Lessons learned from "The Psychology of Money" that also apply to dairy industry

Camila Lage, Dairy Management Specialist
Southwest New York Dairy, Livestock and Field Crops Program

January 16, 2024

Lessons learned from "The Psychology of Money" that also apply to the dairy industry

Camila Lage, Dairy Management Specialist

As one of my New Year's resolutions, I am trying to learn more about finances. I am fascinated by human behavior, and because of that, a friend of mine suggested I read the Psychology of Money by Morgan Housel.

The book explores the behavioral aspects of personal finance and emphasizes the impact of individual history on financial decisions. The author explores different historical facts, like war and recessions, and how they impact the mindset of each generation. Moreover, it elaborates on how hard it is to forecast the future to know how our present decisions will impact our lives and businesses. Despite being challenging, the author believes certain behaviors can put us in the best position possible while making long-term decisions.

While reading the book, I couldn't help but draw a parallel between the lessons from an investing perspective and the farming world. I believe the book's insights offer valuable perspectives and recommend it to someone looking for a new book.

Below are 5 points from the book that I believe also apply to farming:

Behavior over numbers:  This concept suggests that success in managing finances is more about cultivating healthy financial behaviors and habits than focusing solely on numerical knowledge. The author encourages people to understand their financial psychology, make decisions aligned with long-term goals, and avoid getting overly fixated on short-term fluctuations or attempting to predict market outcomes. From a dairy market perspective, fluctuations in milk prices can be overwhelming, but unfortunately, they are out of our control most of the time. Therefore, directing our attention to tracking our production costs and how we can be more efficient can help restore a sense of control.

Know which game you are playing and focus on it: Making decisions that align with one's values and goals is essential. It is tempting to compare ourselves and our operations with the ones of our neighbors, or even get caught up on the new trends we see in magazines, articles, and social media. There are many ways of being successful, and because of that, knowing your values and your operation is essential. Whether you want to expand or maintain your farm size, adopt technology, or even retire from farming, getting other people's perspectives and opinions is valuable. However, ensure you are not losing sight of what is best for yourself, your family, and your business. 

Uncertainty and risk: Acknowledge the unpredictable nature of financial decisions and the role of risk. Even the most well-planned choices can go wrong, as we cannot predict the future. Unexpected events, such as the COVID-19 pandemic, can completely change the scenarios for which we plan our decisions. Because of that, we must embrace uncertainty and plan accordingly. We should avoid always assuming the best-case scenario (i.e., high milk prices) when planning things. Always leave room for error.

Time horizon matters: While there is no way to predict the future, it is essential to consider the long-term implications of financial decisions before making them. A good example is deciding to invest in your farm infrastructure. You will likely need to pay for this investment for a long time, throughout good milk price years, and likely many bad milk price years. Make sure you plan accordingly. Take enough time to plan it and study the implications of a decision. Involve your farm advisors (nutritionists, veterinarians, crop management, etc.), visit people doing similar things, and talk about it with family and trusted ones. You don't want to rush into a decision you will have to deal with for a long time.

Having an advisory team to discuss farm changes can be a great way of doing it. The Dairy Advancement Program, funded by the New York State Department of Agriculture and Markets and the New York State Department of Environmental Conservation and administered by PRO-DAIRY, has funds available to farms to form advisory teams. If you want to learn about it, please get in touch with me or your local Ag educator.

Adapting to change: As markets evolve, we must adapt and learn from previous mistakes. Keeping our businesses alive requires staying open-minded, embracing learning opportunities, and maintaining a flexible mindset. It's about adjusting goals, finding new perspectives, and being proactive in uncertainty without compromising our values.

I know farming and investing in the stock market are very different things. However, it's complicated and frustrating to navigate the dairy market and milk price uncertainty. A successful operation means different things for different people, so comparing your farm with other farms is not always helpful.

Understanding which game you are playing, your values, and keeping your attention on factors within your control can be a game changer for mental health. It allows us to be comfortable with our decisions because it reflects what is important to us in the long term. That said, embracing adaptability and leaving a margin for error is essential for business longevity as we deal with evolving markets and unforeseen challenges.

I wish everyone reading this article a very prosperous 2024, and I look forward to working with you this year! If you want to borrow the book, feel free to reach out 😊

Warm regards,

Camila

 





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Advanced line trials - Crimson clover, hairy vetch, winter pea, and winter canola

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