Which statement accurately describes Michael's investment strategy?

Which statement accurately describes Michael's investment strategy?

• A. He uses technical analysis to time his trades.
• B. He maintains a diversified portfolio based on market predictions.
• C. He follows a passive investment strategy with random stock selection.
• D. He focuses on financial statement analysis rather than market trends.

Answer: (C)

The correct response indicates that Michael follows a passive investment strategy with random stock selection. This approach generally implies that investors are not actively trying to beat the market through frequent trading or by relying on trends. Instead, a passive investor typically invests in a broad market index or a mix of assets that reflects the overall market’s performance, without attempting to time the market or make predictions based on specific stocks. This type of strategy is grounded in the belief that market efficiency makes it difficult to outperform the market over time through active management. Therefore, by using random stock selection, Michael is likely harnessing a strategy that minimizes the costs associated with trading and seeks to capture overall market returns. Such strategies often also align with the buy-and-hold philosophy, where investments are held for extended periods to benefit from long-term growth, rather than making decisions based on short-term market fluctuations. The nature of the other options points to more active or predictive strategies rather than adhering to a passive approach. For instance, technical analysis and market predictions suggest a more hands-on, timed strategy focused on short-term movements, while financial statement analysis typically aligns with fundamental investing strategies, which also contrast with the randomness aspect of Michael's strategy.

The correct response indicates that Michael follows a passive investment strategy with random stock selection. This approach generally implies that investors are not actively trying to beat the market through frequent trading or by relying on trends. Instead, a passive investor typically invests in a broad market index or a mix of assets that reflects the overall market’s performance, without attempting to time the market or make predictions based on specific stocks.

This type of strategy is grounded in the belief that market efficiency makes it difficult to outperform the market over time through active management. Therefore, by using random stock selection, Michael is likely harnessing a strategy that minimizes the costs associated with trading and seeks to capture overall market returns. Such strategies often also align with the buy-and-hold philosophy, where investments are held for extended periods to benefit from long-term growth, rather than making decisions based on short-term market fluctuations.

The nature of the other options points to more active or predictive strategies rather than adhering to a passive approach. For instance, technical analysis and market predictions suggest a more hands-on, timed strategy focused on short-term movements, while financial statement analysis typically aligns with fundamental investing strategies, which also contrast with the randomness aspect of Michael's strategy.