Data and Perspective

Even genuinely newsworthy topics can get distorted when commentators exaggerate or use data selectively. Here are two recent examples I noticed.

“This is the worst financial crisis since the Great Depression.” It’s true that it’s bad and even historic, and this sound bite correctly doesn’t actually claim it’s as bad as the Depression. I hope it doesn’t turn out to be in the same league as that; then, people were lining up at soup kitchens. For now, however, Apple is still on track to sell 10 million iPhone 3Gs this year, which says something.

“Yesterday [Monday, September 29, 2008] saw the worst single-day plunge in Dow Jones history.” “It’s a new Black Monday.” Well, these got my attention, because I remember Black Monday on October 19, 1987 very well. I was working in IT at a major bank, doing software application support for traders and related departments. When I went up to the trading floor that day, I immediately knew something was badly wrong because of the eerie sound as the elevator doors opened — a sound you never hear during trading hours, and certainly not from a room full of traders standing at their desks: silence.

Yesterday’s loss of 777 points was stunning as the largest single-day point loss in Dow history. But as a percentage loss that’s not even in the top 10 Bad Dow Days, all but two of which occurred before 1935. Those two since the Depression occurred on October 19 and 26, 1987, when the Dow lost 22.6% and then another 8% of its total value in single sessions, respectively #2 and #9 on All-Time Bad Dow Days list. For perspective, as of this writing the Dow is down 19.8% so far this entire year, and it surely hasn’t been a good year. Today’s crisis is already historic and could well get worse yet, of course, but some of us do remember some pretty bad ones in the past.

As good old Sam Clemens said (approximately), there are lies, darned lies, and statistics. Even when the statistics are true, always cross-check them for perspective. Even the best news and the worst news can be overstated, and viewing the same data from multiple angles helps ensure we understand it properly.

 

[Edited 9/30 to add: At 22.6%, Black Monday in 1987 was actually the worst Dow Day ever if you don’t count “reopening days” after unusual market closures when the markets catch up with events that happened while they were closed. So when was the all-time worst Dow Day ever? Perhaps surprisingly, the answer is not in 1929, though several of the all-time top 10 were in that year. Rather, it was December 12, 1914, when the Dow dropped 24.4% after the markets reopened after being closed entirely for over four months due to the outbreak of World War I. (The markets closed on July 30, two days after Austria-Hungary declared war and a day before Germany did.) That helps put in perspective just how bad October 1987 was, and of course that today’s crisis is also pretty bad even if it hasn’t beaten those prior records, yet.]

4 thoughts on “Data and Perspective

  1. This is a good point, and I agree. I would also point out, frequently we hear new records about the magnitude of something having to do with money. A good example is when a movie has the highest opening weekend gross ever. Well, these stats are a little misleading because inflation changes the value of the dollar. This is similar to the 777 point drop. Well, yeah, the biggest in magnitude in history, but as you rightly point out, that may not really mean much.

  2. Considering that the whole premise of the stock market is that it grows, it is deliberately disengenuous (or completely ignorant) to talk about world records in terms of points, rather than percentages.

  3. Isn’t the quote you attribute to Sam Clemens by Benjamin Disraeli, 19th Century British Prime Minister?

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