Dominic Lawson: We're in trouble if we let the calendar dictate our decisions

The reason forecasting is so often an abject failure is both familiar and predictable

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You don't have to be a follower of the Austrian economist Friedrich von Hayek to recognise the truth of the Nobel-prize winner's pithy encapsulation of his view that the business cycle is inherently ungovernable: he remarked that there do not seem to be many people who have made money by acting on economic forecasts, but a very large number who have made fortunes by selling them.

This is the time of year when it is especially worth recalling Hayek's observation. The business pages of our newspapers (not to mention those of the US) are full of forecasts of how the economy will develop over the next 12 months; there are a similar number of supplements giving spuriously precise details of where property prices will stand at the beginning of 2013, region by region; and so-called financial experts will have been picking their "shares of the year", unembarrassed by all past failures in prediction.

As a former newspaper editor, I can appreciate some of the logistical reasons for this utterly predictable confluence of forecasting. Because most of the staff will be away on holiday it is necessary to have plenty of plausible copy which can be written ahead of time, regardless of any intervening real events. Moreover, since the City is normally quiet (for similar reasons) during the Christmas break, there will in any case be few breaking financial stories big enough to cause the pre-cooked verbiage to be displaced.

It may be that the annual slew of economic forecasts is more meaningful than the barrage of prognostications that the newspaper astrologers come up with at the same time, but at least the latter are shrewd enough not to ask us to base our investment decisions on their star-gazing. As the Washington Post pointed out last week, the two most popular investment forecasts a year ago were that gold would outperform bonds and that so-called "emerging" markets would be the stock market outperformers. Actual results: gold was outperformed by bonds, while the Chinese stock market fell by 20 per cent, and share prices in India and Brazil lost, on average, a third of their face value.

The reason for this abject forecasting failure is itself both familiar and predictable. Because gold and emerging markets had been the top performers in 2010, it was psychologically inevitable that they would be tipped to do well in 2011. There are few financial experts who are not gripped by the herd mentality. One such is the world's most successful long-term investor, Warren Buffett, who always sees a fall in the share prices of his favourite companies as a reason to buy more of the stock. You might think that is only common sense – after all, rational women are more inclined to buy the dress they want after its price has been marked down – but most stock market investors, professional and amateur, see falls in price as a reason for selling.

They thus reveal themselves to be less interested in true underlying value than they are in short-term market movements. The thing about Buffett is that he regards the calendar year as a very short time in investment and any advice based on such a compass as inherently superficial, even frivolous.

We might add to this the observation that the Gregorian calendar is the way in which only part of the world (admittedly, the richest part) metes out time. While it is true that almost all calendar methods are ways of measuring time according to the movements of the earth around the sun and the lunar cycle, exactly how this is done varies according to different religious cultures.

What we call the year 2012, which began last Sunday, straddles the years 1728 and 1729 for the Copts, the years 5772-5773 for Orthodox Jews and 1433-1434 for similarly observant Muslims. As for the Chinese, one almost requires a degree in mathematics to work out when their New Year occurs. Indeed, Helmer Asklasen of the Department of Mathematics at the National University of Singapore, in his paper When is Chinese New Year?, observes that: "Chinese New Year is the main holiday for more than one quarter of the world's population: very few people, however, know how to compute the date."

 

This might seem odd to us, until we recall that our own Gregorian calendar is a not very satisfactory attempt to accommodate the lunar cycle and the orbit of the earth around the sun with the suppositious dates of the birth and resurrection of Jesus Christ. This provided, inter alia, that "every year divisible by four is a 'leap year' except for years that are exactly divisible by 100; the centurial years that are exactly divisible by 400 are still leap years. For example, the year 1900 is not a leap year; the year 2000 is a leap year." After that, the Chinese do not seem quite so exotic.

For my part, the whole concept of a New Year starting in January seems almost meaningless, and certainly so in terms of investment and the economy, given that the tax year runs from 6 April to 5 April. For those of us who are self-employed and therefore not on Pay As You Earn, these are the dates that most of all determine our behaviour in terms of expenditure and even our mood. If we can meet our tax bill, all well and good. If not, then gloom descends. On the other hand, the moving from 31 December to 1 January is nothing more than an excuse for a belter of a party and the chance to become inebriated in the company of old friends and family.

Indeed, as we get older the whole idea of "years" becomes progressively less and less memorable or even meaningful. I know, offhand, that I am in my mid-50s, but if I am asked my precise age I have to recall my birth date and do the necessary calculation. Perhaps this is just the male version of the way in which many women of a certain maturity find it intolerable to give their real age – in which case it proves that my vanity is more powerful than my memory.

Yet I suspect that to be disconnected from Anno Domini is more common than widely supposed; I feel intuitively sure that most of us live our lives according to a different beat than that laid down by Pope Gregory XIII. Living as I do in rural East Sussex, my mood is influenced much more by the seasons, with the arrival of spring the time of greatest exhilaration (quite unaided by consumption of alcohol).

By contrast, this time of the year always brings to mind the concluding couplet of Michael Flanders' A Song of the Weather: "Freezing wet December, then: Bloody January Again!"

d.lawson@independent.co.uk

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