Speer: Markets, Money, and Emotion

Money Matters:  Last week’s column addressed the current state of the market. More broadly, it spoke to the relationship between markets and emotion:  

“I haven’t received any emails recently proclaiming the ‘market is broken’ or any further complaints that my ‘columns seem to ignore the reality that there is a problem somewhere in the market’. High prices make everyone feel better.”

Behavior Gap:  Markets and feelings go hand-in-hand.  Carl Richards (Behavior Gap) explains the link, more broadly, this way:    

Dispassionate:   Money isn’t just math, but that’s where the work comes in.   We get into trouble when we involve emotion in our decision making.  That’s true both individually and collectively.     

Financial historian Peter Bernstein counters this tendency by explaining, “The most important lesson an investor can learn is to be dispassionate when confronted by unexpected and unfavorable outcomes.”   The same holds for farmers, ranchers, small business owners, CEOs, anyone making financial decisions for a business.   

History Lesson:   Let’s back up to late-2003 to the industry’s first real black swan event:  BSE.   Some commentary from Dr. Harlan Hughes, based on his work with Canadian producers, provides an important lesson; it’s remained firmly in my memory ever since.  He contrasted perspectives among producers with whom he was working.

On one side were individuals who realistically recognized their inability to manipulate external influences (i.e. they removed emotion from the situation).  They subsequently sharpened their sights on factors within their control; namely, they doubled down on the cost management side while also becoming more focused on value-added marketing strategies. 

Conversely, the other side stayed focused on everything outside their control, impatiently waiting on the market to recover and emphasizing the desire to have everything back to “the way it was before”.  (The question parallels the refrain, the “market is broken”.) Dr. Hughes noted they kept asking, “Why can’t it just be like it used to be?”  That is, they focused on, and were driven by, sentiment.

Dr. Hughes drew attention to the second group; their perspective was inherently self-defeating.   The right approach is to remain disciplined and versatile – embracing the mindset of change being the only constant.   Accordingly, Dr. Hughes’ first group was inherently more empowered and felt more hopeful about the future.  

Less Emotion, More Discipline:   Late last fall, I wrote a column entitled, Less Matrix, More Moneyball.  Part of the discussion included a story about a producer I work with.  His operation absorbed the brunt of market reaction on Monday in Oklahoma City following the Friday-night fire at Tyson’s Holcomb plant.  

However, he was deterred – he’d be in Dr. Hughes’ first group.  He’s since expanded his cowherd and leveraged his skills and resources to implement some new business opportunities.     

All this discussion matches what’s outlined in a January column entitled: The Cattle Producer in 2043.  It highlighted results from Purdue’s Large Commercial Producer survey and Aimpoint’s Farmer of the Future study. I noted that, “success will come to those less focused on uncontrollable variables outside – and increasingly driven by what’s occurring inside – the boat.  Right focus equals right results.”  

Meanwhile, the Matrix/Moneyball column ended by noting that ultimately producers are better off with, “less social media and more spreadsheets, less pandering and more professionalism; less Matrix and more Moneyball.”   Given the discussion above, the list should also include:  less emotion and more discipline.   

Nevil Speer is an independent consultant based in Bowling Green, KY.  The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship.  He can be reached at nevil.speer@turkeytrack.biz.