Question

You are a member of an investment club that owns shares in a firm that manufactures men’s clothing. Explain the arguments for an against buying
1. shares in a company that manufactures women’s clothing
2. shares in a chemical manufacturing concern

Answer 1

Arguments against buying shares in a company that manufactures women's clothing:

1. High competition in the women clothing leads to a slow growth rate and potential risk in the investment. The competition is the women clothing is so high not only from large brands but also from small boutiques that are a common site in most of the areas, that the growth of any one particular manufacturer is very low.

2. Since the Fund has already made investment in Men's clothing, Investing in women's clothing will not diversy risks of the portfolio and in case of recession in clothing industry will double the impact on the fund.

3. Since the markets like china and bangladesh have cheap labour the manufacturing companies based in America face a lot of competition from these markets to reduce the cost.

Arguments for buying shares in a company that manufactures women's clothing:

1. Since the sales in clothing is stable it is perfect fit for investors who want to protect their capital.

2. Since the growth rate in the industry is low, the dividend payout ratio is high which is good for investors looking for dividends.

Arguments for buying shares in Chemical manufacturing industry:

1. High growth rate: the chemical manufacturing companies have high growth rate thus investing in these companies lead to faster capital appreciation.

2. Since the fund has made investment in clothing industry which has low risk, investing in different industry like chemical manufaturing can help to diversify portfolio.

Arguments for not buying shares in Chemical manufacturing industry:

1. Strict Government Rules: Chemical manufacturer have to abide by the very strict rules framed by the government since the nature of risk involved and since there are so many laws to follow any lape can lead to heavy fines and penalties.

2. Environmental issues: Chemical manufacturer has to face the problem of constant social pressure regarding the waste generated by them which increases the risk of the business.