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Specialists: Test your Knowledge About ThemAnd How They Act In The Market Place
To those many investors who have read myarticles on both this website and others I havewritten a test so that you can exercise your knowledge and skills. This test will allow youto see first hand if you have the necessaryunderstanding of my low risk system for investing.The best way to take this test is to print outthe entire document and then circle your answers as you move through the printedmaterial.The first set of exercises is designed toreinforce the investor’s understanding of mytheory’s and ideas. The questions willproceed from the very simple to the morecomplex. Thus we begin in
Session 1
witheasy-to-understand
True
–
False
questions.We next proceed to multiple-choicequestions, which have been divided into
Sessions
 
2
,
3
, and
4
. In some cases there ismore than one correct answer. The investor should select the best possible answer. Ananswer sheet will follow each section. Thiswill allow the investor to make sure he or sheis on the right course before proceeding tomore complex problems.I am confident that any investor who carefullyworks his way through this test material willcome away with a much greater facility for applying my ideas of successful stock marketinvesting.
Section 1
Each of the following statements is either true or false. Mark
T
for true,
F
for false. Check your answers against the correct answers at the end of this section.
1)
Specialists know the markets major trends a long time in advance. (
T
or 
F
)
2)
The single most important determinate of what constitutes a good investment is goodearnings. (
T
or 
F
)
3)
A careful analysis of a single stock can give the investor an indication of the trend of themarket. (
T
or 
F
)
4)
What has happened in the market in the past has very little to do with what happens in themarket today. (
T
or 
F
)
5)
The market declines from retail to wholesale price levels as a consequence of public selling.(
T
or 
F
)
6)
As a trader or investor, the best way for you to succeed in the market is to follow thetransactions of specialists. (
T
or 
F
)
7)
The Dow Jones average is the barometer investors should follow because it provides themwith an excellent indication of the trend of the broader markets. (
T
or 
F
)
8)
The stocks in the Dow are no longer a true representative of industry as a whole. Themovements of the Average are, therefore, of no consequence. (
T
or 
F
)
 
9)
The Dow can establish new highs despite the fact that most stocks in the Dow have beenmoving lower for months. (
T
or 
F
)
10)
It’s more important to watch the price and volume movements of the five most activestocks in the Dow than it is the Dow itself. (
T
or 
F
)
11)
One of the constructive features of owning Dow stocks is the probability that, in thecourse of a bull market, most Dow stocks will be among those that are the first to advanceand the last to decline. (
T
or 
F
).
12)
On of the good features of Dow stocks is that they provide more certain growth andbetter income than most other stocks. (
T
or 
F
)
13)
Different investors should have different portfolios. Some should have portfoliosoriented toward growth, others toward income. (
T
or 
F
)
14)
So long as the income from your portfolio remains unchanged, it is of littleconsequence what happens to the stock prices of an income-oriented portfolio. (
T
or 
F
)
15)
Institutional transactions play a major role in determining a stocks trend. (
T
or 
F
)
16)
Heavy institutional buying is a major reason stock price’s advanced in the first half of 2007. (
T
or 
F
)
17)
Heavy institutional selling is a major cause of the volatility that has existed in themarket place since the beginning of the 1960’s. (
T
or 
F
)
18)
Institutions tend to perform much better in the market than the average individualbecause they can afford to pay big fees for investment advice. (
T
or 
F
)
19)
Because they by in big blocks, the costs of purchasing and selling stocks are muchlower for institutions. (
T
or 
F
)
20)
The trust departments of banks like Chase Bank have lost billions of dollars in 2007for investors who utilized their services. (
T
or 
F
)
21)
The stock markets most important function is as a major source of equity capital. (
T
or 
F
)
22)
The Exchange Act of 1934 was responsible for instituting major reforms of the stockexchange. (
T
or 
F
)
23)
Specialists are allowed to keep the specifics of all their transactions secret. (
T
or 
F
)
24)
The investor can only obtain two-month-old data on specialist short sales from theSEC. (
T
or 
F
)
25)
The 1963 Special Study Report of the SEC maintained that the specialist’s short saletransactions in specific stocks should be made public knowledge. (
T
or 
F
)
Answers to questions in Section 101) T02) F03) T04) F05) F06) T07) F08) F09) T10) T11) T12) T13) F14) F15) F16) F17) F18) F19) F20) T21) F22) F23) T24) T25) T
 
Section 2
The following multiple-choice questions are designed to reinforce the investor’s understanding of concepts relating to portfolio selection. Always choose the best answer and then check your selections against the answers at the end of this section.
1)The individual with $25,000 to invest should select a portfolio of 
a)No more than three stocks and no less than two.b)Three stocks.c)No more than four and no less than three stocks.
2)
 
In pursuing a policy geared to the preservation of capital, an investor with $20,000 to $200,000 shouldselect a portfolio of no less than four and no more than five or six stocks, which of the following sets of four would qualify for inclusion
d)IBM, Kohl’s Corporation, General Motors, Bristol Myers Squibb.e)IBM, General Motors, Eastman Kodak, Coca-Cola.f)Procter & Gamble, General Motors, Eastman Kodak, Sears Holdings.g)General Motors, Anadarko, Coca-cola, Kohl’s Corporation.
3)Investment advisory services supervising portfolios should be viewed skeptically when their advertisements include any but one of the following statements about their operating techniques.Choose the exception:
a)We coordinate our investment strategies with client objectives.b)We constantly monitor the economy and capital market.c)We determine investment strategies based on analysis of Exchange insider activities.d)We utilize fundamental as well as technical analysis.
4)The special fees paid to the Exchange by institutions to execute their big block trades have run ashigh as:
a)10 times the minimum commission rate.b)29 times the minimum commission rate.c)19 times the minimum commission rate.d)50 times the minimum commission rate.
5)It is a good policy to select the stocks most favored by institutions for one’s portfolio because:
a)Continuing institutional demand for stock will keep their stock prices up.b)The companies they invest in are here to stay.c)Exchange insiders have a greater incentive to advance these stock’s prices.d)They provide a better income.
6)Another good feature of buying Dow stocks is that if they decline in price, chances are:
a)Their dividends will remain relatively unchanged.b)They will ultimately advance again in price once the new bull market gets underway.c)They will not stay down for long.
7)In order to buy and sell big blocks of the best high-quality stocks at optimum price levels, institutionalportfolio managers:
a)Try to establish good relationships with Stock Exchange insiders.b)Do extensive research to determine which companies have the best managementteams.c)Pay insiders large fees.d)Try to select the stocks with the best future earnings.
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