Opinions Will Be Plentiful Among Advisors
Nov 25, 2009
If you’ve been perusing AgWeb.com lately, you’ll notice that the Marketing Rally is coming up in Chicago in a little over a week. The event is billed as a chance for producers to visit with many marketing advisors in one place, learn their perspectives and network.
I bet there will be as many opinions in the Chicago that day as there are people in China.
I will be among them, and yes, I have an opinion about what the markets will do. But it’s just an opinion. Producers who collect bushels of opinions from advisors in order to make marketing decisions will almost certainly miss opportunities. Why?
Because when everybody’s opinion reaches consensus, the market is almost sure to do the opposite. That’s the way markets work.
A colleague once made a statement that I have often repeated: “A known fundamental is a useless fundamental.” When everyone is bullish, prices can fall because all the reasons for prices to go higher are already factored into the market. So while you are collecting and sifting through opinions, the opportunity is escaping.
EXAMPLE: The Chicago wheat futures are a great example of people leaning one way and the market going another direction. By all rights wheat really has no place to go but down. U.S. and World ending stock numbers have been increasing for months. Australia has a great crop about to come off the fields. Demand is dismal. In other words, wheat has a negative price picture. Many market pundits have been looking at the bearish side of the market.
Since October 5, however, the wheat market has been on a tear higher. Explanations for this move have been plentiful-- the declining dollar, some acres might not get planted, etc. All of that is great, except for the simple fact that there will be more wheat tomorrow than there will be today. When that is the case the market is generally bearish.
Once that many people get on one side of the boat, though (in this case, the short side), the boat generally tips over (does the opposite of the prevailing thought), which is what the wheat market is doing with this recent rally of $1.30 higher in the last month and a half.
What’s the alternative to trying to outguess the market? First, I recommend that you not spend your time collecting opinions. Instead, spend your time thinking about various scenarios that may unfold, and how you will act if and when they do.
In my previous blog post I talked about the business practice of scenario planning. In my experience, if you want to manage market risks and capitalize on opportunities consistently, then scenario planning is the way to do it. It’s what we do for our clients. Even within our own firm of 29 registered market advisors, on any given day there are at least five different opinions about what might happen in the markets. That’s okay. It’s important, then, that we prepare a set of strategies for each market scenario. As signposts point to a particular scenario playing out, we are ready to act on a set of strategies that are already laid out. Good marketing is not as much about being right or wrong as it is about being prepared. And then acting.
So if you’re going to the Marketing Rally in Chicago, or if you read the reporting from the event, keep in mind that marketing based on one or three or 16 persons’ opinions is not likely to be consistent or successful long-term. If you hire a marketing advisor, it should be one that…
- is not driven by his or her market opinions
- is capable and experienced enough to envision all the possible scenarios of what the market may do
- strategically prepares you to act no matter what the market does
- helps you maintain discipline in decision-making
- is an accountable and trustworthy professional
Happy Thanksgiving, everyone!
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at firstname.lastname@example.org.