Average confusion could spell doom
The Wall Street Journal reports: “Hedge funds gained 1.75% on average in November, led by macro funds and managers focused on basic materials stocks and metals, Chicago-based Hedge Fund Research (HFRI) said Monday.”
This optimistic news leads to the obvious question, “What atmosphere do the HFRI creatures live in and if they breathe oxygen, would they shrivel up like a plastic bag on a hot wood stove?” This type of cryptic terminology makes the financial world more fun that running a nude hamster farm. Begging the question, “Does anyone actually get this stuff?”
What do the HFRI aliens mean by “average?” On earth, it’s a Latin based word capable of taking on three mysterious values: mean, median, and mode. Complex? I dare say. Yet researchers kick it around like an old Basset hound (metaphorically speaking because I’m definitely not promoting the kicking of any canine – even one that methodically chews loafers to shreds).
Average is the land of central tendency where devious marketers misrepresent research results about anything, including enhancement pills made from old coffee grounds. A central tendency value is the middle ground when used properly and a lie if used improperly. Rather spooky but don’t give it a second thought. You’ll flunk the final exam anyway.
Mean averages are popular and are calculated by adding up the values and dividing by the total number of those values. For example, the average value of 13 and 18 is 15.5. The really confusing thing, and by this I mean something that would cause me to skip the rest of the homework and watch TV, was that the mean doesn’t have to be one of the original numbers. No wonder honest citizens cheat on their income taxes.
The median (not to be confused with medium, which you’d use to contact dead aunt Eunice) is the middle value with a list in chronological order like: 13, 13, 13, 14, 21. With five values, you’d use (5+1) / 2 = 3. The median is the 3rd value or 13. Odd sets of numbers work great but even sets require the help of a certified math therapist. Clearly, calculating the median spelled witchcraft during the late 1600’s but today I can figure it without any eye of newt or a full moon.
Finally, there’s mode, which rhymes with toad, road, and lode - making it great for poems. Mode is the number in a list that is repeated the most often. So, with our list above, it would be the value 13. I suppose if no value appeared more often that any other you’d have to put your homework aside and go watch TV. This technique seems to be quite effective — being one reason my high school teachers wondered what fast food place I’d work for (that and the fact I dangled participles).
NOW what do you make of the report, “Hedge funds gained 1.75% on average in November?” Exactly! Did 1.75% appear the most frequently, in the middle of all gains, or a value pulled out of thin air by some chumps who spent all day watching Utube videos and needed to report something before their jobs vanished faster than mini marshmallows in hot chocolate?
With your newly honed statistical skills, ads like, “With the rat embryo diet, you’ll lose an average of 15 pounds in two days” will seem like rotting pig fodder. “Are those embryos cooked or raw?” will be the kind of new, in-depth questions you’ll start to ask. You’ve acquired these skills just in time as you embark on last minute Christmas shopping. Be sure to steer clear of those coffee ground pills – they don’t work.
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