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.

I do not know about equities, but I invested Rs. 700,000 in a real estate deal 4 years back and sold it now for Rs. 17,00,000. This is more than 220% return.

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

Well I will give you an even better example.  Once upon a time it used to take half a day to get an abortion done in London if you depended on the NHS. Then there was a waiting period for 3-4 days, then it became 7 days. Surely if you draw the mouse long enough you will be able to tell a girl…”You may have to wait 9 months for an abortion”.

Seriously, if you are interested in investments, learn statistics 101.

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  1. As per me , Financial planning is more of Logical thinking and Applying basic stats and number crunching .

    Equity trading might require little bit more of stats which you mentioned agreed .


  2. just yesterday i wrote a long comment requesting you to write for beginners because i could not understand many of the posts – and today i came across this post!!! sigh!! this personal finance journey of mine is going to be a long and tough one (sigh)…. well i have to add statics and finance lessons to my reading lists!!!!!!

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