Leo Varadkar’s recent anecdote about a Cabinet minister’s poor understanding of percentages is a reminder that all too many people struggle to grasp basic financial concepts.
Varadkar recalled a conversation with an anonymous minister who couldn’t seem to grasp that if house prices drop by 50 per cent and then increase by 100 per cent, they would return to their original value.
The minister “could not understand this for a second”, said Varadkar, adding that “percentages, medians and means are not well understood” by many in the media and the political system.
If you’re an ordinary investor, it’s important to know that when a stock falls 20 per cent, it needs a 25 per cent gain to recover.
[ Leo Varadkar is right: basic maths should not flummox a minister or any of usOpens in new window ]
When it’s down 25 per cent, it needs to bounce 33 per cent to get back to break even. A stock that falls 50 per cent must double to recover its losses. And what, to borrow an old Wall Street joke about the dangers of catching a falling knife, do you call a stock down 90 per cent? A stock that was down 80 per cent and then got cut in half.
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