It’s that time of year, when pundits are reviewing their previous predictions and renewing them for new year. It appears that I am no different. Last week, I was asked to appear on a local news broadcast talking about what’s in store for the Houston economy in 2016. Being an oil and gas guy, I focused on that part of the economy. From the fifteen minute interview, they pulled 3 sentences 1 (including one on the local real-estate market which I very reluctantly gave):
I almost hear the comments now:
But, Marc, you said you don’t “do” forecasts.
I don’t, and certainly not professionally. But I do have opinions, like everyone else, and I will share them when asked. (Especially in exchange for a little free publicity for my business.) That doesn’t change our fundamental belief that you can’t make business decisions on opinions. Everyone has a different one. We must remember, however, that opinions are not information.
Do we remember a certain investment bank’s $200 oil price forecast from a few years ago? The same one now calling for $20 oil? Though a certain belief in a general trend for prices is necessary for long-term planning, detailed forecasts, especially in the short term, are worse than useless. Business like that are making bets on specific price directions, instead of minimizing their risk. They turn themselves into speculators, betting on the next rise or delay in a decline.
I spent several years as an officer on nuclear submarine. One of the many things you learn in that job is how to make decisions. And one of the first principles is to know the very last minute that you must make a decision – and spend every minute up until then gathering information. Business decisions should follow the same principles: gather as much information as possible, and make your decisions at the last minute.
Unfortunately, if you’re using traditional valuation techniques, you’re not gathering all the information possible. You’re not minimizing your chances of making a poor decision. You’re making a bet on the world being average – and we all know it’s not.
It’s our business to help you make information from data, to make clear the risks to your plans. Contact us to discuss how we can help you make better decisions.
- I am “cautiously optimistic” – but thanks to the magic of TV editing, the “relative to some of the fears out there” got lost. ↩