Categorized | Stock Trading Analysis

Arithmetic Mean in Investing

Generally, arithmetic mean is a way of representing the actual value of series of numbers mathematically, calculated as the sum of the entire numbers in the set of series all- over the frequency (count) of the entire numbers in the set of series. A popular term for this concept is ‘mean’ or simply ‘average’.

Arithmetic Mean as It Applies to Stock Trading and Investing

Let’s assume you want to find out the arithmetic mean of the closing price of a stock for the previous week. This is how it works; using these closing prices $14.00, $15.50, $15.20, $14.80, and $14.50 for each of the five days of the week, the arithmetic mean for the closing price would be computed as the sum of the five different closing prices above, divided by five (which is $74/5 = $14.80)

Getting to Know How Much Your Investment is Worth

How much exactly are you getting as returns from your investment? You should bear in mind that the method or system used in computing your investment returns matters. So, why does the method of calculation matter? Keep reading to learn more…

Would you prefer to earn 9 percent or 10 percent as your annual investment returns? Obviously, anyone would opt for the higher percentage earning which in this case is 10 percent, all things being equal. However, when annual investment returns calculation is involved, all things cease to be equal. And, the difference between the methods of investment calculations can generate remarkable dissimilarities overtime.

When it comes to arithmetic mean or average in the investment world, the geometric mean/average is one of the excellent methods of unfolding investment returns reality. Also known as compound average, the geometric average is a great way to mirror the real economic reality of an investment decision. Profound insight into your investment performance measurement and evaluation is the best way to know your financial stewardship capability, and would at the same time aid you in assessing your broker’s skill more competently.

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