How market statistics can lie

Ken Fisher, Special to USA TODAY
Posted 7:08 AM ET September 1, 2019 | Updated 9:56 PM ET September 1, 2019


The National Bureau of Economic Research provides that a recession occurs when "a significant decline in economic activity" lasts more than "a few months."

"There are three kinds of lies: lies, cursed lies and statistics."

Mark Twain popularized the quote over a hundred years ago. It couldn't be more true now.

Pundits are still bombarding investors with wild economic and stock market demands backed by charts and data. A lot of it is bunk bed. But it is not difficult to look through it if you are armed with a few simple tricks.

These tricks come from one of my all time favorite books: Darrell Huff's 1954 classic, How to Lie With Statistics . It's humorous, illustrated and non-academic – a great guide to how people torture data to force them to fit their argument. Here are the five most useful nuggets.

1. Beware of statistics from surveys

Surveys are just as good as their representativeness. But most people have inward bias and are not truly representative. Political polls, wrong in so many recent elections, prove this. So do polls of all stripes. As Huff writes, "No conclusion that & # 39; seventy-seven percent of the American people are against & # 39; something should be read without the lingering question. Sixty-five percent of the American people?"

<img itemprop = "url" src = " /11/USATODAY/usatsports/ "alt =" Surveys may not be representative sometimes. [19659012] Polls may not be representative sometimes (Photo: Photo by Joe Raedle / Newsmakers / Getty Images)

2. Don't use "average" at face value

According to the Social Security Administration's 2017 average annual salary for both 2017 was $ 48,251 , 57 and $ 31,561.49. How? Technically, there are different types of averages. The higher number is the arithmetic average. The lower is the median – the middle number, with half the salaries higher and half lower. the average is often skewed by outliers. You can't rate an average until you know what to beat gs it is and how crooked it can hide. Keep this in mind when digesting climate statistics. As Huff showed, Oklahoma City's average temperature from 1890 – 1952 was cool 60.2 degrees – but the temperatures in that window ranged from -17 to 113.

3. Think of the "axis" scam

In economic graphs, the horizontal line or "axis" usually shows dates and the vertical axis shows quantity or size. It is easy to do something that looks wilder than reality just by stretching the vertical axis scale or skipping a whole section of it. In 2014, some did this with Dow to make this year's market movement look like the run-up to the crash in 1929. It went viral – scaring many. Properly engraved, the two periods looked nothing alike. Blatant fear-mongering, lying with charts.

How could the next recession feel? workers to be more compassionate

4. Know your profits.

Report an article on company earnings per share? Or is it talking about gross operating margin? Does it discuss returns on assets? Or on equity? As Huff explained, “For example, you can express exactly the same fact by calling it a return on sales, fifteen percent return, $ 10 million, an increase in profits of forty percent (compared to Average 1935-39), or a decrease at sixty percent from last year. “Writers and companies will often choose what is best for their angle.

Be skeptical when reading income reports. . (Photo: Getty Images)

5. No context without causation

As Huff explained, once upon a time, a study showed that non-smokers got better college grades than smokers. But didn't smoking help students get better grades? Or did poor grades drive more people to smoke? Is it just a coincidence? Tyler Vigen's funny website, Spouses Correlations, shows how easy it is to draw false conclusions between two totally unrelated things. Did you know that annual cheese consumption per capita corresponds to the number of people who died from tangled bedding? Or that US chicken consumption correlates with oil imports? People pull similar stunts with market data every day. This is where we get seasonal myths.

For more, get the book.

It is cheap and an airy 144 pages. 401 (k) will thank you.

Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of wealthiest Americans. Follow him on Twitter: @KennethLFisher

The views and opinions expressed in this column are not the author's and do not necessarily reflect those of the United States TODAY.

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