The following appeared in a newspaper story giving advice about investments:
"As overall life expectancy continues to rise, the population of our country is growing increasingly older. For example, more than 20 percent of the residents of one of our more populated regions are now at least 65 years old, and occupancy rates at resort hotels in that region declined significantly during the past six months. Because of these two related trends, a prudent investor would be well advised to sell interest in hotels and invest in hospitals and nursing homes instead."
Discuss how well reasoned . . . etc.
The presented investment advice is logically flawed on many counts.
The most basic flaw is an attempt to correlate two unrelated pieces of information. On one hand, we have the percentage of people at least 65 years old in some part of the country. On the other hand, we have occupancy rates at resort hotels over a short period of time. It is implied that the demographics are responsible for fall in occupancy rates: this is not necessarily true. The rates could have fallen over 6 months due to end of tourist season in the area, falling standard of hotel resorts or a sudden increase in crime rate. Without more data it is difficult to say what really caused the decline.
In fact, it is fairly reasonable to expect that tourists and not locals would constitute the key customers of the resort. If that is true, local demographics may not have much bearing on the occupancy rates at all. Even if one assumes that locals are the key customers, old people constitute only around 20% of the population. Absence of their patronage alone may explain a small fall but would still fail to explain the reported significant drop in the occupancy rates. Moreover, is it reasonable to assume that old people do not go to resorts? The fact that the newspaper story makes such strong statements without backing them with any concrete data is surprising.
The story does not stop here, it further goes on to assume that old people in the region not only do not go to resorts, they also remain sick. The basis of such a dire assumption is,yet again, not clear. If people in the region are old but healthy, how would investing in hospitals and nursing homes prove beneficial to anyone?
Concluding, the given advice is seriously flawed and circumspect. The advisor has clearly built a castle in the air and God only help anybody who takes this advice. All investors should be wary of following it until it is backed by a study that can verify its far-fetched claims.
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