GMAT Essays (AWA)

melaos wrote:Question:

The following appeared in a strategy memorandum of an investment company:

"Over the past several years, investment in precious metals, such as gold and silver, has proven to be one of the most profitable investment strategies for our firm. Over the next decade, the demand for these metals is expected to be strong, largely driven by the economic growth of large emerging markets--China, India, and Russia. Thus, our investors are best served by increasing their exposure to precious metals to take advantage of this unique profit-making opportunity."

Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.

My answer:

The memorandum encourages investors of their firm to increase their exposure to precious metal investment. However these arguments are flawed and needs to be examined further.

Firstly, the memo states that investment in precious metals has been one the most profitable investment strategies for the firm over the past several years. However this assumes that past performance can be an accurate indicator for the future. There are no clear certainty that because precious metals had performed well in the past few years would mean that they can continue to perform well in the near future.

Secondly, the memo continues by describing the demand for these metals will be strong driven by the economic growth of large emerging markets over the next decade. This view assumes that there is a direct correlation between the growth of the emerging markets' economy and the demand for the precious metals. The details for how the growth can be tied to the increased demand for the precious metals are not given for us to judge on the accuracy of this argument.

Thirdly, the memo mentions that the firm's investors can be best served by increasing their exposure to precious metals. This point however neglects to clarify the expectations and the requirements of their clients. For example, certain investors might not be looking for high growth but rather for stable periodic income.

In summary, the arguments given are unconvincing unless these the points mentioned above is fully addressed.