In this house, we count from zero

I’ve noticed that most financial market charts in the news zoom in on the area of change, rather than start with a base of zero. In some respects, this makes sense. When you’re discussing a sudden change, focusing on that part of the chart can highlight the change and illuminate details within it. However, with focus comes a loss of perspective.

Take these graphs, for example. They are based on Dow Jones closing averages from January 2 through March 20, 2020 (from the trustworthy-sounding source: Yahoo!) and are made with the Numbers app for macOS.

Changing the baseline

Charts A and B both show the exact same source data. The only difference is that the baseline of chart A is 0, while the baseline of chart B is 19,500. One looks bad, the other looks like the end of the world—like all wealth has evaporated. Chart B highlights the change, but also hides the vast bulk of value hidden below the baseline. Which looks worse to you?

Two charts showing the Dow Jones with different baselines
Two charts, same data. Chart A has a baseline of 0. Chart B has a baseline of 19,500.

Changing the scale

Charts A and C are also based on the same source data and both share the same zero-baseline. The only difference here is that chart C is squished to about half the height, while keeping the same width as chart A. The drop in chart C looks much less significant, but the numbers are identical.

Two charts showing the Dow Jones with different vertical scales
Two charts, same data. Chart B is just compressed vertically.

Changing the baseline and scale

Let’s combine our two methods of distortion. Chart B and chart C still show the same source data. The only differences between the two are the baseline (chart B starts at 19,500 while chart C starts and zero), and the height of chart C is squished to half the height of chart B:

Two charts showing the Dow Jones with different baselines and vertical scales
Two charts, same data. Chart A has a baseline of 0. Chart B has a baseline of 19,500 and is compressed vertically.

Always look for the baseline.

 

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