Accredited Wealth Management Advisor Practice Exam

A sound small stock investment strategy generally emphasizes a balance between diversification and a focus on the companies' management. The recommendation to hold 20 to 30 issues allows for sufficient diversification to mitigate individual stock risks while still being manageable for an investor to follow closely. A 3- to 5-year holding period is aligned with the long-term growth potential inherent in small-cap stocks, which often require time for their value to be realized as they grow. Furthermore, having a high ownership stake by management can indicate that the leaders of the company are committed and motivated to succeed, creating alignment between management and shareholders. This strategy emphasizes sound selection and a commitment to long-term investment rather than opportunistic buying and selling, which could be more common and riskier with smaller, less established companies.

The other options may focus on aspects that could be less effective. For example, having a holding period that is too short may not allow for the full realization of potential growth for small stocks, and the size of the portfolio matters significantly in relation to the investment strategy's effectiveness.