You Can Make Numbers Say ANYTHING!

Business | June 5, 2008

It bothers me when I hear misleading statements that are founded on the manipulation of numbers.

That old adage, you can make numbers say anything you want rings true in many facets of life.

Whether it’s a news broadcast that’s using demographic data to their advantage, an economic forecast, or the classic manipulation of financial statements, you never really know what to believe…


A young agent in my office was working on her newsletter the other day, and asked me for help using Microsoft Excel to format some data.

We pulled off all the sales for condos on Merton Street from MLS, and began to format it in Excel.

Once it was all formatted, and the spreadsheet was all nice and pretty, she said, “Okay….let’s see here.  What are these numbers telling us?”

I took a step back and said, “Huh?”  She was going about this the wrong way.

“What do you want the numbers to say?” I asked her.

She had a massive spreadsheet of data sitting in front of her, and the idea here was to come up with a conclusion before she even began.  There was enough data there to prove any point she wanted to prove.

She had sales on Merton for a year, which means she could choose to examine last year versus this year, last month versus this month, or winter versus spring.  It all depends on what she wants the numbers to say.

She had sales for 1-bedrooms, 1-bedroom-plus-dens, and 2-bedrooms.  She could use all the data together and refer to “condos on Merton Street,” or she could break it down to the individual style.  It all depends on what she wants the numbers to say.

She had sales for seven different buildings!  She could do anything she wanted to with these numbers.

“I want to show that the prices have risen over the last year,” she said.

I told her that prices for your standard refrigerator-box-home under the Gardiner Expressway have risen over the past year, so she’d better get a little more specific and show people something they don’t already assume to be true.

“Okay, we’ll then I guess I want to show people how the 1-bedroom, 1-bedroom-plus-den, and 2-bedroom units have all risen over the past year individually.”

Now we were getting somewhere! 

I had her run numbers for January to May 2008 and compare them to January to May 2007.  The result was an overall increase of 8.6%.

Then, I had her run numbers for January to March 2008 and compare them to January to March 2007.  The result was an overall increase of 9.8%.

See how easy it is to manipulate data????

In her newsletter, instead of looking at the first five months of the year and comparing it to the first five months of last year, she chose to look at the first three months since it showed a higher increase in selling price.

We weren’t making up stats here, and there was absolutely no funny business.  We were just choosing which data to to use.

My point is this: when you hear any statistic, you have to stop and consider how they came to arrive at that number.  If you are watching the news, listening to the radio, reading in a magazine—you have to consider that somebody who has far more experience than you in manipulating numbers and statistics is giving you this number to prove his/her point.

I was listening to AM640 the other day and I heard a disturbing fact about our real estate market.  The statement was this: “The Toronto real estate market is going down.”

First, let me say that this is far from the truth.  But if that person had to back up his statement with numbers, he too could get creative.

Let’s assume that the SmithVille real estate market has been appreciating for the past four years.  The overall average price has risen 7.5%, 8.5%, 9.0%, and 10.0% in the past four years.  Now in year five, the average increase in price is known to be 7.5%.  Theoretically, you can state that “The SmithVille real estate market has gone down.” 

If nobody asks you to elaborate, people are left to assume that prices have actually depreciated!  But this isn’t the case!

Your appreciation has decreased!  The prices still increased 7.5% in the fifth year, but compared to the previous year, when prices increased 10.0%, this 7.5% represents a decrease in the level of appreciation.

In Grade 12 Economics, Mr. Georgiadis introduced this to us as “diminishing returns.”  Suffice it to say that I found this interesting enough to complete a Minor in Economics in university a few years later.  Yes, I have a numbers-fetish…

It really bothered me to hear AM640 state that the Toronto real estate market has gone down.  They could be talking about the overall number of sales from one month to the next, or one year to the next.  They might not even be talking about prices!

Every listener of a radio show or viewer of a TV show is going to draw his/her own conclusions when presented with a statement such as this one, and usually it’s a negative one.  I just don’t see somebody thinking, “Oh sure, well let’s give the market the benefit of the doubt and assume that this statement is founded on the manipulation of data to prove one’s point.”  Well, unless that person is ME!

Here is a statement that you can take to the bank: the Toronto real estate market WILL GO DOWN!  It will, trust me.  But please, read on.  We have seen some incredible increases in price over the last few years, and this won’t continue.  Prices will NOT go down, but they will not continue to appreciate at the level we have been accustomed to.  Again, see diminishing returns.

If the average price of a downtown Toronto condominium has risen 9%, 9.5%, and 10.0% in the past three years, and this year it “only” rises 7%, is that really so bad?  Are we really going to sound the alarm bells and predict a recession?

We’re still going to make money on our investments, and our largest assets are going to continue to appreciate in value.

Anybody skimming the last portion will read ” the Toronto real estate market WILL GO DOWN” and might be left with the conclusion that the market is tanking, or that now is not the right time to buy.  But as I said, the level of appreciation is decreasing as property values throughout the city continue to go nowhere but up.

Anybody skimming deserves to be left with the wrong impression, just like those people that read a number or a statistic in the newspaper and don’t follow up with any investigation of their own.

Are you going to let somebody else tell you what’s-what?

Or are you going to figure things out for yourself?

Guess which route successful people take…

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  1. Kip

    at 1:41 pm

    Whoa … a decline in year-over-year sales growth is one thing, but diminishing returns ( is a whole other thing entirely.

    I’m not sure I can even think of an example of true diminishing returns in real estate, unless there’s a situation where it becomes less and less profitable to own more and more property. I suppose massive property tax hikes combined with a massive devaluation of property value could result in that, if MVA wasn’t a part of the property tax structure.

  2. Patrick Parkhurst

    at 1:45 pm

    You’re right on this one David!

    In my industry, investment banks always tell us that they are the #1 investment bank* for a particular industry. Then the “*” in the bottom left corner in size 6 font says ‘For industrial and mining deals (excluding oil & gas) between $50M and $375M in Europe (excluding UK) for the period 2001-2006 when only one advisor was used’.

    Like I always say… 90% of people know that statistics can be 70% biased more than 50% of the time…

  3. David Fleming

    at 2:48 pm

    Thanks for the link, Kip!

    I tried to explain things at the most basic level, but I think in doing so I have butchered a few definitions and used them in the wrong place.

    Thankfully, my readers are more on the ball than I am, quite often!

  4. Retired Teacher

    at 2:55 pm

    Consider that in my classroom, 10% of problem kids take up 90% of my time…

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