ARG-037

The following appeared in a letter from a firm providing investment advice for a client.

"Most homes in the northeastern United States, where winters are typically cold, have traditionally used oil as their major fuel for heating. Last heating season that region experienced 90 days with below-normal temperatures, and climate forecasters predict that this weather pattern will continue for several more years. Furthermore, many new homes are being built in the region in response to recent population growth. Because of these trends, we predict an increased demand for heating oil and recommend investment in Consolidated Industries, one of whose major business operations is the retail sale of home heating oil."


Write a response in which you examine the stated and/or unstated assumptions of the argument. Be sure to explain how the argument depends on these assumptions and what the implications are for the argument if the assumptions prove unwarranted.


In this letter, the writer states that in the northeastern regions of the United States, oil has been traditionally used for heating in winter months, and, due to decreasing temperatures and an increasing population rate, the writer forecasts an increased demand for heating oil and, therefore, recommends investment in Consolidating Industries, a major retailer of home heating oil. While the conclusion is valid to some extent, the reasoning of this argument is unconvincing due to several unsubstantiated assumptions which, if proven wrong, will seriously challenge the author’s conclusion.


To begin with, the author assumes that the tradition of using heating oil in homes to fend off the cold will continue in the future. If, in the future, the tradition of using home heating oil in the winter begins to peter out, the client would, undoubtedly, lose a portion of the money invested in the company. On a more serious note, if said tradition is abolished and ceases entirely, the client may lose a great sum of money and could potentially reprimand the investment firm for poor advice and judgement, thus marring the name of the firm. Therefore, making a hasty decision without giving further consideration to possible fluctuations in heating materials may end up negatively affecting the company, the consulting firm may, in turn, lose credibility, and clients may lose money, which would all invalidate the writer’s claim.


Second, the author also assumes that the weather forecast is reliable. However, as we know, weather conditions are volatile and quite susceptible to erratic changes. Without being certain that weather conditions won’t fluctuate drastically in the years to come, the consulting firm should not encourage an investment with such ease. If the climate begins to gradually increase over the next couple of years, the need for heating oil would, consequentially, likely be met with a gradual decrease in sales, and the writer’s claim will be negatively influenced.


Furthermore, there is an assumption the writer makes in the above letter. The writer seems to assume that more homes in the region are directly associated to an increased population rate in these regions and a higher demand for home oil. While this could be true, it is only one of myriad possibilities. Some of the homes bought in this region may only be used as summer homes, and the owners may visit only in warmer months of the year, thus they would have little need for home heating oil. Additionally, there may be better, more efficient ways of heating homes in the future, for example, using new construction materials to improve insulation of homes, which could severely diminish or completely eliminate the need for heating oil. Therefore, if the client follows along with the writer’s shaky assumption, they could end up losing money, and the author’s original claim would be weakened.


Lastly, even if the tradition of using heating oil remains consistent, the climate proceeds to decrease, and the increase in homes and population does stimulate an increase in heating oil sales, there still remains one assumption that needs to be addressed. In the final words of the letter, the writer recommends that the client invest in Consolidating Industries due to their prominence in the home heating oil sales market. However, there is no guarantee that Consolidating Industries’s success will persist in the future; perhaps other companies will outnumber Consolidating Industries in sales and flourish in years to come. If this were to be the case, then the client would end up losing the money initially invested in Consolidating Industries. Therefore, the consulting firm should first carry out risk assessment measures, then advise their client on the foundation of their findings. If evidence shows that other companies are predicted to surpass Consolidating Industries in the future, or possess the potential to do so, then the writer’s original recommendation would lose force.


To conclude, in order to decide whether or not the client should accept and implement the writer’s recommendation depends on the validity of certain assumptions within the writer’s letter. If there is little or no foundation and evidence to support the writer’s assumptions, then alternative options should be considered in order to address the decreasing climate and home heating issue in the northeastern region of the United States.


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