- James Lord
Read between the lines
Updated: Jan 19, 2021
Have you ever looked a stock performance charts on sites such a Google or Yahoo Finance? Most of us have. Most long-term investors are looking for companies that can grow their share price quarter after quarter and year after year. But then there are day-traders. These are the people who enjoy trading weekly, daily, or even by the hour or minute to try to capture some quick gains. One of the most important lessons I've learned about reading data, whether it's charts, tables, graphs or spreadsheets, is to always look at the data from different perspectives.
This is true for anything in business. It doesn't matter what sort of KPI (key performance indicator) you're looking at. Having perspective can change a lot about how you think about the data and the story it may be telling you.
Here is a quick and dirty example.
In this first image is a technology company's stock trend that I captured. Each candle represents a 4 hour time interval. So what you're looking at here is a 4-5 month trend where the stock has increased from $342 to $446, or 30% over that relatively short period of time. This looks like a great investment option for medium to long-term investors!
But what if you're a day-trader? What if you're the type of person looking to make 15%-30% gains in one day or even one week? Quickly glancing at this chart, you might have confidence that this is still a good investment. After all, it's up 30% in four months, right?
This is the same exact stock, but this time we've zoomed in. We're now looking at this stock from the perspective where each candle represents just 5 minutes instead of 4 hours. As you can see, depending on what day (or hour) you bought this stock, you may have actually lost money. Best case scenario, you're flat. But you certainly haven't seen any gains worth celebrating.
My point is simple. Looking at the data from different perspectives tells a different story. Make sure you know what story your data is telling you. You might be making decisions based on the wrong perspective.