Indicate whether each of the following statements is true or false
1) Point-and-figure charts attempt to identify reversals in the direction of stock prices over time.
2) Some technical analysts would short sell when the support level is broken and buy back once another lower support level is established.
3) High dividend yields are typical of rapidly growing companies.
4) If 50 day moving average is lower than the 200 day moving average on a particular day, this indicates a bearish signal.
5) Changes in stock prices tend to lag changes in level of economic activity by several months.
6) Most technical analysts view a falling advance-decline line in a rising market as bearish.
7) The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back.
8) Sell stop orders accelerate a bear market
9) For technical analysts, an increase in the volume of short selling by specialists is a bearish signal.
10) Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy.
11) Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares.
12) The free cash flow to equity will generally be more volatile than dividends.

13) Tim Brooks is a fund manager at Liberty Financial Advisers' clients and arranges a presentation for his clients at which the guest presenter is Stephen Davis, an economist at the local university who frequently provides economic commentary for national media outlets. During his presentation, Davis states that it is likely the United States will enter a recession next year. He recommends that the clients shift their assets into investment grade bonds and noncyclical stocks. He states that he has been successful in predicting recessions over the past 15 years and is certain of his forecasts. He states further that the only time he has been wrong in predicting the business cycle is when Congress unexpectedly increased spending beyond that expected. He states that if that had not happened, his prediction of a mild recession would have been correct, instead of the mild expansion that actually occurred. Later that evening at dinner, Brooks and Davis discuss the day's events. Commenting on investment strategies, Davis states that he focuses on growth stocks with 6-quarter earnings growth and monitors his portfolio on a quarterly basis. Davis also states that when the short-term moving average rises above the long-term moving average, this signals an opportune time to trade.
Name any two possible behavioural biases that could be argued to describe Davis’ approach to investing.
14) Identify any one behavioural bias in each of the following statements:
a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in such matters – I am a dentist”.
b) Las Vegas casinos offer many games. All games favour the casino. The size and elegance of the buildings reflect how much money the casinos make – and how much gamblers lose. Still, hordes of gamblers still pack the gaming tables and slot machines for hours on end. Over time, gamblers inevitably lose money, and yet they still come back the following year. What bias might cause this cycle?
c) A gambler wins a very large pot of money playing poker. In the next hand, the gambler bets heavily on a hand that is of only average quality. What bias may have caused this bet?

Question

Indicate whether each of the following statements is true or false
1) Point-and-figure charts attempt to identify reversals in the direction of stock prices over time.
2) Some technical analysts would short sell when the support level is broken and buy back once another lower support level is established.
3) High dividend yields are typical of rapidly growing companies.
4) If 50 day moving average is lower than the 200 day moving average on a particular day, this indicates a bearish signal.
5) Changes in stock prices tend to lag changes in level of economic activity by several months.
6) Most technical analysts view a falling advance-decline line in a rising market as bearish.
7) The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back.
8) Sell stop orders accelerate a bear market
9) For technical analysts, an increase in the volume of short selling by specialists is a bearish signal.
10) Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy.
11) Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares.
12) The free cash flow to equity will generally be more volatile than dividends.

13) Tim Brooks is a fund manager at Liberty Financial Advisers' clients and arranges a presentation for his clients at which the guest presenter is Stephen Davis, an economist at the local university who frequently provides economic commentary for national media outlets. During his presentation, Davis states that it is likely the United States will enter a recession next year. He recommends that the clients shift their assets into investment grade bonds and noncyclical stocks. He states that he has been successful in predicting recessions over the past 15 years and is certain of his forecasts. He states further that the only time he has been wrong in predicting the business cycle is when Congress unexpectedly increased spending beyond that expected. He states that if that had not happened, his prediction of a mild recession would have been correct, instead of the mild expansion that actually occurred. Later that evening at dinner, Brooks and Davis discuss the day's events. Commenting on investment strategies, Davis states that he focuses on growth stocks with 6-quarter earnings growth and monitors his portfolio on a quarterly basis. Davis also states that when the short-term moving average rises above the long-term moving average, this signals an opportune time to trade.
Name any two possible behavioural biases that could be argued to describe Davis’ approach to investing.
14) Identify any one behavioural bias in each of the following statements:
a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in such matters – I am a dentist”.
b) Las Vegas casinos offer many games. All games favour the casino. The size and elegance of the buildings reflect how much money the casinos make – and how much gamblers lose. Still, hordes of gamblers still pack the gaming tables and slot machines for hours on end. Over time, gamblers inevitably lose money, and yet they still come back the following year. What bias might cause this cycle?
c) A gambler wins a very large pot of money playing poker. In the next hand, the gambler bets heavily on a hand that is of only average quality. What bias may have caused this bet?

Accepted Answer

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