Securities Industry Regulator: Brokerage “Buy” ratings are suffering

If the Securities Industry Regulator’s statements are true, then which of the following must be true?

It is must be true question, so we can’t deviate even a small thing from the question stimulus
Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future. – “Can only profit” we don’t about that – Extreme words

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.

Ⓒ Financial institutions should refrain from issuing “Buy” ratings. “Should refrain” we are not giving any suggestion

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before. – “become easier than ever”, we are doing any comparison

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings. – The word increasingly is wrong, since it is nowhere mentioned. A very close answer

Wow, E is really tempting. I had to stop myself from diving in to E. The reason why I nixed E is that the paragraph does not support the assertion that the ratings are meaningless. It just says that it renders them "almost meaningless". B is the only answer we can deduce.

[quote="EMPOWERgmatMax"]CR INFERENCE SERIES: Question 1) Securities Industry Regulator

Securities Industry Regulator: Brokerage “Buy” ratings are suffering from a credibility gap. There is a far greater proportion of “Buy” ratings than “Sell” ratings. In fact, 80% of all major financial institution’s ratings are “Buy” ratings. Given that inflated volume of “Buy” ratings, it’s hard to trust the quality of those ratings, and equally challenging to take them seriously. Even the simple act of reducing a financial institution’s analysis to just “Buy”, “Hold”, or “Sell” is dubious since a company’s financial outlook is typically quite complex. Accordingly, a financial institution’s investment rating is rendered almost meaningless.

If the Securities Industry Regulator’s statements are true, then which of the following must be true?


Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future.

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.

Ⓒ Financial institutions should refrain from issuing “Buy” ratings.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings.


48 Hour Window Answer & Explanation Window
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Conclusion:Since too many Buy ratings are given>this has hit the credibility of brokerages>leading to ratings issues as meaningless.

Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future-No one is talking about profits here. Out of scope

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future:This looks good. Just because a brokerage gives Buy ratings does not mean the the company's financials are in good shape-just what is given in the argument. Hold this

Ⓒ Financial institutions should refrain from issuing “Buy” ratings: We are not concerned with what they should do. Out of scope

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before:No one is talking about whether companies can earn ratings or not. Out of scope.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings: This is dicy-but focus of the word Increasingly-nowhere is the comparison made in the argument about what the brokerages were doing earlier and what they are doing now-so safe to eliminate this.

Answer B

Hi Patronus!

I'm glad you caught that E is out. I've since posted the official explanation. I'd also like to address your question about the distinction between "outlook" and "future" in B specifically: the prompt just refers to the fact that a company's financial outlook is typically quite complex, but then if the outlook is complex, then knowing (guaranteeing) what will happen in the future is even more complex (technically impossible). Option B says "A “Buy” rating does not guarantee that a given company will have a strong financial future." Darn straight! So then, B would HAVE TO BE TRUE.

Also, take a look at the full explanation. Please let me know if you have any other questions.

REALLY great catch! You'd be amazed how important it is to catch that distinction, and how rare it typically is. Can you read for the keen eye for twists on test day? Keep working that skill---it will pay off BIG-TIME!

A. This is not exactly true since credibility is suffered and not denied. It means in some cases "buy" ratings can have positive results also.

B. CORRECT: Since company "buy" ratings are questioned, this option is always true.

C. Question on "buy" does not mean that companies should always refrain/stop using/stop issuing "buy" ratings.

D. There is not talk about "easiness" to get ratings.

E. There is no reference to the increase in number of ratings/meaningless ratings.

This Option was tempting initially, but then i chucked it out for the Simple fact that as per the passage, Financial Institutions do not issue Investment ratings. Financial Institutions are issued ratings by the Brokerages

Hi ankurjaini,

Its not just about that.. We cant say as a matter of fact that "issuing investment ratings is meaningless". 80% buy does not mean that all are shoddy.

Some companies will deserve to have a genuine "buy" rating so we cant say that option E "must be true" for all companies.

I concur you. Your thought again moves me away from Option E being the right answer.
Furthermore, the fact that - "Given that inflated volume of “Buy” ratings, it’s hard to trust the quality of those ratings, and equally challenging to take them seriously" - makes me feel option B should be a better choice for this argument.

Any experts ?

Hi ankurjaini,

Both options are broken down in full. For convenience, here's the overall analysis once more, plus a reiteration of the reasoning behind options B and E. If you have any other questions about either option, please feel free to reply.

Official Explanation

Question Type: Inference
Boil It Down (Simplified & Abbreviated Summary of the Prompt): Too many “Buy” ratings/oversimplifies -> Ratings almost meaningless
Goal: Select the option that has to be 100% logically true from the prompt

Analysis: This is a straightforward Inference question. We need to find an option that follows with 100% certainty. In Inference questions, GMAC can be expected to deliver 2 types of incorrect options:

1) Those that are too extreme to be supported from the facts given
2) Options that seem reasonable, but are not supported from the facts given

This question has both. Let's see which option has to be true:

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.
YES! 100% True. Here’s why. On the GMAT, the word “guarantee” means 100%. Now, the prompt tells us:

Too many “Buy” ratings to take them seriously
A company’s financial outlook is complex
Ratings are rendered almost meaningless

Now, can you say with 100% certainty that a “Buy” rating means that a company is GUARANTEED (with 100% certainty) to have a strong financial future? No way. Therefore this option MUST BE TRUE.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings.
This is DEFINITELY the runner-up option. This option suffers from two flaws, and one of them is incredibly subtle and holds a key to GMAT greatness.

1) Increasingly? Do we know that the rate of meaningless ratings is actually increasing? No. Maybe it’s just holding steady. Or maybe it’s even pulled back a little bit recently.
2) Now this is the MASSIVELY important thing to recognize. Even if you spotted this difference, acknowledging what it represents will help you boost your score across the entire GMAT.

The prompt says: “Accordingly, a financial institution’s investment rating is rendered almost meaningless.” But, this option says: “Increasingly, financial institutions are issuing meaningless investment ratings.” Is there a difference between “almost meaningless” and “meaningless”? Absolutely. "Almost meaningless" means that the rating still holds some meaning, whereas "meaningless" means totally devoid of any meaning. That's a big difference. From the prompt, do we actually know that even a single rating is meaningless? No.


The Bigger GMAT Picture
Every GMAT has a twist. Even the easy ones. The harder questions, have more subtle or complex twists. Now, the reason why this option is so important is that it shines the spotlight on a skill that every 700+ test-takers possesses: the ability to read carefully enough to catch the twists. If you know you can improve the intensity of your reading to catch distinctions like the one here, you are looking at a big source of points.

If you caught that distinction when you read this question, then bravo! Keep honing that skill. It will deliver a big payout for you if you can execute it on your real GMAT.

Hi EMPOWERgmatMax

This is the case with me as well. For me "E" was wrong because argument does not support "Increasingly". But almost like most of the times i am less confused between the two most popular choices (700-level right and 700-level wrong choice) than between the correct choice and any other choice wrong choice.
I was confused between "B" & "D". I did not consider "B" because it talked about financial future of the company which was not present in the argument. However "D" also made mistake by saying "rating has become easier than ever before", I chose it over "B". Certainly I am not able to cover the real gap even when i feel i know the concepts. I might be wrong

Hi HKD1710,

I'd be happy to help. We cover this in the course to a science, but the issue that will drive your ability to distinguish something like option B, from an option D is total command of the CR question type goals, and reading the options with that framework firmly in mind.

From your vivid account of your thought process, it appears that you were doing more of a word scan, noticed that B dealt with the future, and dismissed it.

Now, think about it this way: this is an Inference question, so you need to look at each option and think "do I know that for sure?". Check out what B says again:

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.
What is that saying? Even with a buy rating, there is < 100% chance the company will have a strong financial future. That absolutely has to be true for a fact almost to an extreme threshold. I mean, if you covered the prompt with a sheet of cardboard, and just read the question and the options, how would B not have to be true regardless of what the prompt said? Of course a "Buy" rating can't guarantee that a company will have financial strength.

What about D?
Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before.
Again, this is an Inference question, so you need to look at each option and think "do I know that for sure?". Do we know D for sure?
Yes or no, do you KNOW that the ability of a company to earn a "Buy" rating is easier now than ever before? No. How do we know that now is easier than ever before. We don't. If you can't say yes, it has to be wrong.

Having pure clarity of the assignment, and reading the options with that framework changes everything. The same is true in RC.

[/quote]

Conclusion: The ratings such as Buy/Sell/Hold by the financial institutions are not credible because the financial outlook of a company is too complex.

Choice A is out of context, because there is no mention about the profits of an investor

Choice B: is correct, because the Buy rating by a FI is not credible ==> no guarantee of a good financial future of a company
choice C is not correct. Because of the usage of "should". nowhere in the argument it is mentioned.
choice D is not correct. No info on how the FI s rated companies before
choice E is ISWAT

even though the question is quite long, the first 3 sentences all say the same thing.
Therefore, the question is all about the "buy" rating and the last sentence.

[/quote]


A -The stimuli does not support this especially the modifier "only" in this answer choice.
B-Let's keep this as a contender
C-Does the stimuli advise financial institutions to refain from issuing "BUY" ratings.it may want them to but ti did not state so.
D-The stimuli never talks of how easy it has become comapratively just that brokerages issue a ton of buy ratings
E- This seems like a contender but the fact that this answer misses the modifier "almost" and uses "increasingly" should send off red flags

B is the answer

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