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Log & Arithmetic Charts Tell Different Stories
Richard Shaw (June 15th, 2008) Writes:
Simple arithmetic charts are OK for short-term performance review, but can be misleading for long-term purposes. Semi-log charts are best for long-term perspective.
Arithmetic charts space each Dollar move equally on the vertical Y-axis. Semi-log charts space each percentage move equally on the vertical Y-axis. Either method creates only minor differences for short-term charts, but dramatic differences over the long-term, particularly if the security is strongly trending.
The following charts of MSCI emerging market indices illustrate the point. They show 15+ years of gross performance (price plus all dividends) for the emerging market index (proxies: EEM, VWO), India (proxy: INP), China (proxy: FXI), Brazil (proxy: EWZ), Russia (proxy: RSX) and Mexico (proxy EWW).
The semi-log format (called “semi” because the X-axis remains arithmetic with equal spaces between dates) gives a truer picture of trend. A constant rate of change on
...Constant Rate, Current Market News, Djia, Dow Jones, Dow Jones Industrial, Dramatic Differences, Emerging Market Indices, Emerging Markets, EWZ, FXI, INP, Market Index, Minor Differences, Percentage Change, Performance Price, Price Changes, RSX, Simple Arithmetic, Term Charts, Term Performance, Term Perspective
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