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Avoiding 'paralysis by analysis'

Agriculture.com Staff 07/28/2006 @ 1:45pm

Several years ago I was asked by a farmer what the odds were of the price going the direction I expected based on my seasonal charts. At first I was stunned by the question because I had never thought of marketing information in this manner. The more I thought about it, the more I realized that it was a question critical to marketing success. It is the underlying question that all marketers should ask when a marketing expert predicts price direction. After all, selling before the price goes down or buying before the price goes up is crucial to good marketing.

I have seen numerous formulas for recommending when to sell that did not prove profitable when implemented in the real world. Having a lot of information does no good if the facts you have are irrelevant to the problem at hand. Too much marketing information can result in a condition I call "Paralysis by analysis." The consequence of having too much information may be someone still needing to make a judgment call on which factors to use and which ones to ignore. The outcome may be no better than guessing or relying solely on logic or common sense.

When I ask this question of marketing experts, I seldom get much of an answer. In some cases I am not sure if the other person really understands the point. I have seen trading systems and marketing systems that evaluate numerous factors to attempt to predict price direction. Or, at least they recommend cash sales based on the analysis of these factors. On the surface these systems look really good. If the factors prove reliable in predicting market direction, the company or individual has something very valuable.

Some economists claim to prove that all marketing information is irrelevant. I do not believe that. I do believe that the same factors mean different things to different people. Two marketers can look at a chart and get two completely different conclusions from it. They may get two completely different results from using this information in making marketing decisions.

Before I commit a big percentage of my crop to any single system, I need to prove it to myself or see the results of it being tested statistically under real world conditions. As a result of the question asked by the farmer mentioned above, for the last nine years I have tested my seasonal trends trading a small position in a speculative account. I know the odds of success using my seasonal trends. One factor might not be enough on which to base good decisions. However, I question whether multiple factors combined are any better. The test of time is the true indicator of which factors are effective.

Several years ago I was asked by a farmer what the odds were of the price going the direction I expected based on my seasonal charts. At first I was stunned by the question because I had never thought of marketing information in this manner. The more I thought about it, the more I realized that it was a question critical to marketing success. It is the underlying question that all marketers should ask when a marketing expert predicts price direction. After all, selling before the price goes down or buying before the price goes up is crucial to good marketing.

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