statistics is difficult to understand….

Understanding mean, median, mode, standard deviation, regression, reversion to the mean – is a pre-requisite to understand financial markets.

Let us see some simple examples:

It rained 90mm in Mumbai on 22nd July. If it rains like this for 6 months continuously, Mumbai will be drowned.

It was 43* C in Lucknow on 23rd May. If it scorched like this for 9 months continuously, all of Lucknow will be dry.

Sir our fund has given 30% p.a. return in equities last year, if you get this kind of return for the next 30 years, your investment of Rs. 1 LAKH will become Rs. 26.19 CRORES.

Sir RBI bonds are giving you a negative return – 8% gross means about 5.4% net of tax. If inflation is assumed to be at 11.98%, you are actually getting a NEGATIVE RETURN OF 6.58%. If this continues for 20 years, your money will be worth NOTHING.

Can any reader refute these 4 statements? If you cannot, you should believe all the 4 statements, should you not?

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