My brother has just had his first child. Ethan was born just a few days ago and mother and baby are doing brilliantly. Dad’s a bit dazed and confused but I told him that eventually he’d get used to it and would eventually consider that state of mind to be “normal”.

During the early part of the pregnancy my sister in law was radient, glowing and not too tired. Once they had gone “public” with their exciting news talk inevitably turned to sex. No, not that kind of sex…

Will they find out, won’t they find out. Will they tell, won’t they tell. It turns out that my bro and his wife had given it a bit of thought. They told everyone that they were expecting a boy after their 20 week scan.  When I went visiting a few weeks before the due date I asked them why they had decided to find out. Here’s their three reasons:

“Having a baby is a big deal so any sort of heads up and planning will be invaluable” my sister in law said,  “Knowing to go a little bit more blue and bit less pink was good and has helped us get as prepared as possible” (my sister-in-law likes to be in control).

“Knowing it’s a boy meant that we could have a relationship with HIM rather than IT from the 20 week scan. We decided on his name quite a while ago and HE’S been part of the family for a while.”

At this point my brother took up the baton eagerly “We don’t get the whole ‘surprise’ thing. Some people don’t want to find out because they want it to be a surprise.”

At this point my brother, who rather fancies has more comedic delivery than the average man in the street just raised his eyebrows and said “I mean how much of a surpise can it be? It’s a baby whatever happens. It’s going to be a boy or a girl. ”

So what’s the point of the story? People tend to attach too much importance to binary outcomes. Don’t stop reading. Please bear with me…

I know that you have no idea what a binary outcome is (and care even less) but allow me to explain. It’s just something that can be one thing (boy) or another (girl) and absolutely nothing else (imagine giving birth to a dog, now that really would be a surprise).

This time of year financial services is awash with predictions – binary predictions. Predictions about binary outcomes. To be honest they’re pointless.  Don’t ask me why but a plethora of “experts” will tell anyone who will listen (or print) where they expect the markets to be by the end of the year.

A common “prediction” at the end of 2011 was the value of the FTSE 100 index at the end of 2012. The FTSE 100 for the uninitiated is an index of the 100 (or so) largest firms on the London Stock Exchange by market capitalisation. I say prediction but really it’s a guess – a common guess at the end of 2011 was that the FTSE 100 will be above 6000 by the  end of 2012. That looks like a binary prediction.

Either the FTSE 100 will be above 6000 or it won’t. Those who “guessed” right will be lauded as “experts” and promote their “expertise” for another 12 months. Those who get it wrong will just keep quiet. You won’t hear a thing from them. Nothing.

As it happens the FTSE being over 6000 could be a good guess because the FTSE 100 closed on 20th December 2012 at 5,958.34. With only a few trading days before the end of 2012 it could be a good call.

Even better when you look at the performance of the FTSE 100 in each of the 28 Decembers since the index was created in 1984. In that 28 year period the index has finished higher at the end of December than at the start 85.7% of the time. There were only 4 years when this wasn’t the case – the last one was in 2002.

But why 6000? It has no significance at all (apart from it’s got 3 zeros). It’s just an arbitary number. Why not 5678, 5981 or 6006? To me 6006 is a much nicer number: 2 x 3 x 7 x 11 x 13 – what’s not to like?

But maybe that’s just me.

So what’s the message? Everything needs a message this time of year, right?

It’s this…

Beware “wise” men being dressed up as experts when they’re just good guessers.