John, a stock broker, has a list of companies whose shares he

Question

John, a stock broker, has a list of companies whose shares he recommends his clients to invest in. Over the past one year, the share price of 20 companies listed on the stock exchange has appreciated by 100% or more and 16 of these companies are part of John’s list. Thus John claims that he is an expert at picking stocks and that more and more investors should park their funds with him to get the maximum return on their investment.

The answer to which of the following questions would be most important in determining whether an investor should park his funds with John?

(A) How many companies are there on John’s list?

(B) Whether any other stock broker has also showed similar or better performance last year?

(C) What is the total number of companies listed on the stock exchange?

(D) Has John shown similar results in the previous years as well?

(E) Does John hire the services of someone else to identify stocks in which his clients should invest?

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IanStewart · Accepted Answer

It's possible 99.9% of the companies on the stock exchange are on John's list, and John's list is thus essentially guaranteed to include any well-performing company. So the number of companies in John's list matters.

If we're deciding whether to go with John or with someone else, we clearly care about how other investors perform, because even if John is good, someone else might be better.

If only 20 companies are listed on the stock exchange, then literally every investor did well, and John's results are entirely unimpressive, so the number of companies on the stock exchange clearly matters.

If John had horrible results for twenty years, and then had one good year this year, then this year might have just been a fluke, so John's previous results matter.

So the question has four right answers, A, B, C and D. Only E is clearly wrong; we don't care how John gets his results if we're deciding whether to invest with him (we're not evaluating whether John is an expert, only whether to "park funds", whatever that means, with John). This is, like most prep company questions, badly written and badly reasoned, so I wouldn't pay any attention to it.

divyadna · Answer

The answer to which of the following questions would be most important in determining whether an investor should park his funds with John?

Conclusion:Thus John claims that he is an expert at picking stocks and that more and more investors should park their funds with him to get the maximum return on their investment.

(A) How many companies are there on John’s list?

(B) Whether any other stock broker has also showed similar or better performance last year?
CORRECT

If the answer to this question is YES, this weakens the conclusion.
If the answer to this question is NO, this strengthens the conclusion.

(C) What is the total number of companies listed on the stock exchange?

(D) Has John shown similar results in the previous years as well?

(E) Does John hire the services of someone else to identify stocks in which his clients should invest?

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Deep32470 · Answer

ohn, a stock broker, has a list of companies whose shares he recommends his clients to invest in. Over the past one year, the share price of 20 companies listed on the stock exchange has appreciated by 100% or more and 16 of these companies are part of John’s list. Thus John claims that he is an expert at picking stocks and that more and more investors should park their funds with him to get the maximum return on their investment.

The answer to which of the following questions would be most important in determining whether an investor should park his funds with John?

(A) How many companies are there on John’s list?--Yes it may be a good point to judge his performance. Since it might be that he has a list of 100 companies out of which only 16 had shown good performances and rest average or below average. Or it might be that he has a list of say, 25 company stocks out of which 16 has shown good growth.

(B) Whether any other stock broker has also showed similar or better performance last year?- However for selecting john or not, it will also depend on whether some other broker have shown similar or better performance than john. Again it will depends on both's individual performances with regards to their owned stocks.
It might be that john owns 25 stocks out of which 16 have shown good performances, while other broker have 100 stocks out of which 25 have shown good performances or vice versa. So i think the options could be more elaborative to select the final best answer.

(C) What is the total number of companies listed on the stock exchange?

(D) Has John shown similar results in the previous years as well?

(E) Does John hire the services of someone else to identify stocks in which his clients should invest?

szcz · Answer

I think option C, D and E can be eliminated easily. But between option A and B, I am not very sure. Would request an expert's reply.  IanStewart   Bunuel   KarishmaB   GMATNinja

(A) How many companies are there on John’s list?
Even if we know how many companies are there on John's list, we cannot determine his overall performance. Sure, if we know that there are 16 companies on John's list then this question does help us. But in case of more than 16 companies, we need to know how the remaining companies have performed, to get an overall picture.

(B) Whether any other stock broker has also showed similar or better performance last year?
If another stock broker has shown much better performance, then an investor parking his funds with John would not be a good option and vice versa. Ofcourse we can also say that the argument speaks specifically about John's performance and hence this option is out of bounds, but I still think this option deserves a 2nd look. Further we have had official gmat questions where options such as these have been chosen, when no other better options are present.

Bunuel · Answer

Official Explanation

Answer: A

What if John has every company listed on the stock exchange on his list? Then, even though the best performing companies will be part of John’s list, the worst performing companies will also be part of his list. As against this, if John has 30 companies on his list, then his strike rate is very good. So to evaluate John’s argument, we need to know how many companies he has on his list. A states this and is the best answer.

(A) The correct answer.

(B) The performance of other stock brokers is outside the scope of the argument. We are only concerned with evaluating John’s argument.

(C) This fact is irrelevant to evaluating John’s argument.

(D) John’s previous performance is irrelevant in analysing his current performance.

(E) Even if this is the case, it makes sense to invest with John as long as his argument can be justified.

Reeshik · Answer

I am confused among options A, B and D. I saw the explanation for A and B , but no explanation is there for eliminating D. I might be possible that stocks that John had on his list did well and it was just a fluke and in previous years stocks that were listed on his list might had done bad.

correct me if I am wrong !!

correct me if I am wrong !!

Raman109 · Answer

Understanding the argument - 
John, a stock broker, has a list of companies whose shares he recommends his clients to invest in. - Background information. 
Over the past one year, the share price of 20 companies listed on the stock exchange has appreciated by 100% or more and 16 of these companies are part of John’s list. - Fact. Be mindful of "20." "20" is not John's portfolio's overall list of companies. This is the list of total companies that outperformed on the stock exchange. Maybe John had 2000 companies in the portfolio, and only 16 were among the top. Or perhaps he has 17 companies in his portfolio, and 16 outperform. This information will be good, but we don't have it now.

Thus, John claims that he is an expert at picking stocks and that more and more investors should park their funds with him to get the maximum return on their investment. - Conclusion.

The answer to which of the following questions would be most important in determining whether an investor should park his funds with John?

Option Elimination - Evaluation.

(A) How many companies are there on John’s list? - Yes, this is good information to access. 2000 or 17.

(B) Whether any other stock broker has also showed similar or better performance last year? -- Say the answer is yes/no, and the conclusion will remain valid as we are concerned about John here. The conclusion does not say investors should only invest in John's portfolios. The conclusion says, " John claims that he is an expert (not the only expert) at picking stocks and that more and more investors should park their funds with him (and not only with him." Distortion.

(C) What is the total number of companies listed on the stock exchange? - Out of scope.

(D) Has John shown similar results in the previous years as well? - We are concerned about the "over the past year." Out of scope.

(E) Does John hire the services of someone else to identify stocks in which his clients should invest? - out of scope.

AdithyaNanjaraj · Answer

@experts help needed in understanding the chain of thought here,

Given the passage outlines that John has got 16 out of 20 on his list, would it not mean that we would have to check if others got more companies than him (aka option B).

My thought on option A is the below :-
Even if there was 100 stocks of which only 16 showed a 100% appreciation, that would still give him a 80% (16/20) success rate, if other broker got, say 18 then that would translate to a 90% success rate, so having a lot of stocks or very little names on his list would not play a pivotal role in selecting John over someone else.

napolean92728 · Answer

The correct answer is:  (A) How many companies are there on John’s list?

✅  Why (A) is the correct answer: 
To evaluate John's claim that he is an expert stock picker, we need to assess whether his recommendations are truly selective and effective.
 
 Suppose  John's list contains a large number of companies , say 100 or more. In that case,  the fact that 16 out of 20 well-performing companies were on his list is less impressive  because with a broad list, the chances of covering high-performing stocks increase by probability alone. 
 However,  if his list had only 20–30 companies , and 16 of them were among the top 20 performers, then that’s a  strong indicator of his stock-picking skill .  
This information is crucial to determine whether his performance is due to  skill or just wide coverage .

❌  Reasons for eliminating the other options: 
(B) Whether any other stockbroker has also showed similar or better performance last year?
 
 While useful  for comparative analysis , this does  not directly evaluate John’s actual performance  or skill. Even if others performed well, it doesn't negate or confirm John's abilities. This question is  less critical than understanding the size of John's list .  
(C) What is the total number of companies listed on the stock exchange?
 
 This might help understand the universe of choices, but  doesn’t directly impact John's claim . Whether there are 500 or 5000 listed companies, what matters is how  concentrated or effective John’s recommendations were .  
(D) Has John shown similar results in the previous years as well?
 
 This is  relevant for consistency , but  not as immediately important  to evaluate the  validity of his claim about the past year , which is the basis of his current promotion. Once we confirm the current year's performance was impressive,  then  we’d look into historical consistency.  
(E) Does John hire the services of someone else to identify stocks in which his clients should invest?
 
 This concerns  how John operates , not  how effective the recommendations are . Whether it's John or his team doesn’t affect the  validity of the stock-picking success .

Su1206 · Answer

Except E, other options seem to be correct. A and D are extra convincing, but B and C are good too. @experts, please tell why B, C and D are incorrect answers,

DmitryFarberMPrep · Answer

I wish we could retire this poorly-written question. Ian Stewart debunked it pretty soundly in 2023! This one is not worth your time . . .

John, a stock broker, has a list of companies whose shares he

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