Recency bias is nasty. We all suffer from it.
When it comes to financial markets, it can be especially painful.
Due to recency bias, it’s often human nature to assume that a recent price range will extend out into the future.
We can easily get caught in the trap of “These low prices will likely be around for awhile.” or “Prices have rallied nicely, there’s really no reason for them to drop”.
To help you fight recency bias, we built a Monte Carlo simulator into an Excel spreadsheet. It’s essentially a tool that runs a large number of simulations based on a financial instrument’s price volatility.
Specifically, the tool will give you the following estimates:
- How likely is a price to exceed an upper or lower price target at the end of the simulation? and maybe more importantly…
- How likely is a price to exceed an upper or lower price target at anytime during the simulation?
See a preview of the spreadsheet below.
Once a year we open our Business of Farming course that covers a ton of topics related to farm management, grain marketing, and farm financial analysis. This course includes this spreadsheet and forever access to all its content.
Next Monday (8/17/20), we are opening access to the course for the only time this year.
(If you’re already a Harvest Profit customer, you have access to it via the Course link at the bottom of the software).
If you’re interested in farm-related financial decision-making, check out this blog post we wrote on why you need to use stats in your farm managaement decisions. Blog Post: You Need a Statistical Framework for Farm Management Decisions
We have more tools in the pipeline related to this type of analysis!
Nick Horob
Passionate about farm finances, software, and assets that produce cash flow (oil wells/farmland/rentals). U of MN grad.
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