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We explained
last week how Cora began her argument about the stock market.
After she developed her claim and reason, her next step was
to collect evidence to support her argument. The claim and
reason look like this:
Claim:
The stock market is the best investment tool (comma),
Reason: BECAUSE charts and statistics prove the stock
market historically offers the best return on our initial
investment
Her thesis
(beginning sentence) reads like this: "The stock market is
the best investment tool, because charts and statistics prove
the stock market historically offers the best return on our
initial investment."
Cora gives
the reader clues on what to expect next. From this beginning
sentence, we - as readers - know that she will include charts
and statistics in her paper. If she didn't include these tools,
then she didn't support her argument correctly or, alternately,
she created the wrong argument in the first place. Sometimes,
after we gather evidence, we realize our arguments don't hold
water. We then keep the evidence and use it to modify our
argument. One of the rules of an argument is that researcher
doesn't bend the evidence to match their argument. There are
lots of names for this last practice, but my favorite is "foolhardy."
The stock
charts for the DJIA Index (Dow Jones Industrial Average, or
DOW), NASDAQ (National Association of Securities Dealers Automated
Quotations), and the NYSE (New York Stock Exchange) are on
the front page at BUYandHOLD. Cora decided to use these three
major markets over foreign stock markets or other forms of
investment. However, she needed charts to cover a long timeframe,
because she wanted to show a marked improvement in these markets
historically. So, we went to BigCharts.com to uncover evidence
that covered at least a ten-year span.
Cora chose
the ten-year
NASDAQ chart first because NASDAQ began to trade in 1971,
so it's the youngest of the three markets mentioned above.
Let's look at this chart carefully, because we can use the
same observations and questions Cora developed for this chart
on the other two charts. First, she noted the beginning line
contained in the lower left of the top part of this chart.
NASDAQ begins in 1994 below 1,000 (dates are at the bottom
of the chart). With a little research, we found the NASDAQ
closed at 1,000 for the first time on July 17, 1995. This
means that this chart is uphill from this date. Even though
it went south of Mt. Everest (Cora's moniker for the peak
on this chart) after 2000, today, it's a hair above 2,000,
which is double what it was in 1995.
From this
perspective, Cora viewed the DJIA ten-year chart (which shows
a peak at 2000, also, but less of a volatile drop after that
date, and a subsequent rise), and with the NYSE chart (which
peaks in late 2000, drops slightly, and is also currently
rising). All three charts show a significant increase over
the past decade, in spite of the drops before 2001. Notice
here she's not peering intently at the intricate little peaks
and valleys, but at the overall picture.
Her next
comment was, "Mom, even if a person doesn't diversify, and
if that investor holds onto their equities for ten years,
they'll see a profit in spite of the drops after 2000! I've
proven my argument."
"Wait
a minute," I warned. "These three markets contain numerous
stocks. How would I know if my 'one' equity would rise with
the overall market?"
Cora just
stared at me, that penetrating glare that ponders, "Are you
about to ruin my day?"
I pointed
out that each market carries numerous stocks. If we invest
in an index stock, then we might experience the overall general
increase over the past decade. However, many people choose
to invest in individual stocks, and sometimes these equities
don't mirror the overall market movement.
Cora brightened,
because she knew where I was going with this. She is, after
all, a genius like her mother. "I get it - I've proven my
argument, but I guess I have other things to explain."
We went
back to the book on "The Craft of Argument" by Joseph Williams
and Gregory G. Colomb to see what they had to say. We discovered
our dilemma in chapter seven, where we learned that Cora needed
to "warrant" her claims and reasons. What does that mean?
A warrant, basically, holds the reason to the claim with evidence.
For instance,
Cora states that stock markets are the best investment tools,
and she's found the charts and stats to prove this. However,
the glue that holds these two together is the warrant that
this would happen only:
- If
a person invests in an index fund - or a fund that represented
the market as a whole (and this warrant requires much more
evidence).
- If
the investor diversifies to avoid casualties caused by singular
equities that refuse to follow the upward trend of their
market.
- If
the person is a long-term investor.
Now that
she has these warrants to justify her reasons to her claim,
she can begin to build her paragraphs based on her evidence.
Of course, the explanation of warrants is really much more
sophisticated than this, but for Cora's purpose, our simple
explanation will do for the moment.
Now, she
needs to do a little more research and conclude her argument.
Next week, we'll give you the final assessment of her work,
and you can decide if her claim is reasonable.
Until
Then,
Linda Goin
The securities
markets are subject to the risks of fluctuating prices and
the uncertainty of rates of return and yields inherent in
investing and past performance is no guarantee of future results.
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