sgpk242 wrote:
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.
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!