Wednesday, February 16, 2011

Lies, Damned Lies and . . .


Sometimes charts tell visual fibs. Other times they exaggerate unmercifully.

The chart in the Wealth-X survey we mentioned recently, showing segments of the UHNW market, fits the fib category. Perhaps the boss wanted a pie chart but the chart-maker decided an accurate chart wouldn't look good. So he or she winged it. The Wealth-X chart, on the left below, makes the very rich, those with worths above $100 million, look far more plentiful. The chart on the right shows the correct proportions. (Click on the thumbnails for larger images.)

Far more common are charts that wildly exaggerate the price swings of stocks. Professionals understand the custom. But what about the public? Don't the hyped-up charts make the stock market look more like a trip to the casino than an investment milieu?

Random example: At left below is chart of the 12-month performance of Dell from a recent Nightly Business Report. If you're an impressionable young potential investor, wouldn't you think Dell had gone from riches to rags and back again? At right is a rough attempt to show the same chart with a base line of zero. Pretty dull, but more realistic.

We've all learned to be suspicious of the theory that figures don't lie. Be even more wary of charts purporting to illustrate those figures.

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