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lass_insane
- Newbie | Next Rank: 10 Posts
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- Joined: Tue Jun 07, 2011 5:26 am
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.
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MY RESPONSE:
The markets around the world are fascinated by the time tested avenue of investment- precious metals, such as gold and silver. While some investment experts would strongly advocate exposure to gold and silver, others maintain that volatility in the commodity markets has the potential to wipe off any returns made.
The strategy memorandum claims that in view of past performance of gold and silver on bourses, investors should increase the exposure to these precious metals and thus participate in profit making strategy. While I maintain that there is some merit in this argument, the author clearly pre-supposes certain pre requisites. Also that the argument warrants his unsubstantiated premises, renders the argument open to criticism.
The primary reason that the argument does not stand ground is that author assumes that the past strategy of investment in gold and silver will continue to reap the benefits in future too. While this may prove to be true in future, however, investment principles clearly state that past performance is not the only indication for future returns.
The second premise that the demand for the metals from the large emerging markets like China, India and Russia are expected to be on rise, due to economic growth is not substianted by evidences. the author does not provide explanation to the valid question, what if the growth is not self-sustainable? Also, the emerging economies under discussion are largely different in fundamentals. India is an economy driven by internal consumption, while China is a largely export driven economy. With the economic growth slowing down in US and other European countries, the demand for Chinese exports would decline substantially, thus affecting its own growth.
The third premise that investment in gold and silver is a unique profit making opportunity overrides the opportunities in alternative investment assets in emerging markets. For these reasons, author does not seem to make convincing argument.
Also we cannot accept the authors argument as is, since the assumptions are unproven and implicit. Author assumes that demand for precious metals will be high due to large emerging economies. here author assumes that the supply of these preious metals will remain constant or will not grow in the same proportion as to meet the increasing demand. Hence the profit making opportunities by investing will increase.
Another assumption is that the investment company understand volatility in the commodity markets and can hedge it efficiently to protec the interests of its investors.
For these reasons, we can say that author is not able to put a well seasoned argument and thus will not be able to convince the investors to increase their exposure in the precious metals as many questions are unanswered and the assumptions invalid.
"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 RESPONSE:
The markets around the world are fascinated by the time tested avenue of investment- precious metals, such as gold and silver. While some investment experts would strongly advocate exposure to gold and silver, others maintain that volatility in the commodity markets has the potential to wipe off any returns made.
The strategy memorandum claims that in view of past performance of gold and silver on bourses, investors should increase the exposure to these precious metals and thus participate in profit making strategy. While I maintain that there is some merit in this argument, the author clearly pre-supposes certain pre requisites. Also that the argument warrants his unsubstantiated premises, renders the argument open to criticism.
The primary reason that the argument does not stand ground is that author assumes that the past strategy of investment in gold and silver will continue to reap the benefits in future too. While this may prove to be true in future, however, investment principles clearly state that past performance is not the only indication for future returns.
The second premise that the demand for the metals from the large emerging markets like China, India and Russia are expected to be on rise, due to economic growth is not substianted by evidences. the author does not provide explanation to the valid question, what if the growth is not self-sustainable? Also, the emerging economies under discussion are largely different in fundamentals. India is an economy driven by internal consumption, while China is a largely export driven economy. With the economic growth slowing down in US and other European countries, the demand for Chinese exports would decline substantially, thus affecting its own growth.
The third premise that investment in gold and silver is a unique profit making opportunity overrides the opportunities in alternative investment assets in emerging markets. For these reasons, author does not seem to make convincing argument.
Also we cannot accept the authors argument as is, since the assumptions are unproven and implicit. Author assumes that demand for precious metals will be high due to large emerging economies. here author assumes that the supply of these preious metals will remain constant or will not grow in the same proportion as to meet the increasing demand. Hence the profit making opportunities by investing will increase.
Another assumption is that the investment company understand volatility in the commodity markets and can hedge it efficiently to protec the interests of its investors.
For these reasons, we can say that author is not able to put a well seasoned argument and thus will not be able to convince the investors to increase their exposure in the precious metals as many questions are unanswered and the assumptions invalid.
