Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management. And on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about statistics.
It’s a really fun topic for me. But, why do I want to talk about statistics? Because people throw around numbers all the time. “Oh, wow, you got a 30% return!” “I lost 30%.” “I made 30%.” Well, you know, statistics can be misleading.
To give you a couple of examples, if the markets dropped 30% and then gained 30%, many people might think you’d be back to even. Not the case. You’d have $0.91 on your dollar. How about if you make 30% and then lose 30%, where would you be? Same ninety-one cents.
You see, the loss has a disproportionate impact on the gain when you calculate numbers. Why? Because if you go down to $0.70 and you make 30%, you make back $21 out of $100. If you make $130 and you lose 30%, you lose $39 and you’re back down to $91.
Okay, so that’s one thing. The second thing is people want to talk about past performance. “Oh, my God. Growth versus value.” “Growth is doing great and value is doing terrible so let’s put more into growth.” Well, let me give you a little perspective. This is kind of interesting. The average PE ratio for large growth stocks since 2000 to 2022 is 23.8. Currently, as of May 2023, large growth companies are trading at 28.73, which is five percentage points higher than history. And small values at 9.52 versus history at 15.1, almost five and a half below.
So, past performance, is that an indication of the future results? Be aware of the statistics you’re looking at on your path to Wisdom, Wealth, and Wellness.
Have a great day.