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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