I’ve recently seen an old chart making the rounds again. This is a chart many advisors bring out when markets start getting choppy. Advisors use this chart to prevent their clients from selling stocks when volatility picks up and clients start getting nervous (like this past October for example).
While I agree that emotional investors tend to make very poor decisions that end up costing them a lot of money, the chart commonly used to try and make that point is one of the most misleading charts in all of finance. I’m embarrassed to say I also used to show it.
Without further adieu, I present the most misleading chart in finance…
I’m seeing some widespread misconceptions about the relationship of unemployment rate and consumer confidence to recessions. Below is a chart that sheds light on this historical relationship followed by a few brief comments.