mean

Think of a family gathering where everyone brings a pot of soup, some big, some small, and at the end you pour all the soup into one big bowl and share it out equally among everyone present. That equal share is the mean. It does not care whose pot was biggest, it just wants to know what everyone gets if the total is split fairly.

In investing, the mean usually shows up as the average return of a stock over some months or years, or the average price it has traded at. A Lagos investor looking at a stock on the Nigerian Exchange might check its monthly returns for the past year and find the mean return is 2 percent a month, which tells her roughly what to expect in an ordinary month, even though some months will be far above that and some far below.

A UK based Nigerian investing through a stocks and shares ISA might see that a fund's mean annual return over ten years is 7 percent. That single number hides a lot of drama underneath it, some years were down 15 percent, some years were up 25 percent, but the mean smooths it all into one tidy figure.

The catch with the mean is that it can be pulled about by extreme numbers the way one very tall person in a room can raise the average height and make everyone else look shorter than they really are. This is why sensible investors never look at the mean alone, they also check how spread out the numbers are before trusting what that average is telling them.