Investing at a Glance: Morningstar Style Boxes

Morningstar is an investment analysis firm that is most famous for their in-depth analysis of mutual funds. What makes them relevant here is their fantastic data visualization tools. This company has determined that there are two important dimensions to understand a particular stock: how big the company is and how quickly it’s likely to grow. They’ve taken these two axes and created a nine-square box that has these two dimensions along the x and y axis. It is a useful conceptualization, and they are consistent in using it all across their site.

For example, for each mutual fund they analyze (mutual funds own a bunch of stocks, then you buy a piece of the fund), they can use this box. Glancing at this box immediately tells you what kind of companies you are buying. One key to investing is diversification, so you want to own companies in all the different boxes. Here, you can see where the fund sits on average and also where the majority of stocks fall:

Additionally, they use this style box to visualize market performance at any given time. The Dow Jones Industrial Average that most people follow is made up of 30 stocks, and the gains or losses of each get averaged, and that averaged is what is reported. However, the stock market is not just those 30 companies. Morningstar performs these averages for companies that fall in each of the nine boxes throughout the day and displays them and an indication of market performance. At a glance, you can see whether the entire market is doing well or if just a few areas are bringing up the average:

OK, so what does this have to do with cognition? Excellent visualizations lead to immediate information. Once you understand the axes and boxes, you can get an immediate sense of how the market is doing, what kind of mutual fund you are buying, or a variety of other information. You can even see information displayed through time.

As a final an decidedly older example of data visualization is Charles Joseph Minard’s 1861 thematic map of Napoleon’s march on Moscow. You don’t even need to be able to read the text to understand the graph. The leftmost point is the start of end of Napoleon’s March. The rightmost point is Moscow. The width of the thick line is the number of men he had in his army. Watching that number dwindle as he marches to Moscow and back is astounding. A line graph would have conveyed this information over time as well, but the extra dimension of the data points corresponding to geographic location adds an extra impact and presents additional information that can be taken in with a single glance. It’s a classic in the field and worthy of study.

Numbers are difficult for our brains to intuitively grasp; this is why data needs to be displayed in a chart or graph. When that graph is consistent and is easily readable, an amazing amount of information can be gleaned in a very short amount of time. This field of the psychology of Data Visualization/Graph Comprehension is relatively new, but absolutely Human Factors.