KEY POINTS:
Finance journalists get to see a lot of graphs, generally, though, I don't pay them much attention. Colourful bar charts, pie graphs or the more classical jagged blue (or red) line variety are standard investment marketing fare and have to be taken with a big grain of salt.
Such graphs have an amazing ability to stretch, squeeze or otherwise distort the effects of money mixed with time to back up almost any argument. It's not that these graphs, and the underlying data, are inaccurate, they just may not be of much use in helping individuals decide what to do with their money now.
For instance, the standard technique used to demonstrate that shares return more than other asset classes (bonds, property, cash etc) looks back at markets over 100 years or more. The charts are beautiful; the evidence is irrefutable but who has 100 years or more?
The lovely smooth equities line which floats above all other contenders over decades looks a whole lot different when you change the timescale.
Consider the last month.
Over the month to October 29 the Dow Jones was down 18.6%; the ASX200 was 21.1% in the red, and; the NZX50 slumped15.7%. The MSCI World index, a measure of global equities returns, tumbled almost 30% over the period.
Bond markets were OK but not great, showing slightly negative or sub 1% returns depending on the investment period
Commodity markets also fell heavily over the month with the big one, oil, dropping over 40%. At the same time NZ's currency went into freefall versus the yen and the US dollar dropping 15.9% and 21.2% respectively.
All that information came from a few graphs someone sent me this week.
I also received another graph, with accompanying text, from State Street, one of the world's largest financial institutions, that informed me that the confidence of institutional investors (ie their willingness to buy shares) had slunk to its lowest levels since the measure had begun in 1994.
It quoted State Street executive, Paul O'Connell as saying while similar trends were observed in previous financial crises (remember the 1997 Asian crisis anyone?) "those events appears small compared with the current outflows".
"The combination of financial crisis along with truly global macroeconomic risk of deep recession has been causing a complete re-evaluation of risk across a wide investment community centered on US institutional investors," O'Connell said.
Meanwhile, a story in the New Zealand Herald yesterday reported on a survey that showed "Many Kiwis" were "ignoring the slump".
What's wrong with them? Haven't they seen the graphs?
David Chaplin
