The hot-handed gambler Flat packed

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Future guesswork

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 22 October 2016.

One of the most heavily populated sections of any bookstore are the many shelves holding business and investing related books. Investing books in particular are a dime a dozen, all full of dubious advice as to how you could turn $10,000 into $1m in just five years, or something similar. The business section is a little bit more serious, with many thoughtful and carefully worded treatises on a variety of topics. Just to mention a couple of examples: in my time I’ve read books about how Ray Kroc launched the global juggernaut that is McDonalds; how IBM lost its way in the 1980’s and early 1990’s; how Phil Knight turned Nike into a sporting phenomenon; what went wrong at Barings Bank in 1995 and one of the most interesting, Maverick!, the story of Ricardo Semler and his unorthodox management approach.

Of all these books however, one which really made a mark was a book about the Japanese economic miracle of the post-war period, which I read in about 1993. I can’t remember the exact title of the book, however it was something along the lines of ‘Rising Sun – The unstoppable economic rise of Japan’. The gist of the book was that the Japanese way of doing business (just-in-time manufacturing and all that) was evidently superior to anything else the world had to offer and soon Japan would be the dominant global economic force. Believing that the Japanese economy would continue to grow to the point of global domination was not difficult – the country had rebounded in spectacular fashion from its parlous state at the end of World War II and there was nothing to suggest that this was anything but a permanent trend. The book was full of breathless admiration for Japanese management and manufacturing techniques and how the economic wealth of Japan was changing the world. While there is no doubt that Japanese companies such as Toyota, and others, have made a global impact and remain relevant to this day, the same cannot be said of the Japanese economy. It was almost as though the publication of the book rung the bell on the high point of Japanese economic development. Ever since then, the Japanese economy has been firmly stuck in reverse gear and any dreams of economic domination have long since vanished.

The book on Japan shows the danger in extrapolating current events well into the future. The assumption that conditions today will be the same in 10 or 15 years’ time, is a dangerous one. There are simply too many variables to be able to accurately predict the future with any degree of accuracy. The same rule applies to investing – predicting the future is guesswork, not science.