Broker Check

Beware of Charts!

| September 20, 2021
Share |

I like charts. They make the Nerd-In-Me happy.

At their best they can illustrate reality simply. They can also give false correlations. Like the one above.1

If one were to take this chart literally it might mean that you should be lowering your investment allocation to margarine making companies whenever you see divorces in our easternmost state declining. Or when you hear of long lines out the doors of divorce lawyer’s offices in the state of Maine, you might want to research purchasing the latest margarine IPO.

I kid, I kid.

My point is that if you follow financial media at all, you will find several scary charts to justify investment decisions. For example, you might see something like “MARKETS CRASH COMING DUE TO TRIPLE DEATH CROSS CHART NOT SEEN SINCE 1929”. To be fair, technical analysis is a genuine tool to use in understanding markets and market correlations do exist, but sometimes things can get a little ridiculous.

This is just another reminder to think through the financial charts you see, and to be careful about what drives your financial decisions.

Oh, I’m all for a margarine consumption crash across every state in the union. Butter is WAY better ;).

-----

Source:

1. https://www.tylervigen.com/spurious-correlations

 

Share |