Question

which investor is making a common error?
○ an employee of a popular hardware store who invests only in that company’s stock
○ an employee of a popular software company who invests in many similar companies
○ someone who sells the slumping stock while they are still able to make a profit based on what they paid
○ someone who buys stock in both domestic and more risky international companies

Explanation:

To determine the investor making a common error, we analyze each option:

• The first option: Investing only in one company's stock (like the hardware store employee) lacks diversification. This is a common investment error as it exposes the investor to high risk if that company performs poorly.
• The second option: Investing in many similar companies still has some diversification within the software sector, though not across all sectors, but it's better than investing in one company.
• The third option: Selling a slumping stock while still making a profit is a reasonable decision to limit losses or lock in gains, not an error.
• The fourth option: Investing in domestic and international companies shows diversification, which is a good investment practice.

So the investor making a common error is the one who invests only in their company's stock.

Answer:

an employee of a popular hardware store who invests only in that company’s stock