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Questions and Answers
What is the main difference between active and passive investors?
What is the main difference between active and passive investors?
- Active investors only invest in large-cap companies, while passive investors invest in small-cap companies.
- Active investors believe they can beat the market, while passive investors do not. (correct)
- Active investors have a long-term investment strategy, while passive investors have a short-term strategy.
- Active investors believe in diversifying their portfolios, while passive investors prefer to focus on a few stocks.
What does the phrase 'beating the market' usually refer to?
What does the phrase 'beating the market' usually refer to?
- Earning a return on an investment that is less than the S&P 500 index.
- Earning a return on an investment that exceeds the Standard & Poor 500 index. (correct)
- Earning a return on an investment that exceeds the Dow Jones index.
- Earning a return on an investment that is equal to the Nasdaq index.
What is the S&P 500 index a measure of?
What is the S&P 500 index a measure of?
- The average performance of small and mid-range stocks in the United States.
- The average performance of all publicly traded companies in the United States.
- The average performance of companies in the technology sector.
- The average performance of 500 of the largest companies in the United States, weighted by company valuation. (correct)
What does the phrase 'market value' correspond to?
What does the phrase 'market value' correspond to?
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What is the analogy used to describe the stock market?
What is the analogy used to describe the stock market?
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Study Notes
What are Stocks?
- Stocks are partial shares of ownership in a company, allowing investors to buy a share in the company's success or failure.
- A stock's price is determined by the number of buyers and sellers trading it, with the market price representing what buyers and sellers believe the stock is worth.
Investment Goals
- Investors aim to make money by purchasing stocks whose value will increase over time.
- Some investors aim to grow their money at a faster rate than inflation diminishes its value.
- Others strive to "beat the market," growing their money at a faster rate than the cumulative performance of all companies' stocks.
Beating the Market
- The phrase "beating the market" refers to earning a return on an investment that exceeds the Standard & Poor 500 index.
- The S&P 500 is a measure of the average performance of 500 of the largest companies in the United States, weighted by company valuation.
- The S&P 500 is a proxy for the overall market, but does not directly represent the market as a whole, with small and mid-range stocks fluctuating according to different patterns.
Market Behavior
- The stock market behaves like a voting machine in the short term, with short-term fluctuations in stock prices reflecting public opinion.
- In the long term, the stock market behaves like a weighing machine, with stock prices reflecting the company's true value.
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Description
Learn how investors decide which stocks to buy, understanding the basics of stocks and investment goals.
