Notwithstanding horoscopes; birthdates can make a difference

Many of us read our horoscopes, perhaps furtively, in order to predict our future. While our date of birth does indeed affect our lives, it is doubtful that the position of stars has much influence.

Studies confirm that one’s placement by birth in a family is especially important in determining that person’s future. Hence, usually the first born is the most competitive and aggressive; the next younger sibling is less competitive, and so on.

If one grew up in the 1930s, those "depression babies" understandably are risk averse, having been scarred during their formative years by the poor economy and all that entailed. They experienced lower stock market returns than people who lived in times when stocks had done better. They put a smaller fraction of their money into common shares.

Research conducted by Ulrike Malmendier, of the University of California at Berkeley, and Stefan Nagel, of Stanford University, reveals that individuals born at different times, even in a similar economic environment, will be influenced by their birth date.

Thus, older people who came of age before the 1930s will be prepared to take risks, because they can recall other, more prosperous times.  Although they lived through the "Dirty 30s," they are inclined to make very different investment choices than their younger colleagues. The latter will put a smaller fraction of their money into the market because they had been hurt by poor results.

In later decades many were attracted by growth stocks in the expectation that there will be a repeat of the booming 1950s.

Those who had lived through periods of high inflation such as occurred in the late 1970s, psychologically plan on a resurgence of large increases in prices. They probably will be less willing to commit funds to bonds, which performed very badly in that era.

Baby boomers spent most of their lives during the time when the stock market yielded above average gains and business conditions were exceptionally favourable.

Those boomers were encouraged by leaders of business and by investors to count on continuation of this direction. They experienced only good times and, therefore, acted accordingly.

The distant past does not seem to have much of an impact. "Appetite for risk" is affected by age and background, and to a smaller extent, by what one has heard.

In general, previous generations’ experiences are soon forgotten. It has been said that every 50 years, the business reversals of long ago are ignored; they are considered irrelevant. Yet, George Santayana stated that, "Those who cannot remember the past are condemned to repeat it."

That is applicable to those with more recent birth dates, and explains the reason for major business downturns.

 

Bruce Whitestone

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