QUESTION 41

1. Sally Homes invested in a diversified portfolio of equities about 5 years ago. Overall, the performance has been in line with the market. However, Stock A, which Sally has always thought was a good company, has recently been handily outperforming the averages. Despite recent news articles and analyst reports indicating a potential slowdown in earnings, Sally moved an additional 5% of her portfolio into Stock A. Which of the following behavioral mistakes may she have made?

   		a. Representativeness.
   		b. Cognitive dissonance.
   		c. Irrational escalation.
   		d. Both b & c.

QUESTION 42

1. John Bell, a money manager at a large regional investment firm, has been outperforming the market for several years. He's considering a large investment in Stock Q because the company's last three product introductions sold poorly. He thinks the company is well managed, but just had bad luck recently. He sorted through several analyst reports and found two that support his opinion. If he buys the stock, which behavioral mistakes may he be making? (1) Overconfidence. (2) Anchoring. (3) Gambler's fallacy. (4) Confirmation bias.

   		a. 1 and 2.
   		b. 2 and 3.
   		c. 1, 3 and 4.
   		d. 1, 2, 3 and 4.