The Only Game in Town – Due Diligence
TV personality and ex-hedge fund manager, Jim Cramer, although difficult to listen to for long periods of time, stands by a certain motto that I’d always found to be right-on-the-money. Occasionally as Cramer wraps up his afternoon show, Mad Money, he concludes by telling his audience, “Do your homework people! It’s the only game in town.” All the “elephants” you’ve ever read about in Forbes, Fortune, etc., would NEVER invest 10 cents into a project without first performing a thorough investigation. That being said, the industrial commodities market is a unique one, and within this marketplace, you will find that every commodities trader has a special relationship with the term “D.D.”
Homework (more commonly referred to as Due Diligence) is everything, especially in the commodities markets. D.D. is the solution to everyone’s problems; it is the beating heart which allows for the healthy life of any long-term contract, whether the cargo of this contract be iron, cotton, or drinking water. Do not allow yourself to become too complacent. Aside from the most rudimentary of D.D., such as an entity’s corporate & tax-related documents and operating licenses, there exist several other factors which are equally paramount to a deal’s success, such as logistical solutions, network circles, and/or personal experience. Just as fundamental D.D. can be viewed as the beating heart of a transaction, logistical solutions serve as the ‘veins’ and ‘capillaries’ of such a transaction, allowing for the smooth flow of cargo from nation to nation.
Obviously the term ‘homework’ can refer to many things within the corporate world. Researching a particular candidate for a job opening, reading psychology-related books about negotiation, preparing for an upcoming interview, and/or studying case law can and should be deemed ‘homework’ by the hungry entrepreneurs of this world; however, in the industrial commodities markets, D.D. is exceptionally vital. If you work as a bank teller, for example, you may be able to slide by without having to do too much ‘homework’. If you trade commodities and disregard D.D., you are toast.
With current market levels being so volatile, many (impulsive) traders have found themselves in ‘tight spots’, while other, more patient traders have experienced nice profits at the expense of the reckless . Are the impulsive less-effective than the patient, at least when it comes to market forecasting? Perhaps. However, there was a time when these two men sat on the same level playing field, and it was the direct result of their recklessness/patience which landed them where they are today.
Similar to the moral of the old children’s story “The Tortoise and the Hare”, the factor of speed, although an occasional asset, is not the answer to profits and success; diligence is.
Vice President, International Logistics
CDII Trading, Inc.
431 Fairway Drive, Suite 200
Deerfield Beach, FL 33441