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本帖最后由 y10k 于 2009-11-8 21:22 编辑
TOPIC: ARGUMENT15 - The following appeared in a newsletteroffering advice to investors.
"Over 80 percent of the respondents to a recent survey indicated a desireto reduce their intake of foods containing fats and cholesterol, and todaylow-fat products abound in many food stores. Since many of the food productscurrently marketed by Old Dairy Industries are high in fat and cholesterol, thecompany's sales are likely to diminish greatly and their profits will no doubtdecrease. We therefore advise Old Dairy stockholders to sell their shares andother investors not to purchase stock in this company."
第一次写GRE作文... 没有看过什么模板,可能看起来怪怪的.谢谢.一共花了28分钟.
Outline:
- Share price based on market expectations. Expectations might've already took the survey into account.
- Desire does not equal action, and hard to predict the time frame
- Assume company won’t respond
- Even if sales diminish, profits can rise
The newsletters offers to investors advice to sell or not buy shares of Old Diary, citing the result of a recent survey as evidence and the nature of Old Dairy’s products are high in fats and cholesterols that most respondents of the survey wish to reduce their intake. While the evidence can suggest the possibility that the share price will go down, it is far from rock solid.
First of all, the author ignored the fundamental determinant of a company’s share price: market expectation. Share price is based on the expected value of future profitability of the company, and if an event lowers the market expectation, the share price will go down, and vice versa. However, it could have been the case that many more similar survey results had been released to the general public and the share price of Old Dairy has already reflected these results. In this case, the market expectation for Old Dairy’s future profitability will stay unchanged and so is the share price.
Even if we assume the survey does suggest a trend new to the market’s knowledge, the argument still suffers from many flaws.
To begin with, the author failed to convey credibility by providing more background information and citing the source of the survey. Although the survey tells the “desire” of a market trend, it does not indicate the time frame of such a trend. Behaviors of the market certainly don’t change overnight, and in the case of equity trading, timing is sensitive. The share price of Old Diary may stay flat, if not going up, if the consumers find it hard to decrease their reliance of diets that are high in fats and cholesterol in the next ten years.
The author is presuming that Old Dairy does not react to external changes. In the history of business, those who adapt thrive. It can safely be assumed that the product development and the marketing units in Old Dairy are reading news about this survey as quickly as anyone else. To be fair, the units might have been secretly developing new product lines and marketing strategies that focus on low fat and cholesterol diets. It is not uncommon for a company to re-invent itself when in danger.
Last but not least, profit is the difference between revenue and costs. Take IBM as an example. Amid the 2009 credit crunch, the profit went up despite declining revenue. Even in the absence of new product lines that adapt to market trends, Old Diary can introduce new operations that increase the company’s productivity and effect positive cost management change.
To conclude, I envision many factors that the author failed to take into consideration when evaluating Old Diary’s share price given the background information. The decision to buy or sell is paramountly important to investors, as many bet their lifetime savings on equity trading. Consequently, this necessitates a more thorough analysis on the market, the company’s product strategies, and its operation strategies. |
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