Lesson 4 of 8 · 13 min

Harmonic, trimmed and winsorized means

The harmonic mean averages ratios applied to a fixed amount and damps large values; trimmed and winsorized means limit the pull of outliers.

In short

Harmonic mean $n / \sum (1/X_i)$ : the average for rates or ratios such as prices per share or P/Es.
Cost averaging, investing a fixed amount each period, makes your average cost per share the harmonic mean of the prices.
For values that are not all equal: harmonic < geometric < arithmetic. The curriculum also links them: arithmetic × harmonic = geometric².
Trimmed mean drops a set percentage of the highest and lowest values; winsorized mean replaces them with the nearest remaining values.
Choosing: include all values, no compounding → arithmetic; compounding → geometric; extreme outliers → harmonic, trimmed or winsorized.

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