Learning how to read charts and graphs is important. So much so that when I was preparing for the General Management Admissions Test (GMAT), the test makers removed one of the two essays and replaced it with a section called integrated reasoning, which is basically interpreting charts and graphs. Luckily, I was already far along in my finance career when I applied to business school so interpreting charts and graphs was a strength. Like the finance industry uses charts and graphs for economic and market trends, the auto industry uses charts and graphs to display vehicle performance trends. This article will draw parallels between the auto and finance industry to show how charts and graphs are used to make informed decisions.
Figure 1 is a chart that shows the improvement in fuel efficiency over the years in cars with automatic transmissions. Interestingly, since 1980, manual transmission vehicles were far more fuel efficient up until around 2012. Between 2012 and 2020, car manufacturers made a significant improvement in fuel efficiency. Based on this information, it would make sense to purchase an automatic transmission vehicle if fuel efficiency or cost savings was your goal.
Like graphs help car shoppers looking for fuel efficiency to decide to purchase an automatic transmission vehicle, graphs also help investors decide where they should allocate money based on current market trends.
Figure 2 (a chart from last month’s Money Matters article) illustrates the quarterly Fed Rates and bond returns from 2019 up until March of 2023. As illustrated, in 2019, when interest rates were between 2 and 3 percent, quarterly bond returns were stable. However, during the Covid 2020 recession, as interest rates were driven downward, bond prices spiked. In 2021, investors holding bonds experienced some volatility. However, as interest rates started to spike in 2022, bond prices spiraled downward. Conversely, the last half of 2022 shows a recovering bond market. As interest rates move downward during a recession, bonds should perform well. Investors interested in a diversified conservative or balanced portfolio are positioned well for the bond market recovery.
Since the method of analyzing data is sometimes similar in both the auto and finance industry, it might be easier for GEARS readers to understand financial data more than professionals from other industries. However, if you’re like me, I’d rather work with a professional to work on my car rather than do it myself, although doing my own research in advance doesn’t hurt.
If you already have an investment advisor congratulations. However, if you’d like to learn more about what investment advisors do for their clients, don’t hesitate to contact me or at empiriKalpartners.com for an individual assessment.
