Mean and median
Also called: mean, median, arithmetic mean, average
Two kinds of average. The mean adds values and divides by the count; the median is the middle value when they are put in order.
A few extreme values pull the mean but barely affect the median, so the median often describes what is typical better.
For investment returns, there is also a difference between the simple (arithmetic) average of yearly returns and the compound annual growth rate.
Example
Returns of 8%, 9%, 10%, 11% and 62% have a mean of 20% but a median of 10%.
Learn more in these lessons
- Averages, spread and volatilityWhat does volatility mean in investing?
- Misleading numbers and chartsHow can true numbers and charts still mislead?
- Comparing valuations with history and peersHow do you judge whether a share is cheap compared with its past and its peers?
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