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.
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 Portfolio. Here 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
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!