You Need To Think In Relatives When Investing

One of the first things new currency traders learn is that theirs is a market of relatives. Every currency is always quoted against another, hence a currency has to go up or down relative to another one.
Saying the EUR went up is a meaningless statement; because – relative to what?
For the statement to have any proper meaning, one has to say the EUR went up against the dollar, or the pound, or whichever currency. (Although most people will assume vs the dollar if no reference currency is mentioned).
Turns out, asking “relative to what?” applies to far more than currency markets.
Headlines provide examples of not seeing the relatives. Take for instance a simple headline about a company’s earnings, which states that its revenues increased. That’s all well and good, but relative to what?
If revenue increased by 20% but costs increased by 25%, then the revenue increase is no longer a positive. Taking another point of comparison, if revenue increased 30% QoQ, that sounds absolutely amazing, but what if revenue is seen from a YoY perspective?
Maybe from the YoY point of view, revenue was flat, and further investigation reveals that at the same point in the calendar last year revenue jumped by about 30% as well. Therefore 30% QoQ jumps between these two quarters are nothing extraordinary, just a matter of seasonality.
All of a sudden, the headline does not look so bombastic anymore.
Here’s another example to further drive home the point:

Always remember to ask: relative to what?
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