Part 1: "Use the formula P=40 to 70, in which P stands for the probability of success and the numbers indicate the percentage of information acquired."
Part 2: "Once the information is in the 40 to 70 range, go with your gut."
– Colin Powell
Data-based decisions use history as a guide to project future events. The historical part is easy, everyone has that data. The challenge is in creating future projections. The simplest method is to use economic studies and price modeling. But that isn't enough since models have to be gauged against real world conditions.
For example, some models would have farmers switching crops every season, not taking into account the capital investment in specialized equipment required for each crop; or that there are agronomic factors that need to be considered in switching from one crop to another.
At IAG, our proprietary models are continuously tested against real world logic and sensibilities. That's why some of the largest institutional investors in the world use IAG to help them test their models against real world conditions.
The recipe for measuring risk is two parts science to one-part art. IAG is rich in both ingredients, both acquired over 30 years through experience. Some of the largest and most successful agricultural companies in the world trust us to apply that recipe and our data-based analyses to their businesses.
The art in modeling, measuring and managing risk comes from experience. It can't be executed with algorithmic trading or mechanical systems. Market decisions are never made solely from data. There are always the unknown events in the future that influence those market decisions. That's where IAG experience, our art, comes into play and the true value of our service is realized.
Managing risk starts by asking the question, "What strategy should I use in my business to achieve an acceptable range of outcomes given my tolerance for risk?"
Market risk tolerances are unique for every business due to their varying sizes and make up. So there isn't a one-size-fits-all strategy for managing risk. Each strategy has to be tailored.
That tailoring process doesn't end after the strategy is created and executed. To manage risk effectively, a good strategy needs constant monitoring in order to stay healthy and viable. At IAG, we make it our business to understand your business as well as we understand the markets. The more we know about how your company works, the better we're able to stress test your strategy for both plausible outcomes as well as those that could go far beyond what is likely or historical.
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