In our daily life sometimes we have to deal with salespersons, anyone would avoid buying anything from. Among them are salespersons with no idea about the products they sell and no knowledge about how to answer customer’s skepticism.

Lately I was asked by my father to meet an insurance salesperson who come to our house to tell us about the offer their company have for us. My father would like me to analyze the prospect of investing in this particular insurance product, so I begin to ask the salesperson to begin his presentation.

I had met lots of insurance salesperson and saw their unit-link proposals so I know what to expect from their presentation. In short, the salesperson make a comparison between his product and product from his competitor, whose proposal happen to lying around in my desk. Then he had me looking at a figure stating how much money I am going to make if I put my money on him assuming that the interest rate is 18% and compare with the figure in competitor proposal who only calculate for interest rate of 6%,9% and 11%. Because of this difference in interest rate used as the assumption, his figure for the next 50 years are several times higher than what the competitor can offer.

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But of course we know that assumptions are assumptions. I have to check whether his assumption is in accordance with funds performance in real world. I asked him the data for his funds performance in the past to recalculate the figure myself. He gave me the data which show a clear sign that his funds have bad performance. I asked him for the reason and he tell me that last year every insurance company dropped due to bad economic climate, citing that some other company dropped lower than his.  I think it is reasonable enough so I let him go this time.

The day after that a salesperson from his competitor company come to meet me. I had know this person for years so we end up chatting and ranting about how bad economic is at the moment. Remembering what the salesperson yesterday said about the drop of all insurance company, I asked this competitor sales whether his company also experience the same thing. To my surprise his answer was no, he explained that his company invested my money in something stable with low rate.

I know that in reality, interest rate is not going to be stable at a point. Rather they are going to vary over time. This variance in interest rate is what statistician call as standard deviation. Two population could have the same average value while having different standard deviation value. For example, a class with students whose height vary between 168cm and 172cm may have the average height value equal to a class with students whose height vary between 160cm and 180 cm. However those two populations are going to have different standard deviation value.

In real life different investment plans operate differently, so they have different value of interest average and interest standard deviation. Low risk investment plan usually have low average interest rate, but they have low standard deviation as well. High risk investment plan on the other hand have high interest rate standard deviation. Even though it is impossible to predict how much money you are going to end up with, it is possible to calculate the probability of each ending by using statistical methods and object definitions.

I access his company website to find how the funds he offered had performed in the past. I used simple statistical calculation to compute the interest rate average and standard deviation. I find that the average interest rate is about -2.808333333% while the standard deviation is 6.315649655%. By assuming normal distribution, there is only 0.04925889452% probability for me to get interest rate of 18% or above. Further and more complex calculations shows that for the next 12 years the chances are:

  • 46% for my money is going to be between 1 and 1.6667 times its current value.
  • 5.33% for my money is going to be more than 1.6667 times its current value.
  • 48.67% for me to lost my money.

If someone want to say to my face that the same fund is going to make my money several times its current value in the next 12 years, they better have a really good reason. Too bad, this particular salesperson don’t have any idea about the product he try to sell at all. He doesn’t know where the numbers come from and what is the relationship between those numbers. He even have enough guts trying to persuade me to leave the complicated detail and just believe what he say even if evidence from his own company stated otherwise. He even stated that I am too young and uninformed to make any analysis about the perfect offer from his company.

I have to admit that I am not the best maths geek around. The complex nature of my job have make it necessary for me to make lots of mistakes before finally getting it right, so I did a lot of mistakes doing the maths. But if anyone want to challenge the result of my calculations, they have to look at my data and the equations I used to arrive at my conclusion, instead of talking about my age. Too bad he have neither the knowledge about the vocabularies nor the humility required to learn from others. He doesn’t even try to understand what my questions are about and keep pushing his already proven to be rotten proposal. I see this as a clear sign of dishonesty and simply close the phone.

Dishonesty is simply something I want to avoid both from myself and other people, kudos to everyone I respect as my teachers even if they never teach me in school. If you are going to sell something, you have to be honest about what you are selling. Tell your potential customers about what it is good for and what it is not intended for. Even saying “I don’t know, let me look for more data before answering your question” have its own merit. It shows that you have the willingness to learn and to be honest.

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