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# Investment Advisor: It is well-known that investing in

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Senior Manager
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05 Nov 2009, 23:07
1
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Investment Advisor: It is well-known that investing in mutual funds reduces portfolio risk through diversification. It is also true that past investment performance is often related to future investment prospects. Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor?

a) Managers of many mutual funds that have delivered the highest returns over the past several years have already used
up their best investment ideas and are unlikely to sustain this level of performance in the future.

b) Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable
for every investor.

c) Many individual investors choose to manage their own portfolios rather than consult an investment advisor.

d) The funds that have had the strongest past performance tend to continue to outperform other funds with similar
objectives for many years in the future.

e) The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.
[Reveal] Spoiler: OA

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Manager
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05 Nov 2009, 23:28
A IMO

If best performing funds cannot repeat their performance, the adviser is wrong.

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06 Nov 2009, 00:47
A for me also.
To weaken the argument, either of the two statements need to be flawed:
1) reduces portfolio risk through diversification.
2) past investment performance is often related to future investment prospects

A weakens point 2... what is the OA?

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Manager
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06 Nov 2009, 01:06
+1 for A.

Past performens is related to future prospest. But how related? Investor assumes that if past performens was outstanding this fund remain it performens in future. A clearly illustrates the flaw here.

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Manager
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08 Nov 2009, 13:13
Whats wrong in B can any1 pls explain??

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08 Nov 2009, 13:15
what is the OA?
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09 Nov 2009, 13:43
Investment Advisor: It is well-known that investing in mutual funds reduces portfolio risk through diversification. It is also true that past investment performance is often related to future investment prospects. Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor?

a) Managers of many mutual funds that have delivered the highest returns over the past several years have already used
up their best investment ideas and are unlikely to sustain this level of performance in the future.

b) Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable
for every investor.

c) Many individual investors choose to manage their own portfolios rather than consult an investment advisor.

d) The funds that have had the strongest past performance tend to continue to outperform other funds with similar
objectives for many years in the future.

e) The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.

I'd go with B

A, C and E are out of scope
D strengthens the statement

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08 Feb 2011, 07:03
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I feel that E is a better choice than A.

But OA is A

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30 Jun 2011, 01:48
A.

Choice B is good competitor, but the statement may be invalid for some of the investors.

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30 Jun 2011, 03:36
Conclusion
Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

primary claim
It is also true that past investment performance is often related to future investment prospects.

To weaken this, we need to show that past performance does not gaurantee success in future. A states this and should be the answer.

b) Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable for every investor.- not really relevant, does not explain why the selection may not meet client's objective

c) Many individual investors choose to manage their own portfolios rather than consult an investment advisor.- irrelevant

d) The funds that have had the strongest past performance tend to continue to outperform other funds with similar objectives for many years in the future.- strengthen- ignore

e) The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.- irrelevant to question asked

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30 Jun 2011, 05:12
1
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Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor? - I read the question first and immediately started looking for an answer that makes the argument illogical.

Then I paraphrased the argument.
evidence: mf - divers. red. risk
evidence: past perf. related to fut. perf.
conclusion: select the mf that meets clients objective and has performed well in past
assumption: (could be) 1. client's objective is - high return low risk 2. the funds performance is limitless

a) Managers of many mutual funds that have delivered the highest returns over the past several years have already used
up their best investment ideas and are unlikely to sustain this level of performance in the future. This seems to be the best option because it states that past performance of mutual funds is unlikely to sustain (or it has peaked). This means that the performance can only be worse. therefore it weakens the advisor's argument, in fact, makes it illogical

b) Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable
for every investor. I initially thought this was correct, because if the advisor is not able to find a suitable fund for an investor. But read carefully. "no single fund is suitable for every investor"... which means there could be a fund that is suitable for only one investor and not others. Hence this option strengthens the argument

c) Many individual investors choose to manage their own portfolios rather than consult an investment advisor.The argument talks about an advisor making a good (low risk high return) investment decision based on past performance of the fund and the client's objectives. Investors making their own investment decisions does not affect investment advisor's proposition - out of scope

d) The funds that have had the strongest past performance tend to continue to outperform other funds with similar
objectives for many years in the future. - The argument talks about an advisor making a good (low risk high return) investment decision based on past performance of the fund and the client's objectives. If the good funds tend to outperform other funds in future, it strengthens the argument.

e) The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years. - The argument talks about an advisor making a good (low risk high return) investment decision based on past performance of the fund and the client's objectives. Number of clients is out of scope.

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Senior Manager
Status: D-Day is on February 10th. and I am not stressed
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19 Nov 2011, 12:57
Investment Advisor: It is well-known that investing in mutual funds reduces portfolio risk through diversification. It is also true that past investment performance is often related to future investment prospects. Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor?

a)Managers of many mutual funds that have delivered the highest returns over the past several years have already used up their best investment ideas and are unlikely to sustain this level of performance in the future.
b)Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable for every investor.
c)Many individual investors choose to manage their own portfolios rather than consult an investment advisor.
d)The funds that have had the strongest past performance tend to continue to outperform other funds with similar objectives for many years in the future.
e)The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.
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20 Nov 2011, 04:04
Confused between A and B, plz share the official answer
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20 Nov 2011, 15:15
OA is A
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Manager
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23 Feb 2013, 12:02
Investment Advisor: It is well-known that investing in mutual funds reduces portfolio risk through diversification. It is also true that past investment performance is often related to future investment prospects. Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor?

(A)Managers of many mutual funds that have delivered the highest returns over the past several years have already used up their best investment ideas and are unlikely to sustain this level of performance in the future.

(B)Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable for every investor.

(C)Many individual investors choose to manage their own portfolios rather than consult an investment advisor.

(D)The funds that have had the strongest past performance tend to continue to outperform other funds with similar objectives for many years in the future.

(E)The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.

Need explanation.............

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Senior Manager
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23 Feb 2013, 13:08
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mun23 wrote:
Investment Advisor: It is well-known that investing in mutual funds reduces portfolio risk through diversification. It is also true that past investment performance is often related to future investment prospects. Therefore, to help my clients earn high returns with low risk, I select a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years.

Which of the following statements, if true, would demonstrate a serious flaw in the approach of the Investment Advisor?

(A)Managers of many mutual funds that have delivered the highest returns over the past several years have already used up their best investment ideas and are unlikely to sustain this level of performance in the future.
(B)Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable for every investor.
(C)Many individual investors choose to manage their own portfolios rather than consult an investment advisor.
(D)The funds that have had the strongest past performance tend to continue to outperform other funds with similar objectives for many years in the future.
(E)The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.

Need explanation.............

Hi mun23,

Lets first analyze the argument.

Conclusion: Investments in a group of mutual funds which have given high returns in past 2 years will be profitable for the client.

Premises: Investment in mutual funds reduce the investment risk and past performance are often related to future investment prospects

Assumption: Past results will continue in the future.

Although the question stem is saying "flaw"; this is actually a weakening question; the correct answers to the weakening questions usually attack the assumption of the argument.

(A)Managers of many mutual funds that have delivered the highest returns over the past several years have already used up their best investment ideas and are unlikely to sustain this level of performance in the future.

This is the correct answer because it is directly attacking the assumption that the argument is making. If the investments are unlikely to maintain the same levels of performance then investing in the mutual funds which have given excellent results in the past will not deliver the same performance in future, thus, clearly weakening the argument.

(B)Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable for every investor.

Even if a single fund is not suitable for every investor, the group of investments can still give good results. So, our conclusion is not getting weakened.

(C)Many individual investors choose to manage their own portfolios rather than consult an investment advisor.

Not relevant, we are concerned with only the investments made by the investment advisor

(D)The funds that have had the strongest past performance tend to continue to outperform other funds with similar objectives for many years in the future.

This is doing the opposite, (D) will strengthen the conclusion made by the investment adviser.

(E)The number of clients served by the investment adviser has declined by nearly 50% over the past 5 years.

The number of clients may have been reduced, but the investment adviser could still deliver good investments in the past. This choice will have no effect on the conclusion. The clients that he/she may get at present may get good returns on their investments.

Hope that helps,

Vercules
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13 Apr 2013, 19:43
Three different posts on the topic "Investment Advisor: It is well-known that investing in" are merged.

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22 Jul 2013, 22:38
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after POE i was left with A and E.

Since the question ask to explain the serious flaw, no help is provided by option E.it just derives a statement,not the reason behind it.

So A it is.

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23 Jul 2013, 17:48
This is a weaken type question so you are looking for additional information that tends to make the conclusion not true. The conclusion in this argumetn is that he will invest with funds that have a done well over the past two years, after claiming that past performance is related to future investment. The gap between past and two years creates an assumption that two years is sufficient to show past performance.
IEsailor wrote:

a) Managers of many mutual funds that have delivered the highest returns over the past several years have already used
up their best investment ideas and are unlikely to sustain this level of performance in the future This is the point that shows the conclusion may not be true - if they can't sustain then that means 2 years is not connected to past performance = future investment.

b) Mutual funds span a wide spectrum of investment styles and performance objectives and no single fund is suitable
for every investor.The argument eliminates this as an option when he says he chooses the fund that meets his client's objectives - thus he has already chosen an appropriate fund.

c) Many individual investors choose to manage their own portfolios rather than consult an investment advisor. This would not be relevant to the argument becuase he is only discussing the portfolios he manages, not all portfolios

d) The funds that have had the strongest past performance tend to continue to outperform other funds with similar
objectives for many years in the future.This answer helps to strengthen by re-stating the past performance equal future so it certainly does not weaken[color=#ff0000][/color]

e) The number of clients served by the investment advisor has declined by nearly 50% over the past 5 years.Again, he is only talking about the portfolios he manages. The test writers may want you to conclude that he is a bad investor but there is not nearly enough information to do that here.

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23 Jul 2013, 23:14
Although I selected A), I donot like the option since questions the premise "past investment performance is often related to future investment prospects"

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Re: Investment Advisor: It is well-known that investing in   [#permalink] 23 Jul 2013, 23:14

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