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The Cattlehedging Times April 2013 Edition



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Managing Your Risk means Managing Your Emotions?!

“Human behavior flows from three main sources: desire, emotion, and knowledge.” – PLATO

In continuing our discussion on managing risk, a couple new ideas come to mind. We have discussed fear and greed in relation to risk management. What other emotions come to mind? Anger, Annoyance, Anxiety, Boredom, Concern, Desire, Disappointment, Distrust, Fear, Frustration, Gratitude, Guilt, Happiness, Hatred, Hope, Hostility, Jealousy, Joy, Panic, Passion, Pity, Pride, Sadness, Worry…. WHICH EMOTIONS HAVE YOU FELT or seen daily?

DEFINITION OF EMOTION

A state of feeling; a conscious mental reaction (as anger or fear) subjectively experienced as strong feeling usually directed toward a specific object and typically accompanied by physiological and behavioral changes in the body. (Webster’s Dictionary)

A Moving of the mind or soul; excitement of feelings, whether pleasing or painful; disturbance or agitation of mind caused by a specific exciting cause and manifested by some sensible effect on the body. (Brainy Quote)

Is it possible to manage your risk by managing your emotions? I would guess that business decisions are based on research, knowledge, expectation, and also emotion, would you agree? In my own business adventures I have found just this. I have made business decisions based on emotion. I don’t think that I could have ever done the job that I had, helping abused and neglected children and families if there wasn’t a small piece of emotion tied into my work. It is also what ended my career at one point, due to the over emotion of seeing such hurt and pain over a long period of time. I was always told, “It takes a special type of person to do what you do”…does it also take a special type of person “personality” to work in the area of risk and risk management? Are you or do you have the person making your business and risk management decisions capable of keeping emotion out of good business decisions? Do you or they have the personality to take and manage risk? Does the decision maker have risk emotions that may affect good business decisions? Would someone without skin in the game be better disciplined for a risk
manager? Does pride over rule delegating authority over to someone more capable?

Personal situations, economic turn, business challenges, volatility of the market; wouldn’t all of these possibly bring out a variety of emotions and how would they change or affirm daily decision making and/or risk taking?

If we want to acknowledge that “Managing your RISK is Managing your EMOTIONS” it appears that a few
things need to happen in order to do so, Awareness, Decision, and Teaching/Learning.

Awareness is the first step! Be aware that we are all emotional beings.  We were created to have emotions and feelings. Being aware of how and when they arise is most important. Over the past two months cattle feeders have been experiencing big feeding losses without some kind of Risk Management

may have brought on disappointment, frustration, anger, sadness and anxiety. The high break-evens for fed cattle into the summer have cattle feeders concerned about continued large feeding losses. HOPE for a price recovery to avoid continued EQUITY losses to a sense of panic if losses continue or get worse and maybe force your feed yard out of business is addressed in the emotion of FEAR! Was the initial purchase of feeder cattle with high break-evens, which were not hedgeable the day you bought them, simply a poor business decision or was there some GREED that contributed the risk to fill the feedlot with HIGH RISK inventory?

Next, to decide what you will do during the moment of emotion, maybe it is excitement that the market is good or going up, maybe it is fear that it will go down or anger that you just lost. Being aware of when emotions arise, making a decision to act on that emotion is next and finally what was the outcome? Did I react in a good/bad way and how did that change the ending result? The question that really needs to be addressed is should emotion ever be a part of a business decision?

Do personal situations ever get in the way of business decisions? Has family financial crisis forced business decisions that compounded the economic crisis?  What did you learn from it?  Was it a teachable moment? Did you swear that you will never do that again but continue to find yourself buying cattle to keep the hotel full and ask how you got here again? Can you not control or manage your emotions enough to not put yourself in the same EQUITY LOSS situation?

Does an economic or business challenge force decisions that stray you away from good business decisions? For example do you not buy all the feed needs for current cattle inventory but hedge in a fed cattle price against a projected break-even that is still a moving target? Do you pay too much for a replacement animal just to meet capacity utilization goals, not income goals?

So what is the solution for emotions with respect to business decisions and Managing Risk? The simple solution is DISCIPLINE. Does an Olympic athlete not work out or train because he/she does not feel like it? To be a gold medal winner you must be the best and have the discipline to prepare yourself for the challenge and move through disappointments and small failures that make you stronger and wiser. You set goals and set up a business plan on how to get there. CattleHedging.com calls this your HEDGE POLICY! Within your Hedge Policy is an outline of Disciplines that identifies risk with specific responses to each identified risk. These disciplines/decisions force a response and leaves EMOTIONS out of the decision making. CattleHedging.com has 3 Strategies that identifies risk and outlines the disciplines (CASH, BASIS then FUTURES) to Manage these Risks!

Do you have a HEDGE POLICY in place?
“Managing Your RISK is Managing Your EMOTIONS!”


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