Final answer:
Brown should have first evaluated Green's financial goals and risk tolerance, and then recommended a diversified investment strategy, which is the practice of investing in a variety of assets to mitigate risks.
Step-by-step explanation:
Brown, who works for an investment counseling firm, may have committed a violation by advising Green, a new client, to purchase a highly undervalued stock without first conducting a thorough due diligence process to understand Green's financial situation, investment goals, and risk tolerance. Before making such recommendations, it is critical to assess a new client's overall financial portfolio and develop a diversified investment strategy. Diversification is key in reducing risk, as it involves buying stocks or bonds from a wide range of companies, thus offsetting extreme fluctuations in value.
Someone can to go places like E-Trade to purchase stocks. Considering diversification is important because it reduces the risks associated with investing in a single company. If Brown had advised Green to invest in a diversified portfolio, which may include mutual funds or a selection of stocks across different industries, she would have been following a more prudent and standard investment practice.
In practice, if you and a friend each invest in five similar companies but approach monitoring and selection differently, with one person being diligent and the other random and inattentive, the outcome at the end of the year could be quite different. The diligent investor may have a portfolio that reflects the careful analysis of market trends and company performance, while the inattentive investor's portfolio might exhibit more volatility or less optimized returns due to a lack of strategic decision-making.