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

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

“Homes in the northeastern United States, where winters are typically cold, have traditionally used oil as their major fuel for heating. Last year that region experienced twenty days with below-average temperatures, and local weather forecasters throughout the region predict that this weather pattern will continue for several more years. Furthermore, many new homes have been built in this region during the past year. Because of these developments, 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.

The memo states an investment advice for Consolidated Industries because of a potential increase of demands for heating oil. However, the statement needs answering to the following questions.

First, the author claims that the climate forecasters predict that it will continue staying cold for several more years. Still, how many years will the weather last, and what is the temperature during the years? If the cold remains for only one or two years, the investment will not have any profit because the demands will drop once the weather becomes warm. Also, if the predicted temperature is actually less than 1 degree lower than the current degree, the demand of the fuel will not grow very much, and thus the investment will not be profitable.

Moreover, the author needs to prove that the residents will keep using heating oil as their major fuel for heating. If the demands for oil increase, the price may go higher, and the residents are likely resort to other substitutes. Considering the cost of the oil, if there are subtitutes, such as natural gas, which is cheaper than oil, the demand of the oil will go down.

Also, the author contends that there are many new homes in response to recnet population growth. Nevertheless, some of the homes may be empty. The author needs to provide a valid proof for the actual growth number of the population. Even if the population grows, how many year will it grow? If the population starts to drop in the next year, the demands for the oil will reduce accordingly.

Last, is the current financial environment benefit for investment? If the general stock prices drop significantly, the market is risky for new investment. Also if the government announces new financial policy which harms the industry, it is possible that there will be no net profit to invest the company now.

The author needs to answer the above questions to strengthen his or her statement.