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Research: Math
Basic math is worth remembering—daily—especially IF going up against Mr. Market and his Noise Machines: Garbage In / Garbage Out can screw up Excel’s calculations, as well as, even hand-held calculators. Many “back of the envelope” calculations are sufficient—IF done correctly. Seldom is spot‑on calculations necessary. If precision is needed, then rough ideas show this with the proper interpretation.
Order of operations
Parenthesis, Exponents, Multiplication & Division, and Addition & Subtraction can be remembered by the phrase: "Please excuse my dear Aunt Sally". In order from left to right. Parenthesizes, exponents, multiplication then division whichever one comes first then, addition and subtraction whichever one comes first. (Wikipedia)
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Next the basic 4 ways to handle math:
2 + 3 = 5 OR 3+ 2 = 5 (arrangement is NOT important)
3 – 2 = 1 BUT 2 – 3 ≠ 1 (arrangement is!)
3 * 2 = 6 OR 2 * 3 = 6
4 / 2 = 2 BUT 2 / 4 ≠ 2 (Always if possible, reduce fractions to the LCD)
Note the power of the Numerator (top number) and Denominator. This is important to remember so as to know if the result is what is wanted. E.g., the Current Ratio: dividing a company’s Liabilities by its Assets will give a decidedly different number than the correct way. To do a “What If,” initially, the formula has to be correctly set‑up!
The Equal Sign allows for things to be done on one side if done equally on the other E.g., 1/25 =.25 = 25%
With this in mind, mental calculation can be done understanding the Equal sign. Adjustments can be made—if carried out equally on both sides.
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With simple 3-part formulas (e.g., ratios), knowing when to divide or multiply is crucial! For example:
Total Distance = Average Speed * Total Time
50 mph times 2-hours equal 100 miles
Given 100 miles of travel in 2-hours, what was my speed? My solution is “circling” the problem
Where this is valuable is with the P/E ratio: price is easy to find, but what Earnings is being used? Last year, currently, next quarter, or next 5 years? All may be shown, but which is being used in its P/E. To see What‑Ifs, BOTH need to be considered. “When do I multiply or divide to dissect a ratio?!” Other ratios (and 3‑part formulas) can be “circled”
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Percentages, Decimals, and Fractions
These can either be super descriptive, or super misleading—Some things simply cannot be known with current data. Once something is definable, this will be gamed, e.g., a Cramer pick.
The foundation is simple: 1/25 = .25 = 25%
That is, 1 divided by 25....Correct “decimal-ing” is essential! With percent and interest, things are needed to understand: the principal (cash amount), as well as the interest—and how is the interest calculated and time lines.
Basis Points
To grasp what is the big deal about the FED raising the BP to 25?! Understand what a BP is:
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Rounding off does wonders for those not planning to send a rocket to mars. My caf? tab is $53.67. What is a 15% tip? $53.67 becomes $50. 10% of this is $5. Half of this $2.50, rounded to $3. Viola! Let?s leave $8. Officially, the tip would be $53.67 * 15% = $8.05. (Knowing most caf? workers really get their pay from tips, I would tip $10.)
Law of Big Numbers is nice to know. Indexes are based on this Law. Essentially, the more numbers in a series, then more the Average is around the obvious main numbers. For example, a grade of zero with ninety‑nine 100?s makes no real difference. Conversely, a grade of 100 with ninety‑nine zeros for other tests also makes no real difference. Thia ia why those ?richer than gawd? could lose billions of dollars making a million dollars.
Law of Diminishing Returns is another neat law. This one shows, for example, at some point the best will degrade. For example, a point with a medication will harm more than it helps.
Algebra is giving question marks, letters (i.e., names):
X + Y+ 4 = 9 is better than ? + ? + 4 = 9
Bottom line is basic math and an Excel spreadsheet can be a powerful weapon even for the non Wall Street Titans
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