For predictive insight, find the Cassowary metric

One of the best feelings from the analyst days was the moment when you finally ‘got it’ about what factor makes a particular company or investment outperform. It is an ‘aha’ feeling. That moment when it clicks like cogs in a machine.

While I loved that feeling, there was a follow-on exercise which I think is even more fulfilling. The exercise is distilling the factor into a single, metric that is measurable, moniterable, and, most importantly, predictive.

Once you get a metric like that, you are really in the driver’s seat.

An example that I have heard recently, is the measurement of the population of large, flightless birds called Nothern Casssowaries in Northern Australia. The health and population of these birds are used by conservationists to measure the health and expanse of their rainforest habitat.

However, the Cassowary population also has a predictive element as their fruitology diet and wide roaming behaviour means that the Cassowary distributes seeds across the landscape. A number of plant species rely on this process to distribute their seeds.

The number of cassowaries and their ability to roam now is a good indicator of the future health and diversity of their rainforest habitats.

So my new goal for knowing an area is to have found a cassowary metric. It is a challenge (and not always possible) but the goal emphasizes refining your understanding into ‘what is a powerful single metric that gives me the most predictive insight’

I think about those metrics alot. Some I have developed and some I have seen:

• In intensive animal meat production, my metric is the distance between each animal (i.e. how much space is there). This metric provides an understanding of a range of future issues including heating/cooling costs per animal, animal welfare issues, point source pollution, likely use of antibiotics and potential bio-security issues.
• Conservation groups use species analysis for understanding the health of an ecosystem. Changes in large species population will provide an indication of the change in the expanse of the area while other species might highlight the emerging impacts of pollution or climate change (frogs and bees!!). This focus on predictive species should be a part of the reporting of impact metrics for impact investments.
• In mining, one of the most interesting key metrics is the training (or expertise) of the CEO. The CEO’s view of an emerging mining issue can be predictive of how they are likely to respond and their previous roles in mining can indicate their likely view. Geologists see an issues through the impact on reserves maintenance while project managers might focus on impacts on project delivery. Accountants might focus on costs. I compare the emerging mining issue against the CEO’s training to start to think about what might be their potential biases (and therefore risks of successfully addressing the issue). Most CEO’s have relatively little work experience in community engagement which might explain their response to community issues with fact sheets and focusing on ‘best practice’.
• In the retail sector, we used two metrics (SG&A per employee change and employee per sq foot change) to predict what retail strategy a company might be pursuing. The chart below placed different companies in different strategy quadrants.

• Even in health, there are diseases that provide predictive insight in he future health of a group. Evidence of shingles can be an indication worsening in a range of health and living condition issues, and the advent of even worse conditions.

What is your cassowary credit?