When Charts Lie

Charts are good ways of presenting data. But sometimes they lie, or shall I say create a wrong impression.

I was at a Barnes & Noble bookstore the other day looking for new finance and investment books. I picked up The Smartest Investment Book You’ll Ever Read by Daniel Solin. It’s from a new author I haven’t heard before. The book is actually not bad. I will do a review later. But this post is not about the book. It’s about charts.

In the book there is a chart showing that even over a long period of time, sometimes stocks would return less than bonds. The period chosen was 1965-1984. This is true. During 20 years from 1965 to 1984, stocks returned less than bonds. The chart looks like this:

Got it? Stocks returned less than bonds. The data in the chart are correct. The impression you got from it is probably wrong though. Look again:

See the problem? The X axis doesn’t start from zero. So you are looking at the end of a chart through a magnifying glass. The correct chart should look like this:

In the first two charts, the bar for bonds is 2.7 times longer than that for stocks. In the correct chart, the two bars are almost the same length. Stocks still returned less than bonds in those 20 years, but not a whole lot less, just a hair less.

Same data, different charts. It all depends on where the starting point is. I don’t mean to imply that the author Dan Solin intended to mislead. The chart in the book is what Excel produces by default. Next time you read a chart though, pay attention to the starting point!

More examples of how charts lie: http://www.mrexcel.com/tip142.shtml. Enjoy!

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  1. Jonathan says

    I used to see this in newspaper articles all the time. In grad school my friend had a chart pinned to his wall from CNN which had no units or scale on either axes at all. Just a line connecting two dots.

    (This trick can be useful in real-world presentations though…)

  2. Sam Seattle says

    Great observation. Thanks for pointing out the lie, Harry.
    The ‘More examples’ on the link are eye-opening!

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