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Risk management: Long-term Forecasts are Always Set in the Future

Minneapolis, MN | June 20, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC


Risk management dictates long-term success. Paradoxically, risk management is short-term focused.


Three Things: Risk management

  1. Strategy is easy. Execution is hard. Long-term forecasts guide strategy. Short-term volatility defines the path-dependent outcomes of success/failure.

  2. Traders and risk managers realize this and understand that the last few years' volatility in prices and costs has driven their success.

  3. Capital costs affect both long-term expectations and short-term risk management. This regime of high interest rates, low investment rates, and increased volatility puts into focus the importance of risk management, regardless of fundamental views.

Strategy v. Execution


Strategy is easy. Execution is hard. I use this phrase often because it succinctly describes the difference between successful and unsuccessful investors. This lesson stands out among the many lessons I have learned in my >20 years in energy markets. Its simplicity defies its importance. Maybe that’s why so many leaders dismiss it and, ultimately, lose money. Consider the last few years, during which oil prices have gone from negative to triple digits. How many consumers were hedging at the bottom? How many producers were hedging at the top? How many leaders were able to plan strategy and execute successfully through this volatility? We argue too few, largely because they didn’t appreciate the importance of the relationship between strategy and execution, i.e., the difference between developing your fundamental view and managing the daily risk once you set out to realize that goal.


*This summary is based off June 11, 2023


A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!


 

Meet the Author!


Phone: +1-832-413-3124


Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.


He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.


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