Securities Industry Regulator: Brokerage “Buy” ratings are suffering

Question

CR INFERENCE SERIES: Question 1) Securities Industry Regulator

Securities Industry Regulator: Brokerage “Buy” ratings are suffering from a credibility gap. There is a far greater proportion of “Buy” ratings than “Sell” ratings. In fact, 80% of all major financial institution’s ratings are “Buy” ratings. Given that inflated volume of “Buy” ratings, it’s hard to trust the quality of those ratings, and equally challenging to take them seriously. Even the simple act of reducing a financial institution’s analysis to just “Buy”, “Hold”, or “Sell” is dubious since a company’s financial outlook is typically quite complex. Accordingly, a financial institution’s investment rating is rendered almost meaningless.

If the Securities Industry Regulator’s statements are true, then which of the following must be true?

Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future.

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings.

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EMPOWERgmatVerbal · Accepted Answer

CR INFERENCE SERIES: Question 1) Securities Industry Regulator

Securities Industry Regulator: Brokerage “Buy” ratings are suffering from a credibility gap. There is a far greater proportion of “Buy” ratings than “Sell” ratings. In fact, 80% of all major financial institution’s ratings are “Buy” ratings. Given that inflated volume of “Buy” ratings, it’s hard to trust the quality of those ratings, and equally challenging to take them seriously. Even the simple act of reducing a financial institution’s analysis to just “Buy”, “Hold”, or “Sell” is dubious since a company’s financial outlook is typically quite complex. Accordingly, a financial institution’s investment rating is rendered almost meaningless.

If the Securities Industry Regulator’s statements are true, then which of the following must be true?

Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future.

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings.

Official Explanation

Question Type  : Inference
  Boil It Down   (Simplified & Abbreviated Summary of the Prompt): Too many “Buy” ratings/oversimplifies -> Ratings almost meaningless
  Goal  :  Select the option that has to be 100% logically true from the prompt

Analysis  :  This is a straightforward Inference question. We need to find an option that follows with 100% certainty. In Inference questions, GMAC can be expected to deliver 2 types of incorrect options: 
 1) Those that are too extreme to be supported from the facts given
2) Options that seem reasonable, but are not supported from the facts given

This question has both. Let's see which option has to be true:

Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future. 
 From the prompt, can we conclude that the ONLY way an investor can profit is if he or she confirms the merits of a company? No. There could be other ways. Gone.

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future. 
YES! 100% True. Here’s why. On the GMAT, the word “guarantee” means 100%. Now, the prompt tells us:
 Too many “Buy” ratings to take them seriously
A company’s financial outlook is complex
Ratings are rendered almost meaningless

Now, can you say with 100% certainty that a “Buy” rating means that a company is GUARANTEED (with 100% certainty) to have a strong financial future? No way. Therefore this option MUST BE TRUE.

Ⓒ Financial institutions should refrain from issuing “Buy” ratings.  
 This prompt doesn’t provide enough information to dictate what financial institutions should or should not do. Gone.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before. 
 Even though there seems to be an overwhelming volume of “Buy” ratings, do we know for certain that the ability of a company to earn one is easier than ever before? For all we know, 10 years ago in Q2 it was even easier to earn one. Gone.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings. 
 This is DEFINITELY the runner-up option. This option suffers from two flaws, and one of them is incredibly subtle and holds a key to GMAT greatness. 
 1) Increasingly? Do we know that the rate of meaningless ratings is actually increasing? No. Maybe it’s just holding steady. Or maybe it’s even pulled back a little bit recently.
2) Now this is the MASSIVELY important thing to recognize. Even if you spotted this difference, acknowledging what it represents will help you boost your score across the entire GMAT.

The prompt says: “Accordingly, a financial institution’s investment rating is rendered almost meaningless.” But, this option says: “Increasingly, financial institutions are issuing meaningless investment ratings.” Is there a difference between “almost meaningless” and “meaningless”? Absolutely. "Almost meaningless" means that the rating still holds some meaning, whereas "meaningless" means totally devoid of any meaning. That's a big difference. From the prompt, do we actually know that even a single rating is meaningless? No.

The Bigger GMAT Picture  
Every GMAT has a twist. Even the easy ones. The harder questions, have more subtle or complex twists. Now, the reason why this option is so important is that it shines the spotlight on a skill that every 700+ test-takers possesses: the ability to read carefully enough to catch the twists. If you know you can improve the intensity of your reading to catch distinctions like the one here, you are looking at a big source of points.

If you caught that distinction when you read this question, then bravo! Keep honing that skill. It will deliver a big payout for you if you can execute it on your real GMAT.

◀ CR EVALUATION SERIES: Question 3) Domestic Airfares Have Risen

▶ CR INFERENCE SERIES: Question 2) Per Unit, Compact Fluorescent Light Bulbs

Patronus · Answer

Conclusion: Financial investment rating is meaningless!
Premise: "Buy" ratings are suffering from credibility gap as they are "inflated" and therefore hard to trust.

Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future.
There is no talk about "profit", "investor" or "financial future" in the argument.

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.
Again, no talk about "financial future" in the argument.

Ⓒ Financial institutions should refrain from issuing “Buy” ratings.
"refrain" is a strong word. The argument is simply presenting facts, and is not giving any opinion to accept the ratings or refrain from it.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before.
No talk on ratings becoming "easier". All we know is that 80% of the major financial institutions are using "Buy" ratings, but was it easier for them to earn those ratings is not mentioned.

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings.
This is what follows from the argument directly.
To repeat the argument succinctly: 80% of the institutions have issued "Buy" ratings, and these ratings are hard to trust.
This has resulted in a huge credibility gap, and rendered the ratings meaningless as per the conclusion.

Therefore, 80% of the institutions are issuing meaningless ratings (which is what more or less said in this option)

Edit: After thinking about the argument, I have to say that E is incorrect. But in that case, I find no answer correct. Not even B!

Because IMO, "outlook" and "future" are different. Please do explain the OA.

vivekkumar987 · Answer

If the Securities Industry Regulator’s statements are true, then which of the following  must be true?

It is must be true question, so we  can’t deviate even a small thing from the question stimulus 
Ⓐ An investor can only profit from an investment if he or she confirms the merits of a company’s financial future. –  “Can only profit”  we don’t about that – Extreme words

Ⓑ A “Buy” rating does not guarantee that a given company will have a strong financial future.

Ⓓ The ability of a company to earn a “Buy” rating has become easier than ever before. –  “become easier than ever”,  we are doing any comparison

Ⓔ Increasingly, financial institutions are issuing meaningless investment ratings. –  The word increasingly is wrong , since it is nowhere mentioned. A very close answer

stevelev · Answer

Wow, E is really tempting. I had to stop myself from diving in to E. The reason why I nixed E is that the paragraph does not support the assertion that the ratings are meaningless. It just says that it renders them "almost meaningless". B is the only answer we can deduce.

KS15 · Answer