Today’s edition of ChartCritic takes a look at a chart shared by EconomPic on Twitter (which has also made the rounds of all the usual permabear/end of the world websites). He asks/comments: “Just when you think you’ve seen the most irrelevant chart you’ve ever seen”. The tweet/chart was brought to my attention by ValueWalk, and given it’s Friday afternoon and the weekly report is done it’s a great time to have some fun with charts. So what we will do in this article is look at what’s wrong (or right) with the chart, present our own take, and then for fun see if we can come up with an even more irrelevant chart…’
Just How Did Walter Schloss Achieve A 21.3% CAGR From 1956 To 1984
THE CHART: Here is the culprit. The chart is "Hours of work to buy the S&P 500" - it's not explained, but we are left to assume this is the level of the S&P500 divided by average hourly wages. So it's kind of interesting. But no one thinks like that. And aside from not really being relevant it's the classic oranges vs apples comparison in that it's comparing a stock with a flow. To be fair though the PE ratio (also an imperfect indicator - like most) also compares a stock with a flow, but in that case it kind of makes sense.
THE RESPONSE: Taking a fairly simple approach, just comparing household net worth to the S&P500 we can come up with something like "the number of S&P500s the US household sector could buy". It's equally silly and theoretical, but it puts a stock in context with a stock. I would welcome comments and criticisms on this one - I can already think of a few...
NEVER GO FULL... The last chart is one of those Friday fun with charts... #ChallengeAccepted response to the question "Is this the most irrelevant chart you've ever seen?" Here we present the S&P500 divided by the Peruvian Llama production index from the Instituto Nacional de Estadistica e Informatica. As you can see it's looking very stretched... much like the neck of a llama.
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Article by Callum Thomas, Top Down Charts
