lies, damned lies, and numbers lie!

Do numbers lie? Or is it that liars use numbers to lie? Mutual funds are assessed on the basis of their past performance. So the best fund in the last 3 years is likely to be the best fund in the next 3 years – after all we know history repeats itself!

Let us take a cricketing example. Who is India’s best One-Day captain? Is it Sunil Gavaskar (my hand shivers calling him a team player – when he was denied the captaincy in 1979 he scored 36 runs in 60 overs against England!), Azharuddin, Ganguly, Dhoni, Sachin Tendulkar, Kapil Dev or Rahul Dravid?

Well lots of things like how good was the team, against whom did they play, did the captain really control the team (Shrikant was a captain in a team with 4 former captains – it was like Manmohan’s cabinet where Laloo listens only to Sonia!!) etc. However since we do not wish to go into all this (and easily quantify all that for an easy article) we decide to use numbers. No. of matches played and no. of matches won – then the guy with the highest %age can be called the best captain. Easy to do article, everybody is happy. But then numbers lie, do they not? Let us see the results:

Dhoni – 66%                                              Kapil – 54.16

Rahul Dravid –   56                                 Sachin – 35

Ganguly – 53.52                                      Sunil Gavaskar – 40

Azhar – 54.16%

Now if you want to say it is Dhoni, that is fine. However you are under pressure to say it is say Ganguly. You now need to eliminate Dravid. That is easy. Say we will consider only people who have played at least 100 matches. That leaves only Azhar and Ganguly. Now it is tricky. So you put an * and say “Since the match fixing allegations are sub-judice we have not considered Azhar’s numbers…Lo and behold it is Ganguly. Simple.

That is how funds are rated. Gave this example to prove a point. Mutual fund ratings are a little easier. You create a new category “Best small fund (corpus less than 10 crores) from a fund house in Mumbai with its name starting with the letter W” – it is easy to shortlist. Once they have chosen the fund house (who in turn select the scheme) the criteria can always be ‘fitted’ in. The question to ask for the retail guy is “Does rating help him?”. The answer is no. Simple

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