Use and Misuse of statistics…

I am very excited about doing a series of articles on lying with figures. One of my students sent me a Wharton study and the following line caught my attention. I thought it should be shared. Many of you have seen the ratings done by many websites about fund performance. “We are the world’s best fund in 13 years” – should have surely caught your attention. Did you notice a fine print saying their rank was in 4 digits (yes four digits) in the One year category? Using statistics
to mislead is not new nor a one time event.

Here is a quote:
“Another example of disputed statistics concerns a March Wall Street Journal advertisement for the Dreyfus Funds. The ad notes that its Intermediate Term Income Fund achieved a four-star Morningstar rating, says David Peterson, an independent statistical consultant based in the Research Triangle area of North Carolina and a member of the American Statistical Association.
“The ad was careful to point out that past results are no promise of future results, but fails to mention that Dreyfus has at least 19 mutual funds,” says Peterson. “Naturally, the best among them at any moment in time is likely to be pretty good although conversely, the worst of them — which are not mentioned in the advertisement — are likely pretty bad, even if there is nothing fundamentally unusual about any of the 19 funds.”

Ha ha ha…you should see the face of the marketing manager if you ask him “Do you know how many 5* funds are there? And the no. keeps increasing? And please can you tell me your rank for 1,3,5, 7 years? And what are your returns on a SIP basis? Have you consistently beaten the benchmarks? And all the marble in you office reception – PRAY TELL ME HOW IT HELPS ME? In other words can you not reduce the amc charges?

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2 Responses to “Use and Misuse of statistics…”

  1. Yup .. You hit at the best place 🙂

    Even in India this happens a lot , I recently saw Sun Birla Tax Relief Fund ad as “World’s Best Fund for 14 or 16 yrs” by Blah blah blah … Not that I dont believe about its good ness .. but its a turn off seeing one making claims like this .

    When I choose any Mutual funds , I keep it simple and Logical

    1. If a fund is good , Its return over all the time frame should be respectable like Since Launch , 10 yrs , 5 yrs , 3 yrs .
    2. return over 1 month , 6 month does not count much to me , as Its so short term that Its Returns more depends on other factors rather than their abilities .
    3. The Fund has to beat its benchmark most number of times .. Return of 50% is not enough if it has not beat its benchmark by respectable margin .
    4. AND some more things …


  2. Last week I was watching ET TV’s Investor Guide. One very prominent “Head of Wealth Management” came on air and said “Over the past 5 years ELSS has given the best return of 25% so for the long term ELSS is the best option”.

    Another friend interpreted it as “As a foreign bank I am still to tie up with a UL provider so please buy ELSS from me. Once I tie up with the highest commission paying guy, I will let you know”. LOL.

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