Four of the last five stocks your investment adviser recommended have outperformed the market. Thus, you believe that if you continue to follow her advice, 80 percent of your investments will outperform the market over the long term. This belief is based on the:

Question

Quizplus · Accepted Answer

The belief that 80 percent of investments will outperform the market over the long term based on the adviser's recent recommendations is an example of the law of small numbers, which assumes that a small sample will reflect the characteristics of the larger group it is drawn from. However, this assumption may not hold true over the long term, as chance plays a larger role in smaller samples. Therefore, it is important to be cautious when making investment decisions based on a small number of past successes.

Four of the Last Five Stocks Your Investment Adviser Recommended