The Stock Market, a Cow Herd, and the Guessing Game

Brett Brzeski |

The recent volatility in the stock market combined with the pessimism of the economy has gotten the
attention of everyone in the investing world. One of the most often asked questions when the market
turns downward is, “Should I get out of the market and go to cash?” This is a reasonable question to
ask. The Mustard Seed response is “No, stay the course and stick to the plan.” From the client’s
perspective, it is understandable that this may be unsettling. “My portfolio is losing value and I am
supposed to do nothing?” While we can provide plenty of numbers and data to back up our position,
sometimes an analogy brings perspective that numbers cannot.

If you live in the Ark-La-Tex, you either own cows or know someone who does. My wife Kelly and I own
a herd of Brahman and Hereford cattle. I’m convinced there are endless analogies between life around
cattle and everyday events we face. Much like the stock market, there are ups and downs in the cattle
market. As expected, beef supply and demand play a huge roll in cattle prices. As prices go up, cattle
owners often retain additional heifers to produce additional calves to meet this demand. Once the
calves produced by these retained heifers reach the cattle market, supply is increased and prices will
often moderate. This retention, combined with the natural life cycle of a cow and her ability to produce
calves, results in the expansion and contraction of the national cow herd inventory over a ten-to-twelve-
year period. The obvious result is greater or lesser amounts of beef supply entering the market.
Because of this, we see more trends in cattle values as compared to the unpredictable, or random walk,
nature of stock values. Even so, you see very few cattle owners completely sell out, or go to cash, then
buy back in based on fluctuating cow market prices.

I’m reminded of a conversation I had with my dad close to 25 years ago regarding this subject. He said
to me” Son, if you are going to own cattle you need to get in and stay in.” My dad never owned any
stocks, mutual funds, or ETFs. He would rather be riding a horse or tending to the cattle than dealing
with financial decisions. Yet his experience taught him that it is not possible to consistently know when
to get out and then back in the cattle market. This same experience applies equally well to the stock

Remember, you have to be right twice. Not only do you have to foresee the downturn and get out
before prices fall, but you also have to know when prices have reached their lowest point and began a
sustained ascension to higher values. This becomes a guessing game. You are on the sidelines and the
market goes up one day. Is this the day or do we see what happens tomorrow? Maybe it goes up for a
while then one day turns down. Ok, hold off a little longer because values may be headed back down.
Meanwhile, we have lost sight that even with this most recent downturn the market is still higher than a
month or two ago. Do you see how hard it is to be right not only once but twice? But now it really gets
difficult because if we subscribe to market timing as our investment approach we have to be right twice
each time the market fluctuates. We have assigned ourselves the impossible task of guessing right
multiple times over the investment time span of many years and many market fluctuations.

The summer of 2014 saw record high prices for cattle. By the summer of 2016 those prices had been cut
nearly in half. Yet most all the people I know who had cattle in 2014 still had them in 2016. They all
understood there are ups and downs in the cow market. Fast forward to 2023. Even with all the
economic uncertainty we are seeing another run-up in cow values similar to what we saw leading up to
the record prices of 2014. Those that stayed the course from 2016 onward are in position to be
rewarded. Those that are purchasing cattle now are paying higher prices and will not reap the same

Fortunately, managing a portfolio of securities does not require the same physical resolve and work of
managing a cow herd. Yet many older cowmen I know have been financially rewarded with an
accumulation of assets for staying the course and sticking to the plan with a long-term view. The next
time you are tempted to sell all your securities in a market down-turn, think of that old cattleman you
know and ask yourself if his strategy of getting in and staying in for the long haul might work equally
well for your portfolio.