There is one sin to which I cheerfully admit: I like to use charts. They illuminate what otherwise can be an impenetrable series of numbers.

It is one thing to try to make sense of a row of figures from, say, the Bank of Canada’s financial statistics. But it is another — and much more instructive — thing to view such numbers in graphic form. Numbers come alive in a chart — especially if the chart contains several types of data.

“Chart reading” in the investment world should mean more than technical analysis. Fundamental data deliver additional benefits when presented in chart form. For instance, pore over a set of charts containing market and fundamental data and you will probably be surprised at the insights you gain.

So, it was with delight that I opened the new issue of the Green Book of 35-Year Charts, an annual publication of Securities Research Co. (www.srcstockcharts.com), based in Auburn, Mass.

If you haven’t already realized that there has been a great change in the stock market and its fundamentals, a look through the Green Book’s 840 pages will certainly demonstrate that to you.

You will see the big picture clearly: the long, strong rise in prices, earnings and dividends in stock after stock, beginning in the 1974-1982 period, then ending in 1999-2000. Since then, the lines flatten, with movement sideways.

Securities Research has been producing charts for many decades, and the Green Book is valuable not just for its wide perspective but also for the array of data. In this era of readily available computer-generated charts, high-resolution printed charts such as those produced by Securities Research (and in Canada, by Canada Stock Charts’ Graphoscope) are much easier to read; they also pack in much more information.

A typical Securities Research chart is quite a package on a single page. In addition to monthly price ranges, earnings, dividends and relative strength, Securities Research charts contain a price moving average and trading volumes, and provide growth measurements for prices, earnings, dividends and total return over five time periods. The charts also list current capitalization data.

All these data offer more insight than just the price movement of the shares. The second most important insight, in my view, is the relative performance (strength) over time of each of the 760 stocks and 75 indices in the book. This drives home the message: if you want a portfolio to provide superior performance, avoid stocks that are underperforming the market.

For example, U.S. utility stocks were really little help in the long time span between 1977 and 1999. Their relative strength dropped throughout those 20 or so years. Despite their strong dividend payouts, utilities’ long-term total return has been 7% a year, compared with 8.5% for the Standard & Poor’s 500 industrial composite index. In the past eight or nine years, however, relative strength has identified utilities as a group offering superior returns.

Relative strength lines also emphasize the uneven performance of even great growth stocks. Many had periods of five years or so in which they trailed the market.

Charted earnings also offer insight into financial performance, sometimes revealing patterns of cyclical behaviour.

Earnings of great growth stocks gain steadily year after year. Then there are the dramatic rises and drops in earnings of cyclical industries. But some companies and industries — such as multi-line and property and casualty insurance — have short-term cycles of rising and falling earnings. As with identifying a change in the relative strength trend, such short cycles mark buying opportunities.

Dividend data also give some pointers about possible investments after a dividend cut or omission. By the time the cut or omission is announced, of course, the stock’s price has already started to drop. What happens after such events suggests that clients should watch quarterly earnings for opportunities. If earnings gain within three to five months, the Green Book charts suggest that such stocks become “buys” at that point.

Stock charts are, in essence, price charts — no matter how much fundamental data they show. A long-term chart makes it easy for advisors and their clients to identify important levels of price resistance and support. This is useful information, even for the most fundamentals-oriented investment manager. In conjunction with this, volume data sometimes provide confirmation of turning points in price.

@page_break@What has happened in some specific industries offers some lessons. Here are some examples:

> If you want to know why airlines are a dangerous sector in which to invest, scan the earnings line of the airlines industry. In 35 years, there have been four peaks in earnings, three of which were followed by steep drops into losses.

Dividends? Well, they have disappeared.

> Similarly, the auto industry has trailed the market for all 35 years — with only two three-year rallies that resulted in substantial price gains.

> The market was slow to pick up on sharp earnings gains by the house-building industry in the mid-1990s. The group still trailed the market for a few years.

> Similarly, share prices started to reflect 2001’s slowing earnings growth in the pharmaceutical industry a couple of years after the fact.

As for individual stocks, note what the Green Book chart shows for Warren Buffett’s Nebraska-based Berkshire Hathaway Inc. The stock’s steady price rise ended in 1998 at $88,400 a share. Since then, price growth has been irregular and slow as it moved up to last year’s high of $145,900 a share. It looks as if BRK is performing much like the broad market. Since 1948, that’s slightly more than 5% growth a year — a vast difference from the 40% rate of annual growth from 1975 to 1998.

Among Canadian stocks, Calgary-based Nova Chemicals Corp. looks interesting, despite its volatile earnings record. After outperforming the U.S. market benchmark from 1997 to 2004, its recent price drop has brought it to a level at which it previously traded for five years. That, in addition to recent rumours regarding a takeover offer, suggests it has less bear-market risk than most stocks.

Bear-market risk for J.P. Morgan Chase & Co. Inc. may not have ended, but the Green Book shows it to be a fairly stable performer despite frequent year-to-year shifts in earnings. In a worst-case scenario, the chart indicates a potential low for the stock price that looks relatively benign in the context of this credit crisis. IE