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28 Jun 2015, 07:16
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Hi all
I just did a practice test, and I was really struggling to come up with 3 points about the argument. In the end, I made a very weak/possibly incorrect third point. Would you be able to rate my response?
The following appeared as part of the business plan of an investment and financial consulting firm.
“Studies suggest that an average coffee drinker’s consumption of coffee increases with age, from age 10 through age 60. Even after age 60, coffee consumption remains high. The average cola drinker’s consumption of cola, however, declines with increasing age. Both of these trends have remained stable for the past 40 years. Given that the number of older adults will significantly increase as the population ages over the next 20 years, it follows that the demand for coffee will increase and the demand for cola will decrease during this period. We should, therefore, consider transferring our investments from Cola Loca to Early Bird Coffee.”
Discuss how well reasoned... etc.
Response:
The argument, in its current form, states that average coffee consumption increases with age, whereas cola consumption decreases with age. Because an ageing population is forecast, this indicates that demand for coffee will grow faster than the demand for cola (and that demand for cola will decrease). The argument then draws the conclusion that the company's investment should therefore be transferred from Cola Loca to Early Bird Coffee, to take advantage of this trend. However, stated in this way, the argument is unconvincing and requires various assumptions and leaps of faith from this reader.
Firsty, the argument makes the assumption that the trends that have been observed, that average coffee consumption increases with age and cola consumption decreases with age, will continue to hold true. Indeed the argument is so confident in this assertion that it says the demand for coffee "will" increase and the demand for cola "will" decrease, due to the projected ageing population. Although the argument has some credibility with a 40 year sample of data, the language used is unreasonably confident. Increased marketing efforts by cola companies for example, could work to counter this trend over the coming years, and older people's consumption of cola may not decline as they have in the past. The argument extrapolates over a long period of time - the next 20 years - so it should use a more moderate tone to account for changes in consumption patterns that could conceivablly arise during that time. While, with the presented data, it could be the case that consumption of coffee increases and consumption of cola decreases, there are many situations in which this will not be the case, and the argument requires the reader to make a leap of faith that current assumptions will hold true over a 20 year period. This is a significant flaw in the argument.
The argument goes on to suggest that, in order to take advantage of this projected consumption trend, investments should be transferred from Cola Loca to Early Bird Coffee. However, this again relies on significant assumptions. Even if it is accepted that the argument's trends are valid, this does not necessarily warrant a change in the company's investments. For example, it could be that Cola Loca has the lion's share of the Cola market, is performing well above the market average, and the stock is performing very well - and that these characteristics are expected to remain true. Conversely, although operating in the coffee market, which is expected to grow - it could be that Early Bird Coffee is a small, poorly managed company, with a small share of the overall market and a poor return on investment. Therefore, switching investments could actually be counterproductive and harmful to the financial consulting firm, even though Early Bird Coffee operates in the coffee market which is expected to grow. The argument therefore overlooks individual characteristics of the two companies in making a recommendation to switch the investments. In order to be strengthened, the argument would need to provide additional evidence for the rationale behind the switch, looking at statistics and performance of the individual investments under consideration. However, in its current form, the argument presupposes too much in making the recommendation to transfer investments.
Finally, while the argument notes trends in consumption patterns, it makes no mention of the size of the relative markets. For example, although coffee consumption may be projected to increase over the coming years, it could be increasing from a much smaller base than cola. Therefore the net value associated with the coffee market may still be less than the cola market. The logical conclusion of the argument - that this means the company should invest in coffee rather than cola - assumes that the two markets are of similar size. However, if the coffee market is much smaller, there may still be much less value associated with it, and returns may also be much more volatile. Therefore, the company could conceivable still be better off investing in cola. The argument needs to provide additional data regarding the size of the two markets in order to support its claims.
In summary, although the argument does have some positive attributes (e.g., the use of evidence over a long time frame), it remains unconvincing for several reasons. It assumes that historical trends will hold true over a long (20 year) timeframe; makes overconfident assertions; does not account for variation in performance of the two companies in the cola and coffee industries; and also does not present evidence regarding the size of the respective markets. Without additional evidence and facts to support its assertions, it remains unconvincing and open to debate.
I just did a practice test, and I was really struggling to come up with 3 points about the argument. In the end, I made a very weak/possibly incorrect third point. Would you be able to rate my response?
The following appeared as part of the business plan of an investment and financial consulting firm.
“Studies suggest that an average coffee drinker’s consumption of coffee increases with age, from age 10 through age 60. Even after age 60, coffee consumption remains high. The average cola drinker’s consumption of cola, however, declines with increasing age. Both of these trends have remained stable for the past 40 years. Given that the number of older adults will significantly increase as the population ages over the next 20 years, it follows that the demand for coffee will increase and the demand for cola will decrease during this period. We should, therefore, consider transferring our investments from Cola Loca to Early Bird Coffee.”
Discuss how well reasoned... etc.
Response:
The argument, in its current form, states that average coffee consumption increases with age, whereas cola consumption decreases with age. Because an ageing population is forecast, this indicates that demand for coffee will grow faster than the demand for cola (and that demand for cola will decrease). The argument then draws the conclusion that the company's investment should therefore be transferred from Cola Loca to Early Bird Coffee, to take advantage of this trend. However, stated in this way, the argument is unconvincing and requires various assumptions and leaps of faith from this reader.
Firsty, the argument makes the assumption that the trends that have been observed, that average coffee consumption increases with age and cola consumption decreases with age, will continue to hold true. Indeed the argument is so confident in this assertion that it says the demand for coffee "will" increase and the demand for cola "will" decrease, due to the projected ageing population. Although the argument has some credibility with a 40 year sample of data, the language used is unreasonably confident. Increased marketing efforts by cola companies for example, could work to counter this trend over the coming years, and older people's consumption of cola may not decline as they have in the past. The argument extrapolates over a long period of time - the next 20 years - so it should use a more moderate tone to account for changes in consumption patterns that could conceivablly arise during that time. While, with the presented data, it could be the case that consumption of coffee increases and consumption of cola decreases, there are many situations in which this will not be the case, and the argument requires the reader to make a leap of faith that current assumptions will hold true over a 20 year period. This is a significant flaw in the argument.
The argument goes on to suggest that, in order to take advantage of this projected consumption trend, investments should be transferred from Cola Loca to Early Bird Coffee. However, this again relies on significant assumptions. Even if it is accepted that the argument's trends are valid, this does not necessarily warrant a change in the company's investments. For example, it could be that Cola Loca has the lion's share of the Cola market, is performing well above the market average, and the stock is performing very well - and that these characteristics are expected to remain true. Conversely, although operating in the coffee market, which is expected to grow - it could be that Early Bird Coffee is a small, poorly managed company, with a small share of the overall market and a poor return on investment. Therefore, switching investments could actually be counterproductive and harmful to the financial consulting firm, even though Early Bird Coffee operates in the coffee market which is expected to grow. The argument therefore overlooks individual characteristics of the two companies in making a recommendation to switch the investments. In order to be strengthened, the argument would need to provide additional evidence for the rationale behind the switch, looking at statistics and performance of the individual investments under consideration. However, in its current form, the argument presupposes too much in making the recommendation to transfer investments.
Finally, while the argument notes trends in consumption patterns, it makes no mention of the size of the relative markets. For example, although coffee consumption may be projected to increase over the coming years, it could be increasing from a much smaller base than cola. Therefore the net value associated with the coffee market may still be less than the cola market. The logical conclusion of the argument - that this means the company should invest in coffee rather than cola - assumes that the two markets are of similar size. However, if the coffee market is much smaller, there may still be much less value associated with it, and returns may also be much more volatile. Therefore, the company could conceivable still be better off investing in cola. The argument needs to provide additional data regarding the size of the two markets in order to support its claims.
In summary, although the argument does have some positive attributes (e.g., the use of evidence over a long time frame), it remains unconvincing for several reasons. It assumes that historical trends will hold true over a long (20 year) timeframe; makes overconfident assertions; does not account for variation in performance of the two companies in the cola and coffee industries; and also does not present evidence regarding the size of the respective markets. Without additional evidence and facts to support its assertions, it remains unconvincing and open to debate.
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