How representative is your sample?
Imagination gone astray

Bubble charts and their discontents

In a recent post about NYT's blinding spots, I cited a chart showing Wall Street being "more bullish on Walmart than Costco".  Here, I reproduce it, and next to it, I put the table of numbers without the gridlines and bubbles.

Costco_bubbles_2
In my mind, the bubbles (and gridlines) distract rather than inform.  The use of black versus gray further distorts our perception.  The table on the right is just as good, if not better.
Redo_bubble_size

Bubbles are notoriously misleading because of our inability to compare areas as well as the lack of a scale.  For example, how large do you think the bigger circle is? (Answer at the end.)
 
 

Also, it is not sufficient to compare the absolute number of buys, holds and sells because the total number of calls are different.  For instance, 10 buys out of 12 calls means something different from 10 buys out of 40 calls!

The key to reading this data is the median: if we line up all analysts with buys to the left and sells to the right, what call did the analyst in the middle make?  Which call the median analyst made depends on both the total number of analysts and the proportion of buys, holds and sells in the sample.  The following chart anchors at the median analyst, stretching out on both sides of that middle point:

Redo_costco_2

We observe that:

  • The median analyst called BUY for Walmart and HOLD for Costco
  • The majority of analysts made the same call as the median in both cases
  • Among the minority, most Walmart analysts called HOLD, which is more pessimistic than the majority
  • Among the minority, most Costco analysts called SELL, which is more pessimistic than the majority
  • More analysts followed Costco than Walmart (longer bar)

[The bigger circle is size 17 compared to size 10.]

Reference: "How Costco Became the Anti-Walmart", New York Times, July 17, 2005

 

Comments

simon

Very nice reframe ... excellent logic

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