RBCAssociates is a web site I set up some time ago to demonstrate the ease and functionality of the homestead.com service for the novice. I created and put the graphs there, as it was the first place that came to mind when I wanted to share the graphs with the individuals of this group.
are we looking at apples vs apples with the govt data others have presented
I want to know this also, so I went back into the archives, to try and understand how the graphs were created and what the source of data was. For example, the April 01 Contrary investor shows several charts, including household debt as a percentage of disposable income.
contraryinvestor.com
But there is no info on how the chart is created, and based on the data I've found thus far, I've not been able to recreate similar results. It truly is much easier to sit back and accept the data at face value, but I'm having more trouble doing that lately.
regarding log charts;
Log charts show the trend better when large relative changes might swamp earlier data- obscuring longer term trends.
Why Isn't the Price Scale Evenly Spaced?
Long-term charts use logarithmic rather than linear scale. Logarithmic is the standard for most stock price charting applications.
Logarithmic scales for stock charts allow you to compare details in a more meaningful way, even when the price varies over a wide range. They also reflect the relative nature of stock price movement (eg, a 5 point move in a $10 stock is much more drastic than the same point-value move in a $100 stock), thus making side-by-side comparison of charts more relevant. This becomes apparent when you look at an example.
biz.yahoo.com
Now -- why is one kind of chart better than another? Well, imagine a company with a stock price increasing by 15% each year for 20 years. Think about how you'd normally draw a chart of its stock price. You'd probably use a linear chart, as that's what most of us learned to do in school. The graph would show a really curved line, though. It would look like the stock price grew slowly in the first years, and then zoomed up a lot in the last few years.
That's because in the first few years, the change in the stock's price might have been from $10 to $11.50, and later from $25 to $28.75, and later still from $75 to $86.25. So the absolute changes will look small at the beginning, and will look large later on. But it's really just been a steady 15% increase from year to year. (Remember, an investor should be just as happy with a total 50% return from $20 to $30 as from $100 to $150. Investment-wise, percentage-wise, it's the same thing.)
This is why a logarithmic chart is preferable in this situation. If a company is growing at a steady clip, you'll see a fairly straight, upward-sloping line on the graph, not a sharply curving line. If the company's growth is slowing, you'll see the upward slope taper off a bit. If the company keeps growing faster and faster, then you'll see an upward-sloping sharp curve. But this time the dramatic curve will represent dramatic growth.
fool.com
Prudent Bear apparently has a different take;
In closing, it has been suggested that I use logarithmic charts for money and credit growth. I specifically do not use logarithmic charts, as I believe they simply provide a convenient mechanism for conventional analysts to downplay the extreme nature of this historic monetary expansion. An apt analogy would be the hopelessly obese individual saying, “hey, look at the logarithmic chart of my weight gain…it really doesn’t look all that bad!” I won’t be playing that game. Besides, if, as the bulls claim, we are in a stable price environment, why is it not appropriate to chart nominal money and credit growth?
prudentbear.com |
