GMAT Essays (AWA)

ESSAY 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.

YOUR RESPONSE:
The memo says the company plans to invest in precious metals since it has been profitable for the firm in the past several years. The firm predicts that demand will go strong mainly because of economic growth of emerging markets and expects to make use of the opportunity by investing in it. This argument is very weak due to following aspects.

The firm assumes that past experience will repeat in the future. Since investment in precious metals has been profitable for firm over a long time, It assumes that it will receive profits in the same way in future. But there is no guarantee for that to happen. The demand can reduce since people have various options to invest such as shares, real estate, Businesses etc other than precious metals alone. If the demand reduces for the metals, then investment may result in huge losses also.

The company expects the demand to be very strong over the next decade unjustly. The firm believes that demand will be intact because it will be driven by the economic growth of large emerging markets of China, India and Russia. But the economic growth need not result in demand of only the precious metals. Even though in countries such as India, demand for gold will almost always keeps increasing, due to competition among so many jewelry firms, ever changing marketing conditions and changing customer preferences things may not be same as always.

Also simple increase in exposure cannot result in proper decision making and thereby may result in losses. So proper planning, business skills along with exposure is needed for the investors to take advantage of opportunity resulting in profits.

Thus it cannot be said for sure that investors of firm can take advantage of this unique profit-making opportunity based on above factors. The firm has to consider pros and cons of market and economic conditions before making its decision. The above argument as is cannot be accepted since it is based on improper assumptions. They also needs to check the availability of those precious metals and the costs involves with them to make venture profitable.