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 experienc

It seems to be logical, at first glance, to agree with the argument that we should invest in Consolidated industries, because we are expecting increase sales of home heating oil, given that the weather forecast predicts that weather pattern of twenty days with below-average temperatures will continue for several more years. However, the author suffers from many grave fallacies in its assumptions. And in order to fully evaluate the argument, we need a significant amount of additional evidences.

The first piece of evidence we need to collect is the weather conditions in the previous years. The author failed to provide any information regarding historical weather situation. It is possible that previously, the region is experiencing longer period of below average temperatures, such as thirty days or even longer. The author also fails to provide the comparison of the actual temperature between past years and this year. It is also possible that previously, the weather is -30 degrees, compared to -20 degrees nowadays. In both case, this weather pattern can lead to decrease in oil consumption instead of increase.

Another fallacy is that new homes do not naturally lead to higher consumption of oil. There are many factors which impacts whether people will leave in these new homes, which author failed to take into consideration. For example, if the new home is poorly constructed, and suffers from quality problems, it is highly likely that very few people will move in to these homes. What if these new homes are mot accompanied with sufficient facilities, such as the schools are too far away, or there is no garage built nearby? Even if we assume that the newly built homes have high quality, and is likely to attract residents, we also need to consider when will these residents actually moves in. What if the market is stale and very few people are looking for homes. All these factors may impact the number of residents in these newly built homes in the upcoming years. Therefore, it is important that the arguer provides evidence that the newly built homes is highly likely to attract large number of residents in the short term, to ensure that his argument is more cogent and convincing.

Moreover, the arguer also needs to research on whether there is any alternative fuel for heating. The simple fact that people traditionally use oil as major fuel does not necessarily guarantee that it is going to be the case in the future. With the development of technology, new heating methodologies have evolved, and can be gradually replacing the market share of traditional oil. The arguer must complete an industry research on whether there is any alternative heating methodology.

What is more, even if we assume that the region is going to experience lower temperature in future years and oil will remain to be the major fuel for heating, more consumption of oil does not represent more profit for the companies. What if many other companies have made the same forecast, and invest more on this industry as well? In that case, the competition of the industry will become more severe, leading to more marketing expenses and lower profit margin. As we all know, revenue is quantity multiplying price. Even if quantity increases, with decrease in price, the revenue can decrease as a result. On the other hand, profit is revenue minus cost, even if we assume revenue goes up because of the larger consumption, high costs can result in a lower profit. The arguer needs to collect more evidence on the competitors in order to prove that the costs will not significantly go up due to potential competition in the market.

Without the evidence that the temperature of this region are lower than past years, and that the newly built homes are actually going to attracts residents, we cannot be convinced that the there will be higher demand for heating fuel. And without a detailed analysis to prove that oil is continuously going to be the major heating fuel, and the consolidated industry is going to maintain its profit margin, the argument is simply not cogent enough to persuade the client.

To sum up, the recommendation about an investment to an oil retail sale operation is fallible due to its shaky assumptions. The author overlooks the potential questions hidden behind which are also indispensable for such a significant investment. To strengthen the reliability and persuasiveness, the author should offer more accurate weather pattern in the long run and the potential technological revolution, as well as the detailed information of CI and the comparative results with other operations. Or there will be a high risk of wasting money.