The Simplest Answer Is Most Often Correct

A white mug
December 20, 2023

“Why did grain prices drop?"

"Isn’t there a food shortage or expectations of shortages?”


Have you been asked this question?


Perhaps you have asked this question.


Commodity prices are notoriously volatile, and we search for an explanation for why the price moved against our position.


The explanations provided are lengthy and often include the weather in grain-growing regions, Australia’s bumper crop, reduced demand due to high prices, and the rising interest rates causing money to flow out of commodities.


While many of those explanations are legitimate, some are noise created to explain and display knowledge.


How do we process that information?


What information is relevant?


What can we ignore?


All this information makes my head hurt.


So I try to keep things simple.


Keeping things simple leads me to consider applying Occam’s razor.


Occam’s razor, also known as the principle of parsimony or the law of parsimony, is a theory of principle construction or evaluation, commonly described as “the simplest answer is most often correct.”


Occam’s razor resonates with me.


Why overcomplicate things?


Take a look at the Red Lentil chart.  


“Why did the price drop?


It is simple.


There have been more sellers than buyers.


That is all we need to know.

Red Lentils weekly chart

Trent Klarenbach | Klarenbach Research