Percentages and their interpretation: no. 13 and a half

by ammophila

I had to rugby tackle my sexagenarian aunt last Thursday as she was about to bound down the steps of our residence with a view to leaping into the post chaise which Chalmers had waiting for her.  Just in time I’d discovered she had picked the lock on my safe and extracted several thousand in cash. When she came round it transpired she had been intent on heading for the City to stash the lot in the US markets as soon as might be, as a result of seeing a report in that estimable digest of the media, The Week.  This related that a financial commentator had come up with some jolly news for all of us who like to play the markets (or at least the lucky minority of us who still have enough spare dosh to do so).  He was reported as noting that the market (in the US) had in recent decades dropped 24 times by more than 13% over three months, but – the good news! – over the next year ‘about two-thirds’ of these drops were followed by a gain of more than 20% over the next year.  As 24 gives an exact two-thirds figure of 16, I am not clear as to why the phrase ‘about two-thirds’ made its appearance (and also as to what happened on the other occasions); but that is neither here nor there.  My worry is whether it’s all that much of an advantage to act on this basis.  If you start with 100% and subtract 13% you get 87%.  A subsequent gain of 20% of 87% is 17.4%.  So you would have a net gain of 4.4% over a year and three months.  Can anyone advise as to what the average market gain – in, say, the past fifty years – has been over a fifteen month time span?

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[Answer to yesterday’s question:

 None of (a) to (c).  These words form the tagline which appears at the head of each page of the mission statement of the Campaign to rebrand Nick Clegg as a success.]

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