I was talking to my parents this week about the drought and how they are now feeding all their cattle (their farm pictured) and it got me thinking about how two completely different fields can have such similar principles.
Specifically, it struck me how so many of the principles of farming match the basic rules of investing.
So stick with me on this.
I believe farmers and graziers make good investors because of what they know about farming.
Before you say, “What do farming and investing have in common?” let me pose the following for you to think about:
Farmers know that:
- In farming, there are good years and bad years. During the bad years they pull their belt in and hunker down waiting for the “drought” to break – just like when investing!
When you own quality off farm assets, in the investment world a Global Financial Crisis or a recession is just like a drought. You need to be patient, wait for conditions to improve and above all, stay the course and tough it out.
- There is a time to sow, a time to be patient and let the crop or cattle grow, and a time to harvest - just like when investing!
When buying off farm assets, you cannot expect to invest (plant the crop) today and then harvest a bumper return (crop) the next day. It takes time.
- They can do all the right things, at the right time and due to circumstances out of their control, things don’t work out quite as expected.
When this happens, they know to dust themselves off and get back on the horse – just like with investing! Sometimes you do all your research and the investment may not return how you expected.
That shouldn’t mean you never invest again, you just need to focus on buying quality assets and get back into it.
- When a drought is in full swing and prices of farms have dropped, they know not to sell the farm just because the value has fallen - just like with investing. Because you also don’t sell your quality off farm assets just because they have fallen in value.
- Having a few farms in different geographical/rainfall areas can be harder to manage but allows them to spread their risk, as it is a reasonable bet there will be some rain on one of the blocks during a dry time – just like with investing!
You don’t want to have all your off farm investments in one basket.
- When they see the price of land now, they wish they had invested in more a long time ago when it was “cheap” – just like with investing. The best time to have brought off-farm assets was 20 years ago when they were much cheaper.
Now, farmers and graziers generally stick to farming as that’s what they know, but when you consider the above, perhaps they know more intuitively about investment than they expect.
For most farmers to become exceptional farmers it takes years of experience with both good and bad lessons, and so too with investing.
That is, unless you get great advice from someone who has already done the hard yards.
