A tip to avoid panic

Do recent market falls look scary compared with the past? You could be fooling yourself by looking at linear scales! See this chart for Aberdeen Indonesia Fund. Recent movements look really bad, perhaps even worse than the 2008 crisis. This is the default chart setting.

Scary chart (linear y-axis)

But this could be because you are using a linear y-axis. When you use a linear scale, movements up or down in the past will look smaller than recent movements. Why? Because (assuming the fund price has gone up over time) the price of the fund, say, 10 years ago was much smaller than today. So a past drop from $2 to $1 (a 50% fall) may look like something insignificant when the price now is around $5.

How can you remove this psychological bias? The easiest way is to convert the y-axis to a log scale. This means movements take a proportional size on the chart, regardless of how far back they occurred. To switch to a log axis, right-click your mouse when the pointer is over the chart, and you will see a menu with the option "Show Log Scale". Select that, and this is the chart you will see:

Not so scary chart (log y-axis)

The movements in the past now take their correct perspective, and recent movements don't look so scary after all!