the currency against others decrease.

3. The price of bonds move in line with interest rates. Interest rates are low now so it is a good time to buy bonds. True/False

False. The price of bonds move inversely with interest rates. When interest rates are low, bond prices are high. When interest rates start to rise bond prices will decrease.

4. The difference between trading and investing is mainly the time frame involved. Traders usually operate on a shorter time frame as compared to investors. True/False

True. You should know this one already. We cannot emphasize this more. Know yourself. Know if you are trading or investing before you make any decision to buy or sell!

5. The Net Asset Value is the value of the total amount of asset owned by a company. True/False

False. Net Asset Value of a company is the total amount of asset owned by the company divided by the number of shares issued.

6. Blue Chip stocks are the best form of investments anyone can own. In a market downturn they hold their value best and they never lose more than 30 percent of their value over a one year period. True/False

False. The STI which tracks Singapore’s 30 best companies lost 50% in 2009. DBS lost up to two thirds of its value during the same period.

7. The STI Exchange Traded Fund is an ETF that tracks the index. It is a risky option to purchase one single fund and it is safer to diversify by purchasing individual stocks. True/False. 

False. The STI ETF tracks the entire index. Buying it is equivalent to buying a basket of 30 stocks. Buying the STI ETF is diversification in its simplest form.

8. A pure stock portfolio promises greater returns but is also subjected to larger volatility and greater drawdowns compared to one that invests in different asset classes such as gold and bond. True/False

True. A pure stock portfolio promises greater returns but asset classes such as bonds and gold balances out the volatility and reduces the drawdown of the portfolio. Low volatility and minimal drawdown are the best features of the Permanent PortfolioHere is how you can implement the portfolio yourself in Singapore.

9. Growth stocks are more suited for capital appreciation rather than dividend payout. True/False

True. Growth companies tend to keep more cash on hand to fund their rapid expansion. Hence they are less likely to distribute a substantial dividend.

10. The Straits Times Index has returned 8 percent compounded over the past ten years. Many investors will be better off passively investing in the index rather than doing their own stock picking. True/False

True. How many of you have returned 9 percent compounded over the past 10 years?? If not, would you be better off doing it the effort free way!

Results wise, most did well. Only 9 out of 350 participants scored below 50% and we had more than 50 participants who scored 100%. That is an achievement indeed.  The average amount of time it took to complete the quiz was 3min and 15 seconds. 9 out of 10 answered Q9 correctly and it was the best scoring question, while only 6 out of 10 gave the correct answers for Q1 and Q5.

More importantly however, we were gratified to see such a warm response to the BigFatQuiz #1. Do remember to try out BigFatQuiz #2, and do leave us a message to tell us how the quizzes help you consolidate your knowledge and make you better investors. Better still, share the quiz on your facebook so that your family and friends will be able to benefit as well. Thank You!

Happy investing!

 



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7 Comments
  • coconut
    Posted at 12:05h, 05 September Reply

    your point number 4 is totally, yes totally incorrect!

    • Alvin Chow
      Posted at 07:05h, 06 September Reply

      Hey coconut! I must agree that it is not as easy as separating trading and investing by time frame. Generally, a trading period is shorter than an investment horizon. The point of the question is that we think many people are mixing investing with trading. Some of them buy like an investor but sell like a trader. They are not as patient as they thought. If they are investors, they must have a longer horizon to hold onto the investment.

      Anyway, share with us your perspective why it is incorrect?

  • coconut
    Posted at 08:40h, 06 September Reply

    i regretted immediately when i wrote that comment haha, cos its a damn complicated subject and no lines of whats right and wrong. i’ll just try to list the key point in my own opinion.

    investment, always stay invested. trading, no such thing (as must have a position).
    investment, always long. trading, can be long and short.
    investment, long term returns through yield or earnings, long or short term capital gains. (i know, you disagree with me on this one)

    these are just a few points, there are thousand more.

    therefore, it is not necessary differentiat with time frame though usually is true to many traders and investors, but you must ask, these many are they profiting?

  • coconut
    Posted at 08:51h, 06 September Reply

    so can you invest in say gold?

    absolutely no, cos gold carries a negative yield, like many commodities, you can only trade gold, even if you hold for many years.

  • Createwealth8888
    Posted at 12:53h, 06 September Reply

    Trade for cash flow (postive or negative but over many runs must be net positive)

    Invest for yield and future asset growth (the key word is “and”); but sometime some investment may turn sour and lock in permanent losses

  • coconut
    Posted at 15:33h, 06 September Reply

    if you “invest” in the company asset growth, you are engaging in speculation!

    it should be invest in company earning growth, if earning goes up, so as the asset price. yield (returns) stay the same. if you buy and sell based on stock price, thats speculation.

    say first, i’m no investment guru…

  • Alvin Chow
    Posted at 22:01h, 10 September Reply

    I agree with you there are thousands of differences between trading and investing.
    We wanted to simplify it but probably oversimplified in the process.

    I think it isn’t wrong to invest either for earnings growth or assets growth. It is how well you understand the business and calculate the value out of it that matters.

    Again, no right or wrong. That is what makes investing and trading so difficult!

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