It’s that time of year again

The time for crystal ball gazing

Known by some as the ‘silly season’, it’s the time of year when many people are on holiday and the flow of news slows to a crawl. So the wide open spaces get filled with forecasts and predictions about what lies ahead in the new year. As Jim Parker from Dimensional Fund Advisers in Australia says:

While crystal ball gazing is always entertaining, it becomes even more so a year later.

Jim gets us to think back January last year when politicians in Washington were in the grip of one of their ‘fiscal cliff’ stand-offs. On 7 January 2013, the publication ‘Financial News’ reported political storm clouds looming over the global economy and “from Washington to Beijing, the financial markets are in thrall to seismic political events”.

On January 5 2013, ‘The Economist’, in an article called ‘Hope Springs Eternal’, noted that while surveys showed investors were optimistic, the coming year was unlikely to be a bumper one. All doom and gloom for reading investors and easy to see why many may have taken fright around the turn of the year.

But, as of early December 2013, many global markets were notching up record-breaking years. The US top 500 S&P index was on track for one of its biggest annual gain in more than a decade. In Japan the Nikkei 225 total return index was heading for its best yearly gain since 1972 and in the UK, the FTSE 100 total return index reached a 13 year peak in May.

The gloomy, start of year stories were not necessarily incorrect but we need to understand they only cover sentiment at the time of writing and that is all they can do. Impossible for anyone to predict the future.

Jim Parker concludes his view by saying:

Investing is about what happens next. We don’t know what happens next. That’s why we diversify. Also, if any of the gurus who regularly appear on financial television or the newspaper really had a crystal clear view of the future, why would they bother sharing it with the world?

It makes more sense to focus on what’s in your own control.