We Don't Live In An Average World

JC Parets
November 21, 2015

Guys, let's just get something straight: we do not live in an average world. We never have lived in an average world. We most likely will never live in an average world. That's just math, or science, or both I don't know. But it is a fact. Think about how funny it is to hear someone say, "Well, on average XYZ goes up 2% after earnings". Really? What the hell does that have to do with anything? So you mean a few times it lost over 10% overnight, a few times it rallied over 10% overnight, sometimes it fell somewhere in between.....so "on average" it goes up 2%? Are you kidding me? Are we trying to make money and manage risk or fill airtime with irrelevant facts so we can sell more ads?

If you're not in the market to make money, I don't know why you're here in the first place. I question the motivation of a lot of people out there that have no interest in making money in the market and just spit out nonsense to fill space. As market participants we are forced to live in this world that some of us refer to as: Reality. The thing is, in "reality", nothing happens "on average". On average the S&P500 returns 8-10% a year, depending on when you start your data set. Go back and count how many times the S&P500 has actually returned 8-10% in a given year. Once or twice maybe. So who cares what something may or may not do "on average"?

If I'm standing up and I have one foot on hot coals and one foot in a bucket of ice water, my body temperature is about "average". You can't argue with that. It's the volatility in that temperature that is not being accounted for with that statement. Let's look at the S&P500 again because it's such an easy example that so many of us can relate to. We know that "on average" it returns 8-10% a year, but it never actually returns 8-10% a year. When you look at actual returns, we see years where you're up 43% and up 54% and other years where you're down 37% and down 43%. In fact, these sorts of volatile returns are actually much more common that "the average" return. Why? Because we don't live in an average world. Never have. Likely never will.

So when someone tells you that "on average" the market does X on the week of thanksgiving, or "on average" XYZ goes up X after earnings, ask them, "Who cares and why are you wasting my time?". Don't let airtime fillers and click baiters waste your work day with irrelevant statistics describing what may happen "on average". It's stupid.

We don't live in an average world. We live in a different world. I promise you, not only will it be different this time, it will be different every time.

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