monday trading, page-130

Voltaire,

If you accept that things grow over time, markets, investments, whatever, in the sense of growing at 12% per year, the simplest way to describe this mathematically is as an exponential function y=exp(rt), where r=growth rate, t=time.

Take the log of this (LN really), and you see that LN(y)=rt. So on a logarithmic scale, a straight line of a particular slope is the same thing as a growth curve on a linear chart, with the same growth rate.

My suggestion of plotting a family of growth curves on the linear plot may be difficult to think about for the less mathematically inclined, but on a semi-log chart, you can achieve the same thing using straight lines.

That's the key point, that straight lines with slope r on a semi log plot are the same as GROWTH curves with growth rate r on a linear plot.

Over long periods of time, in my mind, this is the only sensible way to do it. Simple illustration of why - 100 points on the DOW is about 1% now, but back in 1929 it was approximately 100%