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16 Aug 2024, 01:30
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Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
55%
(hard)
Question Stats:
63% (02:05) correct
37%
(02:23)
wrong
based on 253
sessions
History
Date
Time
Result
Not Attempted Yet
One method of predicting the future value of a particular company's stock is to attempt to correlate the pattern of its recent performance with the past performance of other companies, even companies in different industries, whose subsequent stock performance is known. This technique, known as "technical analysis," provides a readily available basis for predicting the future value of a company's stock without special knowledge of that company or company's industry.
Which of the following, if true, would most strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis, as described above?
A. For a prediction about a company's stock price to be useful, it must be more accurate or accurate more in advance than the predictions of the rest of the potential buyers and sellers of that company's stock.
B. Getting "inside" information about a particular company about what will influence that company's future stock price is difficult and often illegal.
C. Stock analysts cover a range of companies or even single industries, so they can focus their attention more effectively by using predictive methods that will be applicable across industries and companies.
D. There is a wealth of historical stock performance data which can be analyzed and compared to a particular stock's recent performance.
E. At any given time, the near-term performance of a particular company's stock depends not on industry-specific factors but on trends of buyers' and sellers' behavior that can be inferred from the near past.
Which of the following, if true, would most strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis, as described above?
A. For a prediction about a company's stock price to be useful, it must be more accurate or accurate more in advance than the predictions of the rest of the potential buyers and sellers of that company's stock.
B. Getting "inside" information about a particular company about what will influence that company's future stock price is difficult and often illegal.
C. Stock analysts cover a range of companies or even single industries, so they can focus their attention more effectively by using predictive methods that will be applicable across industries and companies.
D. There is a wealth of historical stock performance data which can be analyzed and compared to a particular stock's recent performance.
E. At any given time, the near-term performance of a particular company's stock depends not on industry-specific factors but on trends of buyers' and sellers' behavior that can be inferred from the near past.
16 Aug 2024, 11:18
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To solve this question, let us deploy IMS's four-step technique.
STEP #1 -> IDENTIFY THE QUESTION TYPE
Let us read the question stem to identify the question type.
STEP #2 -> X-RAY THE ARGUMENT
Let us now read and understand the argument. Since we are to strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis, let us find out what technical analysis actually does.
It provides a readily available basis for predicting the future value of a company's stock without special knowledge of that company or company's industry.
STEP #3 -> FRAME A SHADOW ANSWER
To frame a shadow answer, we must know what the correct answer should do. In this question, the correct answer must strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis.
SHADOW ANSWER: A situation that leads us to believe that predicting the future value of a company's stock accurately without special knowledge of that company or company's industry is possible.
STEP #4 -> ELIMINATE INCORRECT OPTIONS
Options that do not match the shadow answer can be eliminated.
A. For a prediction about a company's stock price to be useful, it must be more accurate or accurate more in advance than the predictions of the rest of the potential buyers and sellers of that company's stock. | NOT A MATCH | This option outlines what must be true for a prediction about a company's stock price to be useful; however, it does not provide any reason to believe that predicting the future value of a company's stock accurately is possible without special knowledge of the company or its industry. | ELIMINATE
B. Getting "inside" information about a particular company about what will influence that company's future stock price is difficult and often illegal. | NOT A MATCH | We need an option that shows predicting the future value of a company's stock accurately is possible without special knowledge of that company or its industry. We are clearly not concerned with insider information. | ELIMINATE
C. Stock analysts cover a range of companies or even single industries, so they can focus their attention more effectively by using predictive methods that will be applicable across industries and companies. | NOT A MATCH | This option explains why stock analysts cover a range of companies or entire industries; however, it does not indicate that predicting the future value of a company's stock accurately is possible without special knowledge of the company or its industry. | ELIMINATE
D. There is a wealth of historical stock performance data which can be analyzed and compared to a particular stock's recent performance. | NOT A MATCH | We are not concerned with the availability of historical stock performance data that can be analyzed and compared to a particular stock's recent performance. Even if such data is available, it does not help us determine whether predicting the future value of a company's stock accurately is possible without special knowledge of that company or its industry. | ELIMINATE
E. At any given time, the near-term performance of a particular company's stock depends not on industry-specific factors but on trends of buyers' and sellers' behavior that can be inferred from the near past. | MATCHES THE SHADOW ANSWER | If a company's stock performance in the near term relies more on trends in buying and selling behavior, which can be inferred from recent past data, rather than on industry-specific factors, it is reasonable to believe that accurate predictions of the stock's future value are possible without needing special knowledge of the company or its industry. This is exactly what we were looking for in the right answer. | MARK AND MOVE
Hence, (E) has to be the correct answer.
STEP #1 -> IDENTIFY THE QUESTION TYPE
Let us read the question stem to identify the question type.
Quote:
The stem indicates a strengthening question.
STEP #2 -> X-RAY THE ARGUMENT
Let us now read and understand the argument. Since we are to strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis, let us find out what technical analysis actually does.
Quote:
What does technical analysis do?
It provides a readily available basis for predicting the future value of a company's stock without special knowledge of that company or company's industry.
STEP #3 -> FRAME A SHADOW ANSWER
To frame a shadow answer, we must know what the correct answer should do. In this question, the correct answer must strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis.
SHADOW ANSWER: A situation that leads us to believe that predicting the future value of a company's stock accurately without special knowledge of that company or company's industry is possible.
STEP #4 -> ELIMINATE INCORRECT OPTIONS
Options that do not match the shadow answer can be eliminated.
A. For a prediction about a company's stock price to be useful, it must be more accurate or accurate more in advance than the predictions of the rest of the potential buyers and sellers of that company's stock. | NOT A MATCH | This option outlines what must be true for a prediction about a company's stock price to be useful; however, it does not provide any reason to believe that predicting the future value of a company's stock accurately is possible without special knowledge of the company or its industry. | ELIMINATE
B. Getting "inside" information about a particular company about what will influence that company's future stock price is difficult and often illegal. | NOT A MATCH | We need an option that shows predicting the future value of a company's stock accurately is possible without special knowledge of that company or its industry. We are clearly not concerned with insider information. | ELIMINATE
C. Stock analysts cover a range of companies or even single industries, so they can focus their attention more effectively by using predictive methods that will be applicable across industries and companies. | NOT A MATCH | This option explains why stock analysts cover a range of companies or entire industries; however, it does not indicate that predicting the future value of a company's stock accurately is possible without special knowledge of the company or its industry. | ELIMINATE
D. There is a wealth of historical stock performance data which can be analyzed and compared to a particular stock's recent performance. | NOT A MATCH | We are not concerned with the availability of historical stock performance data that can be analyzed and compared to a particular stock's recent performance. Even if such data is available, it does not help us determine whether predicting the future value of a company's stock accurately is possible without special knowledge of that company or its industry. | ELIMINATE
E. At any given time, the near-term performance of a particular company's stock depends not on industry-specific factors but on trends of buyers' and sellers' behavior that can be inferred from the near past. | MATCHES THE SHADOW ANSWER | If a company's stock performance in the near term relies more on trends in buying and selling behavior, which can be inferred from recent past data, rather than on industry-specific factors, it is reasonable to believe that accurate predictions of the stock's future value are possible without needing special knowledge of the company or its industry. This is exactly what we were looking for in the right answer. | MARK AND MOVE
Hence, (E) has to be the correct answer.
01 Sep 2024, 00:30
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Bunuel
Official Explanation
Reading the question: the prompt doesn't present much argument but the question stem itself contains an opinion. It asks, what gives us grounds to trust technical analysis? There's not much for us to grab onto. The first sentence discusses "past performance of companies in other industries." And the last sentence goes farther somewhat and points out that we lack knowledge of the company's industry. So, technical analysis is good if 1) industry knowledge doesn't matter and 2) performance of companies in other industries is useful. It's kind of an "anti-industry method," to put it crudely; not investing based on industry knowledge. We look for so called "anti-industry" answer choices as our filter.
Applying the filter: (A) and (B) are neutral on the industry question. (C) is pro-industry, so it's the opposite of our filter - it's a weakener - so (C) is out. (D) seems required; how can we use this method without data? But it's industry-neutral, so it doesn't pass the filter. Moreover, a "wealth of data" may not be required, as long as we have sufficient data. Maybe just one good match for a particular stock is all that's needed, or something less than a complete "wealth." Choice (E) is anti-industry, so it passes the filter.
Logical proof: if we negate (E), that means we need industry knowledge and technical analysis will not work.
The correct answer is (E).
