The following appeared in a newsletter offering advice to investors Over 80 percent of the respondents to a recent survey indicated a desire to reduce their intake of foods containing fats and cholesterol and today low fat products abound in many food sto

According to the prompt, the author recommends that the shareholders of Old Dairy company should sell their shares and other investors should refrain from purchasing stock in this company. The reason given by the author to support his recommendation is that, according to a recent survey, people have a desire to reduce their intake of foods containing fats and cholesterol. This might result in a direct impact on the stock price of Old Dairy company, as the products marketed by them are high in fat and cholesterol. But before this recommendation is accepted, the following three questions must be answered.

To begin, does the ‘recent survey’ represent the choices of the majority of the population? In my opinion, the credibility of the survey is questionable. It is mentioned that 80 percent of the responders wanted to reduce their intake of foods containing fats and cholesterol. But, there is no mention of the number of people survey. It might be the case that, the responders to the survey were very less and thus the result of the survey does not represent the decisions of the masses. It also might be the case that the survey had a narrow scope – such as, it was conducted in a single city or outside a supermarket.

Moreover, even if we consider that the survey represents the voice of the masses, it is assumed that all people who ‘desire to reduce’ their intake of foods containing fats and cholesterol, will abruptly shift to low-fat products from the next day. It should be noted that there is a huge difference between thinking of doing an action and actually implementing it. Thus, the idea of a direct impact on the share price seems a bit far fetched.

Furthermore, it is assumed that Old Dairy Industries will not bring in a new low-fat product to the market, but will continue with the same fatty foods products. As the population becomes health oriented (as evident from the survey), it is implict that Old Dairy Industries may bring in a wave of new ‘low-fat’ products to the market, which will have a completely opposite impact and their share prices might grow. Also, it is assumed that all the profit that Old Dairy makes comes from fatty food products. It might be possible that, they currently are also in the businesss of selling other products that have a huge demand in the market.

In conclusion, the current state of the argument is considerably flawed due to its reliance on several unjustified assumptions. If the writer is able to answer the three aforementioned questions and is able to provide concrete evidence, perhaps in the form of a comprehensive analysis of the stock prices of Old Dairy, then the validity of the recommendation of a bearish outlook on Old Dairy Industries can be fully evaluated. It is imperative that while making any investment decision, we should not rely on the outcomes of a single survey and should do our own in-depth research regarding the financial conditions of the company.