Which of the following, if true, undermines Groh’s point about diversi

QUESTION

Which of the following, if true, undermines Groh’s point about diversification?

A) Not every investor can afford every stock.
B) The value of some stocks drop and never recover.
C) When one stock value drops, others tend to also drop.
D) Some investors prefer as little risk as possible when investing.
E) The value of some stock is greater than others.

ANSWER

Answer: C
Explanation: C) If it were the case that stock values rise or fall together, then diversification in different stocks would not increase the chances of overall growth. Groh does not insist that every investor should be able to buy every stock (Choice A). He also doesn’t insist that stocks always recover from a drop (Choice B), since the value of the other stocks would soften the blow, or that investors differ in their appetite for risk (Choice D). Groh’s point about diversification is not undermined by the fact that the value of some stock is greater than others (Choice E); in fact, it depends on it.