TAKE A CLOSER LOOK AT THOSE GRAPHS! :O)

I always thought that graphs were the easiest thing to read. After reading this section in chapter 13, I was given much more insight. It will totally change the way I look at graphs now. :o)

First, check graph information against your own personal experience. For example, the graph used in the book (Example 1, pg. 270) shows us that the average (?) cost of a college education in 1997 was $2,600. But it does not show if that covers books and housing for one year. It doesn’t clarify if this is for more than one year. But given my experience, this is highly unlikely. In the second example, (Example 2), the numbers are right, but the graph “exaggerates the differences between years.” The difference in the lengths of the bars are bigger than the actual percentage increase. So the bars appear to make the difference look a lot bigger than it actually was. “A graph is likely to distort comparisons if the baseline is not zero or if it uses bars.” Epstein, pg. 270.

Angles of the lines can be exaggerated simply by “the spacing of the scales on the axes.” Visually this affects how we perceive the increase or decrease in prices. “A graph can create misleading comparisons by the choice of how the measuring points on the axes are spaced.” Epstein, pg. 271.

The graph on page 272 shows stocks from different periods. The graph with the longer period of stock performance gives us a better picture probably because they are using 1993 prices, according to Epstein. This longer history of stocks (from 1925-1998) gives us a better picture because it shows that stocks are “sometimes profitable and sometimes unprofitable.”

In my personal experience, I can say that I have based my investments on the stock market numbers. The graph is very important as it tells me what my stock is worth and you can view the graphs over time, e.g., today’s stock, last year’s, or over many years. Many years ago Apple’s stock was at $24.00 per share. I told my husband that we should invest in Apple. He didn’t think it was a good idea. Now the stock has jumped to $266.00. That would have made a nice little retirement! :o) If I had misread the chart, we could have been in the hole a lot of money! Well, I forget to tell you one minor detail-we didn’t have any extra money so we couldn’t afford it anyway!! Que sera, sera! Bummer!!!