The investment firm OTSI specializes in making investments for its

Question

The investment firm OTSI specializes in making investments for its clients in particular foreign stock markets. OTSI’s investment decisions in the Nadurian stock market have been particularly well judged—it increased its clients’ investments in that market just before each major market rise and decreased their investments just before each major fall. Clearly, therefore, any investor wanting to make money in the Nadurian market will do well by investing with OTSI.

Which of the following, if true, most seriously weakens the argument?

A. The analyst at OTSI who was responsible for making investments in the Nadurian market has just left the company.

B. Over the years that OTSI has been investing in the Nadurian market, the balance of rises and falls in that market have resulted in a substantial overall rise.

C. OTSI has been almost as successful with investments in other foreign stock markets as it has been with investments in the Nadurian market.

D. Some of OTSI’s competitors have been almost as successful as OTSI with their investments in the Nadurian market.

E. During the period that OTSI has been investing in the Nadurian market, stock markets in some other countries have risen far more than the Nadurian market has.

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Official Answer

A

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GMATNinja · Accepted Answer

Let's assume that (B) is true: there have been ups and downs in the Nadurian market, with an overall upwards trend. Now consider three hypothetical investment firms operating under those conditions:

Firm A went with a hands-off approach. Instead of trying to time the market, they simply left their clients' money sitting passively in the Nadurian market. Thanks to the "substantial overall rise" over the years, Firm A's clients enjoyed a healthy return on their investments. Hooray, Firm A!
 
 Firm B (like OTSI) went with a more active approach and were very successful at timing the market (predicting the rises and falls). Before every major fall, Firm B moved money out of Nadurian markets, and before every major rise, Firm B moved money into Nadurian markets. Both Firm A and Firm B benefitted from the OVERALL upwards trend, but Firm B did even better than Firm A by minimizing losses during the falls and amplifying gains during the rises.
 
 Firm C also tried to time the market, but they failed miserably. Before every major fall, Firm C poured a bunch of money INTO Nadurian markets, and before every major rise, Firm C moved money OUT OF Nadurian markets. So even though there was an overall upward trend, Firm C failed to capitalize on that trend and instead lost a bunch of money (or perhaps made only very modest gains). Boo, Firm C!

So the conditions described in choice (B) don't guaranteed success for an investment firm. Also, we know from the passage that OTSI, like Firm B above, did a great job timing the market and thus outperformed the market. For example, maybe the overall trend was, on average, a 10% increase every year, but Firm B achieved, on average, a 20% gain per year every year thanks to their successful market timing.

Choice (B) might explain why Firm A was able to do okay, but that doesn't hurt the argument: Firm B and OTSI earned the best possible returns thanks to their successful market timing, so any investor would still be inclined to go with Firm B, not Firm A.

I hope that helps!

Vartika2525 · Answer

Can someone explain why D is wrong?

Manifesting710 · Answer

Conclusion ; “ Clearly, therefore, any investor wanting to make money in the Nadurian market will do well by investing with OTSI. ”

in my opinion 
Since, the conclusion does not state that investing in OTSI is the only option to make money, Option D becomes irrelevant, as
1) we don’t really care about the other companies 
2) “ almost as successful as OTSI” still means OTSI is more successful and hence you would make more money through OTSI, even if it’s slightly more

I ended up going with A even tho it was kinda obvious but I felt all the other option ended up strengthening the conclusion or are irrelevant

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GMATNinja · Answer

(D) says that OTSI's competitors have been  almost  as successful as OTSI with their investments in the Nadurian market. That implies that OTSI did BETTER than its competitors! And even if the competitors did just as well as OTSI, that wouldn't change the fact that OTSI also did well.

The conclusion is that any investor wanting to make money in the Nadurian market will do well by investing with OTSI. What happened with the competition doesn't change what happened with OTSI: they did well in the past, so we expect them to do well in the future (even if competitors also do well).

(A) is a much better answer -- if we lose the person responsible for the past success, then we have no reason to expect that the success will continue.

I hope that helps!

sgpk242 · Answer

GMATNinja  can you please explain why B is wrong? Maybe I focused on the wrong part of the conclusion. I was torn between A and B, but ultimately chose B because B says that performing well in the market is not due to OTSI's investment choices.

reed990 · Answer

I don't like any of the options: 
A) it didn't say how important the analyst plays the role. If the person left, but the investment simulation model or the principal strategy is well established, it will not make any big change; 
B) C) D) E) Irrelevant to the conclusion. Regardless of the competition or opportunity miss in other markets or a greater ROI, investing with OTSI will make money as the conclusion states.

Mantrix · Answer

P1: Investment firm O specializes in making investments for it's clients in particular foreign stock markets.
P2: Reason is given, as o's investment decisions are well judged as it increases the clients' investment when market about to rise and it decrease the investments before market about to fall.
C: anyone want to invest will do by investing with O. (future)

Weakens;

A. Analyst that was responsible for making investments in the market has left the company. (so depicting the Cause and effect, Analyst in the company was there, hence they are able to predict the market. but if investor leaves the company, there is no reason to believe that they will predict that well.) so true weakener.

B. this option is depicting the trend in the market, not relevant to the discussion. (irrelevant)

C. this is strengthen the conclusion (180 degree answer)

D. So, this is also slightly strengthen the argument, as O is successful like its investors.

E. we are no concerned about the other country market. (irrelevant)

VerbalBot · Answer

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The investment firm OTSI specializes in making investments for its

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