Markets
Stock owners own a piece of what?
The company of the stock.
What is compounding?
What is one way to manage risk?
Diversification (other answers are acceptable).
When is the best time to buy a stock?
During a crash or bust period in the economic cycle.
What is an assets?
Something that generates positive cash flows (often with no work from you, e.g. an example of passive income)
What is a market?
Where buying and selling freely takes place.
Write the formula for the Net Present Value (NPV) of a stock.
Teacher checks answer is acceptable.
What are the two types of risks? (Not Buffet's)
Idiosyncratic and Systemic.
What is reversion to the mean? (RTM)
An idea/concept that while some stocks may either increase rapidly or decrease rapidly, they will return to some norm or average overall.
What is a liability?
Generates negative cash flows
What is margin of safety?
When securities are purchased at prices sufficiently below underlying value, which accounts for potential human error, bad luck, or extreme volatility to ensure that investors will still achieve some profit for the purchased security.
What is intrinsic value?
The discounted value of the cash that can be taken out of a business during its remaining life.
How is the level risk of a stock measure on a Gaussian/Normal Distribution?
In the United States, who sets the interest rates that all other entities follow?
The US Federal Reserve
What is a dividend?
It is a quarterly payout to stock owners from the profits of that company?
What does information transparency achieve in the market?
Price discovery and optimal capital allocation.
What is the money machine and how does it work?
The money machine is an example of a security that pay dividends. We can imagine that this machine gives us money each year, which we can invest. If we invest that money, we will have significant increases in profit due to compounding interest. (All answers that are close to this are good!)
What is Speculation and why is it different than Investing?
Speculation is the act of gambling or randomly choose a stock or bet to make. An investment operation is one in which, upon thorough analysis, promises safety of principal and a satisfactory return. (Misc. answers are acceptable)
Why are bubble able to grow as large as they do? (Looking for a specific term to describe this.)
List 3 examples of an unproductive asset.
Gold, artwork, antiques (etc.)
What is an index and do they return dividends?
An index is a fund that is tied to a diversified set of stocks. If the stocks within the index return dividends then the index will return dividends.
What is the P/E ratio?
The price earning ratio which is the price the market pays for each $1.00 of earnings.
DAILY DOUBLE
Teacher Provides Question
DAILY DOUBLE
Teacher Provides Question
What is ROIC?
Return on Invested Capital:
the amount of profitability the company can achieve for every $1 of capital it controls