Making investing decisions requires the same discipline around decisions that purchasing, sales, and pricing teams make every single day. So if that’s you, how are you finding your Edge?
Here’s a great paragraph to consider:
“Edge is a key element of Lux’s investment philosophy: Edge can derive from informational, analytical or behavioral sources. Get better information about an asset, or the same information but sooner; analyze that information differently in a way that leads to a novel conclusion on the importance or magnitude or timing of the asset’s value; or behave individually and as a team in a way that uniquely leads us to great assets.”
The author goes on to say this about Informational advantage:
“This type of edge ‘is the easiest to exploit and the hardest to find.’ One method for acquiring better information is to have …a ‘scuttlebutt network’ of people to consult for advice or expertise.”
Think about the cross-country, cross-specie, cross-segment game of telephone that’s played every day as buyers and sellers throughout the meat and poultry supply chain try to tap their network for better market intel. The irony however, is that if everyone believes their edge lies in their relationships, and most people believe that customers/suppliers are playing fast and loose with their take on the market … how can market rumors be a real, sustained source of edge?
The author then speaks to Analytical advantage:.
“Analytical advantages come from taking publicly available information and processing or weighting it differently from the others.” One way to generate an analytical type of edge is to focus on having a better investing process. Ray Dalio has worked to create an analytical edge at Bridegwater with his “principles” including radical transparency. Sustaining the idea meritocracy universally in a company is difficult, even with computer facilitation, because (1) the number of connections grows with the square of the number of involved employees; and (2) people are unwilling to accept that much unfiltered feedback all the time (human empathy evolved for a reason).”
If you are in a decision-making capacity in this industry, you are likely drowning in data. USDA, CattleFax, AgriStats, and on and on it goes. Having “enough” data isn’t the issue, the issue is having a better mechanism to process the data to help make better decisions. So while your competitor is poring over the raw data and fumbling through Excel, you are working off the output and interpretation of the data. Now that’s Edge!
Lastly, the author addresses Behavioral advantage:
“Behavioral advantages are the most interesting because they are the most durable. The field of behavioral finance is still in its infancy yet has already yielded results that can be incorporated profitably into a sound investment process. The best part is that such results are likely to be systematically exploitable and not able to be arbitraged away as they become more widely known. That is because they represent broad findings about how large groups of people are likely to behave under well-defined circumstances. Until large numbers of people are able to alter their psychology (don’t hold your breath), there is money to be made from prospect theory, support theory, cognitive psychology, and neuroscience.”
For meat and poultry decision makers, perhaps how you bring all three sources of edge together is how you create your sustained Edge. What are the processes and systems you’re putting in place for yourself and your team? For your future successors?
Perhaps what we’re learning from this year’s World Cup is that Edge is not an entrenched birthright for those with the historical upper hand.
Especially with volatile commodity markets, Edge belongs to those who are agile and adaptive. Is that you?
This article was originally published on Meatingplace.
