31. In this argument a consulting firm recommends the transfer of investments from
Cola Loca to Early Bird Coffee because, during the next 20 years, coffee demand will
increase while cola demand will decrease. This prediction is based on the expectation
that the number of older adults will significantly increase over the next 20 years,
together with statistics, reportedly stable for the past 40 years, indicating that coffee
consumption increases with age while cola consumption declines with increasing age.
For three reasons, this financial advice may not be sound.
First, the argument assumes that relative supply conditions will remain unchanged
over the next twenty years. However, the supply and cosplayt of cola and coffee beans, as
well as other cosplayts of doing business as a producer of coffee or cola, may fluctuate
greatly over a long time period. These factors may affect comparative prices of coffee
and cola, which in turn may affect comparative demand and the value of investments in
coffee and cola companies. Without considering other factors that contribute to the
value of a coffee or cola company, the firm cannot justify1 its recommendation.
Secondly2, the argument fails to account for the timing3 of the increase in coffee
consumption. Perhaps the population will age dramatically during the next five years,
then remain relatively4 flat over the following 15 years. Or perhaps most of the increase
in average age will occur toward the end of the 20-year period. An investor5 has more
opportunity to profit over the short and long term in the first scenario6 than in the second,
assuming the investor can switch investments along the way. If the second scenario
reflects the facts, the firm's recommendation would be ill-founded.
Finally, the firm unjustifiably relies on the studies that correlate coffee and cola
consumption with age. The firm does not provide evidence to confirm the reliability7 of
the studies. Moreover, while the phrase studies suggest may appear to lend credibility
to these claims, the phrase is vague enough to actually render the claims worthless, in
the absence of any information about them.
In conclusion, the firm should not transfer investments from Cola Loca to Early
Bird Coffee on the basis of this argument. To better evaluate the recommendation, we
would need more information about the study upon which it relies. We would also need
more detailed projections of population trends during the next 20 years
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