Misleading Chart of the Day

The Wall Street Journal has a story entitled "Tech

Stocks Get Giddy :)" today – and yes, the smiley is in the headline.

It’s accompanied by a dreadful chart showing three stocks which are currently

at all-time highs: Research in Motion, Apple, and Google. Here’s the chart,

with Apple removed for clarity’s sake:

wsj.jpg

As you can see, the left-hand chart shows the nominal price of RIMM stock,

in Canadian dollars, over the past eight years. The right-hand chart shows the

nominal price of GOOG stock, in US dollars, over the past three years. The charts

are carefully aligned so that $0 and $100 and $200 are all along the same horizontal

line, as though nominal price in Canadian dollars and nominal price in US dollars

were really useful metrics. And they certainly make it seem as though GOOG has

done vastly better than RIMM.

In fact, GOOG has done better than RIMM, since the Google IPO, although not

by an enormous amount: it’s gone up from $100.34 to $569, which is an increase

of 467%. In the same time, RIMM stock has increased from $22.67 to $96.82, which

is an increase of 327%.

Over the past one year or two years, however – and this is something

you’d never work out from looking at the chart – RIMM has significantly

outperformed GOOG, rather than the other way around. Here’s a couple of charts

I made myself, rebasing the RIMM share price to the GOOG share price at the

time. Over the past 12 months, indeed, GOOG has pretty much gone nowhere in

comparison to RIMM:

rimm.jpg

 

rimm2.jpg

 

rimm1.jpg

Which is all to say that if you’re going to compare two or three different

stocks in the same chart, then you should compare all the stocks in the same

chart, rather than trying to compare them across different charts. Otherwise,

you can end up giving entirely the wrong impression.

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