Question

QUESTION 2 A company under performing in profitability relative to other companies could be a good investment False

In simple terms, the equity risk premium puzzle is that looking over long-time series of returns "the returns to investors on equities have been on average so much higher than returns on U.S.Treasury Bonds, that it is hard to explain why investors buy bonds, even after allowing for a reasonable amount of risk aversion"(Wikipedia entry on equity risk premium). This implies that, other things being equal, a steep drop in overall share price makes buying shares even more attractive to investors from a risk/return perspetive.
This statement is true or false, could you explain? Thanks.

The photo is wrong, just look at the words.

Answer 1

This statement is true, investors should buy stocks only from the perspective of long term and historical returns have suggested that stocks offer more return than bonds .

But at the time of adversity, when stocks fall, the bonds offer you with caution, stability and diversification and past return are never a guarantee for future return in share market. So one should choose carefully always as they say never to put your all eggs in one basket.