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Wednesday, August 26, 2015

Playing with numbers

While watching the stock market this week I once again was frustrated by the way they play with percentages, making things sound better than they really are. I probably have posted this sort of thing before since it is one of my biggest peeves.
One of the commentators was saying not to panic due to the market drop because the market is up 61% over the time frame she specified and it is down only XX % on the day Monday.
Let's think about this a little. It is comparing apples to oranges. A 33% increase in the market only takes a 25% decline to wipe out since one number is higher than the other. Let me give an example...
Take a $1,000.00 investment and lets say it goes up by 33%, making the investment now worth $1,330.00. Your gain is $330.00. The new base is $1,330.00 so it only takes a 25% decline in the market to wipe out the 33% gain. $1,330.00 times 25% is $332.50, almost the same as the gain.
If they are going to report honestly they should use actual dollar gain and loss, not misleading percentages. I worked in retail for many years using a lot of percentages and believe me you soon see how misleading this can be.
Ken