Posts Tagged ‘Financial journalism’

Pet peeve – graphs that deceive

September 16, 2008

Just as sure as a hurricane brings TV news footage of a reporter standing on a boardwalk with waves crashing in the background, stormy times in the market also bring out journalistic cliches. Breathless and overhyped commentary and pictures abound – in print, on the air and online.

One of my pet peeves is a subspecies of exaggerated reportage: graphs that deceive the eye. I’m not saying it’s intentional, but some graphs depicting the latest carnage create an erroneous perception that overstates the “meltdown.” (The graph shown here is from Page One of today’s Wall Street Journal, though I’m not singling them out.)

The problem is – I know this will sound nerdy – the lack of a proper scale on the Y axis. When a graphic designer sets the base of the scale not at zero but at some higher point, it creates a visual exaggeration. In this case, a Dow Jones Industrial Average index of 10,900 is the base. The truncated scale makes a more dramatic picture, but the reader gets a quantitative impression that is out of context. Instead of a 4.4% drop, our eyes see the stock market plunging more than 95% – very close to “zero” on the graph.

Of course, an editor might say readers are smarter than that; anyone sophisticated enough to read the WSJ can tell the difference between zero and 10,900. Yes, but images do influence our thinking – and more on an emotional level than a rational one.

A leading expert on graphic communication of statistics, Yale’s Edward Tufte, states the positive principle in his book The Visual Display of Quantitative Information:

The representation of numbers, as physically measured on the surface of the graphic itself, should be directly proportional to the numerical quantities represented.

Tufte even offers a formula for a “Lie Factor” to gauge how far out of proportion a graph is. (This calculation is off the scale for most stock-price charts in the media, which are vertically truncated.)

Moving beyond whining about a pet peeve, I might suggest a lesson for investor relations professionals: We should always look at our graphs – those bar charts that fill PowerPoint presentations and some say are eye candy in annual reports – and test them for visual integrity.

The classic bar chart might show EPS rising from $3.00 to $3.25 to $3.50 over three years. If the Y-axis scale starts at zero, the eye sees a 17% total rise – looks steady, not too bad. But if you draw the scale starting at, say, $2.00, the increase in EPS looks like a more dramatic 50% – much more “growthy.” Try it both ways in Excel or PowerPoint; you’ll see. My Excel sets “zero” by default at $2.70 – which really makes for skyrocketing growth.

Financial communicators of all sorts, corporate or journalistic, should be careful to present information not only accurately, but in context and with perspective … which I think means graphs drawn to scale.

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And now, live blogging on conference calls

September 10, 2008

The future is now, as demonstrated by an extraordinary piece of journalism this morning: Floyd Norris, chief financial correspondent for The New York Times, wrote a live blogging commentary on today’s Lehman Brothers conference call with investors.

I have no interest in Lehman (other than wanting to see the U.S. financial system recover and thrive), but Norris’ blog provides an interesting glimpse for investor relations professionals into what is possible – and how much things have changed. Not long ago, it was a big deal for companies to organize conference calls – and then open them up for all investors to hear straight from management.

I’m sure today’s Lehman call isn’t the first IR call to be covered live by bloggers – live blogging at political and business events has become fairly common – but the presence of a New York Times columnist commenting in the blogosphere while the call is going on raises the profile. The blog is indexed with a headline on the front page of NYTimes.com.

So the blog starts a few minutes before the conference call and follows with eight entries – averaging every 10 minutes or so – telling the online reader what Lehman’s CEO is saying. And commenting on what the company is saying. Norris is a columnist, which is journalism jargon that tells the reader his articles in the print newspaper and the blog contain a good deal of his own opinion. It is, from my observation, well-informed opinion – because he also gathers the facts through old-fashioned reporting.

Consider a sample of the comments, and imagine it’s your company:

He (CEO Dick Fuld) says the firm’s “legacy assets” are losing value. That is a nice way to make it sound like the problems are from the past.

It sounds like they are selling control of Neuberger Berman at a significantly lower price than they paid. … Sounds like the previous owners of Neuberger Berman were good at market timing.

Here’s a quote that may come back to haunt them: “Future writedowns are unlikely.”

At 9:30 Eastern, Norris blogs: “The call is over, in time for the stock to open.”

Conference calls have been public for years, but the prospect of instantaneous, high-visibility commentary online is a bit daunting. Your CEO’s words need to be clear the first time, enough that the message is heard and understood even by the play-by-play commentators. My guess is that many investors were simultaneously listening to the call and monitoring Norris’ blog for the media view.

Live blogging gives new meaning to the old, but good, advice: Be careful what you say – it may end up on the front page of The New York Times … or, we should add, NYTimes.com.

(Update: While I didn’t realize it at the time, The Wall Street Journal also did live blogging of the Lehman call. Heidi Moore of the newspaper’s “Deal Journal” presented a live, hard-news report, capturing details of what the Lehman executives said in 31 entries – about one every two minutes. So add WSJ.com to the list of places where your CEO or CFO’s words could wind up – say, 60 seconds after they are uttered.)