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27 Feb 2019, 15:13
Kudos
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“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.”
The strategy memorandum of this investment company contains a number of logical errors. Perhaps the most devious error occurs because the company assumes that the present will echo the past. In other words, predicting that past results are an indication of future results. The investment company erroneously assumes that because the investment has been profitable in the past, it will continue to be profitable in the future. This is a critical error and, arguably, an ethical one given that every piece of investment literature contains the words, "Past results are no guarantee of future performance." A second important error made is equating strong emerging market growth with demand for precious metals. The company makes no effort to support this claim and likely does so with the knowledge of how volatile precious metals as an asset class tend to be. Furthermore, emerging markets are an asset subclass of their own so the investment company has tied success with one volatile asset class to the success of another volatile asset class. Logically, an investment company would understand the performance of asset classes over time and would understand that yesterday's winner are tomorrow's loser and vice versa. In addition, there is no indication that growing emerging markets provide greater demand for precious metals. Again, there is no information that these two things are correlated and thus an error is made. Perhaps over the years when the company realized success in precious metals, emerging market growth did correlate with precious metal demand; however, that correlation does not indicate causation or that any correlation is anything more than coincidental. Finally, the investment company errs logically by assuming any potential greater returns earned from a great allocation of precious metals will compensate for the greater risk incurred due to reliance upon one asset class. It is a common and simple saying but it is unequivocally true that one does not put all his eggs in one basket and investment strategies are no different. By suggesting that investors are best served by increasing exposure to one single asset class is illogical and, frankly, dangerous advice.
The investment company's argument may be strengthened should they produce certain pieces of information. For example, if the company were able to provide evidence that large emerging markets demand precious metals as economic growth is realized, then investors need not fear a logical error. Another piece of research that the company may find indispensable is history of economic patterns around emerging markets and precious metals. If market data indicates a historical, repeatable, and identifiable pattern of emerging market growth and precious metal demand moving together, the argument is strengthened significantly.
There are numerous fundamental logical errors in this strategy memorandum. The investment company cannot logically rely upon future results to mirror past results nor can the company advise that investors are best served by putting all of their eggs in one basket. There are pieces of data that could be used to strengthen the argument if researched appropriately, but as this argument stands, it is highly flawed.
Thanks in advance!
The strategy memorandum of this investment company contains a number of logical errors. Perhaps the most devious error occurs because the company assumes that the present will echo the past. In other words, predicting that past results are an indication of future results. The investment company erroneously assumes that because the investment has been profitable in the past, it will continue to be profitable in the future. This is a critical error and, arguably, an ethical one given that every piece of investment literature contains the words, "Past results are no guarantee of future performance." A second important error made is equating strong emerging market growth with demand for precious metals. The company makes no effort to support this claim and likely does so with the knowledge of how volatile precious metals as an asset class tend to be. Furthermore, emerging markets are an asset subclass of their own so the investment company has tied success with one volatile asset class to the success of another volatile asset class. Logically, an investment company would understand the performance of asset classes over time and would understand that yesterday's winner are tomorrow's loser and vice versa. In addition, there is no indication that growing emerging markets provide greater demand for precious metals. Again, there is no information that these two things are correlated and thus an error is made. Perhaps over the years when the company realized success in precious metals, emerging market growth did correlate with precious metal demand; however, that correlation does not indicate causation or that any correlation is anything more than coincidental. Finally, the investment company errs logically by assuming any potential greater returns earned from a great allocation of precious metals will compensate for the greater risk incurred due to reliance upon one asset class. It is a common and simple saying but it is unequivocally true that one does not put all his eggs in one basket and investment strategies are no different. By suggesting that investors are best served by increasing exposure to one single asset class is illogical and, frankly, dangerous advice.
The investment company's argument may be strengthened should they produce certain pieces of information. For example, if the company were able to provide evidence that large emerging markets demand precious metals as economic growth is realized, then investors need not fear a logical error. Another piece of research that the company may find indispensable is history of economic patterns around emerging markets and precious metals. If market data indicates a historical, repeatable, and identifiable pattern of emerging market growth and precious metal demand moving together, the argument is strengthened significantly.
There are numerous fundamental logical errors in this strategy memorandum. The investment company cannot logically rely upon future results to mirror past results nor can the company advise that investors are best served by putting all of their eggs in one basket. There are pieces of data that could be used to strengthen the argument if researched appropriately, but as this argument stands, it is highly flawed.
Thanks in advance!
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