STREET DOGS

There’s a 99.7% chance you’ll read false and misleading statistics. — Anonymous

Spotting “fake news” isn’t easy but here are a few simple things for investors to look out for:

● One of the more common ways that someone will try to bamboozle you is by misusing charts. Always check the axes, as scale can easily distort a trend. It’s easy enough to make small changes look large by reducing the scale of the Y axis and exclude unfavourable history by narrowing the range of the X axis.

● Another common “error” is the use of a genuine statistic in the wrong context. In describing market potential, for example, management will tell you that 600-million people worldwide could benefit from using their product (true), but forget to mention that the high cost of it makes it unaffordable to most. A valid statistic needs to be more than accurate, it must be relevant.

● Benchmark flip-flopping — last quarter sales up 60% on prior quarter? Wow. But is that how sales are always compared? Most companies compare performance to the prior corresponding period to avoid seasonal distortions and short-term effects. In this case, the preceding quarter may have been unusually bad and a more conventional approach may reveal less exciting sales performance.

● Cherry-picking data is one of the easiest ways to fool investors, and the only way to avoid it is to ensure you’re getting the full picture. Providing a single instance or narrow view of something positive while staying silent on the bigger picture is common. As in the business that boasts of having allocated additional funds in one area of research while failing to mention that it has reduced its total spend on research.