Sunday, March 30, 2008

I lie to statistics!

Didn't know that my post on 'Statistics lie!' generated quite a healthy discussion on what is fair and what is not.

My aim of the post is to highlight the fact that statistics are used to show and highlight what the person intends to say - or to add weight to what had already been said. As such, there really is no fair way to represent statistic without the risk of misleading someone. Though I say that, there are plenty of ways to confuse and obfuscate the casual reader and it is these that we must really be careful.

A case example to note: There are people who say buy and hold is good. Warren Buffet buys and hold, and he is a good example of person who buys and holds stocks. To add weight to this statement, the person might quote him saying that he said his timeline for holding stocks is forever. But the fact is that Warren Buffet didn't buy and hold ALL his stocks forever. And those who recommend the buy and hold strategy sometimes forgot to mention buying GOOD COMPANIES at FAIR price with a MARGIN OF SAFETY. Also missing is that one must check and update if the reasons for buying it in the first place is still there.

So be very careful of what others say AND didn't say. I'll actually pay more attention to the latter than the former. People can similarly use statistics or graphs to show what they want. It's quite easily done actually.

Back to statistics... I calculated a ratio to see how the trends of fuel oil prices and electricity tariffs are like. The ratio is calculated like this:

Ratio = Electricity tariffs (cts/kWh) / Fuel oil price ($)

By using this ratio and watching how it varies with time, I hope to see a clearer picture. Using the ratio, one can see how electricity tariff changes as fuel oil price changes. Here's what I get when I plot it out:

Interesting huh? Seems like electricity tariffs per fuel oil price drops over the years. Does it mean that we get a better deal now then before? Haha, well, it's up to you to analyse it :) My point now should be clearer - is all that you see a lie? Be skeptical, not cynical :)