Why are stock and fund graphs never scaled in a uniform way like a ruler?

Question

Try this:

1. Go to Yahoo's home page, and type in your favorite stock symbol. For the purpose of this example, lets start with the evil red empire, Halliburton, or HAL ran by the junk-stock dealer of h**l himself.

2. Click on the link "HAL: Summary for HALLIBURTON CO - Yahoo! Finance.

3. Click on any range from 1yr to "max" below the chart.

4. Now, look at the scale! It is not uniform like a ruler. Why? Just so it can fit on a page without you having to use the scrollbars? That is not accurate - it is misleading for long-term analysis of a stock's performance.

5. Now look at any other junk stock forever going down the tubes (like WR Grace, Monsanto, GM, Ford, SCI, and Bear Stearn to name a few) and look at the ranges. The graphs are either level or going up. That is just not possible!! The scale is misleading. The question for you is - why? What incentive does Yahoo have to mis-represent numbers? Do other stock and fund graphs do the same? Inflation is explained?

Answer 1

There is a reason for using a logarithmic scale.

If a $100 stock goes up $10 it has gone up 10%.

If a $10 dollar stock goes up $10 it has gone up 1,000%!

When you have a historical chart with the price of a stock (or the indexes)  that can range from $10 to $100 or more then a linear scale over a long time frame always gives you a strongly parabolic upward slope.

But on a logarithmic scale the curve is more sensible and more representative of the actual percentage increases.

Answer 2

No, Yahoo isn't trying to mislead.

That's a logarithmic scale.  Logarithmic scales are often used for examining changes over time.  You might want to read this description:

http://en.wikipedia.org/wiki/Logarithmic...

And if you don't like it, there is a chart option to switch to linear instead.

Answer 3

it's called a logarithmic scale.  it makes an exponential curve look straight.  it's used so that people who just glance at the chart don't get the wrong idea about the performance of the company.

if something increases by a certain percentage every year, then it would appear that it had huge gains more recently and smaller gains in the past on a linear scale.