Saturday, January 07, 2023

Lies, Damned Lies, and Statistics

If you want to talk about a stock's performance over a certain time period, it's best and most accurate to describe its percentage increase or decrease from the start of the period to the end of the period.  Why?  Because in general you don't average averages:

If a stock goes from $10 to $100 in a year an investor has a 900% return. If it drops from $100 to $10 the next year it only dropped 90% so an investment advisor could truthfully say that there was an average 405% rate of return for two years while the investor earned zero. A stock can go up an infinite amount and can only go down 100% so don’t always trust statistics. They are as easy to manipulate as climate computer models.

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