Lessons from the Land
Farmers have an awareness and appreciation for the circle of life and the change of seasons that is unmatched by most people outside of the agricultural space. Farmers have physically lived the definition that is “you reap what you sow.” They’ve also felt the agony of losing an entire crop or herd of cattle to weather or disease. They pay close attention to the environment, when the seed should be planted, and are keenly aware of the perfect time to harvest.
Ancient Wisdom for Modern Times
I have noticed that all things in life tend to have some sort of a cycle to them. Whether a field, a business, or an investment, there tends to be cycles. Many of us have grown up hearing the saying, “buy low, sell high.” Farmers might say, “there is a time to plant and a time to harvest.” Both of these sayings in my estimate are ancient wisdom. They made sense 1000 years ago and they will make sense 1000 years from now. Farmers have never abandoned this ancient wisdom, in fact their livelihoods depend on it. Yet somehow, somewhere, along the lines, I have noticed that many investors and Financial Advisors have abandoned “buy low, sell high” in favor of “buy and hold.”
I have my theories on why this shift happened in the financial industry, and perhaps that would be a conversation better discussed in person. Getting back to the concept of buy low, sell high, this strategy is predicated on an understanding of where you are relative to where markets have been in the past. If you plucked someone from outer space and told them the S&P 500 was 5,022, they would have no awareness of whether this was high or low without further context. I have learned over the years that when Americans are given good context, they make good decisions. It is this context that many of our clients are missing and desiring to have. Just like farmers, they can make or lose fortunes based on having the proper context.
Harvesting Gains: How Informed Decisions May Grow Your Wealth
Most Americans would likely not identify themselves as professional investors. And therefore, many do not spend hours a day focusing on the markets and context needed to make wise investments. Many defer to passive investments with the mindset of buy and hold. This can certainly be a winning strategy, especially given many years of holding. With that said, presented with a practical way to implement buy low, sell high...many investors choose to adopt this as they intuitively feel the wisdom that is displayed in those words. I will often say to my clients, “you are never going to lose by harvesting gains.” Of course there are tax considerations and opportunity costs, but at a root level, selling something when it is up by definition means that you didn’t lose from your original investment.
Building Your Silo: Are You Prepared to Weather Financial Winters?
In a previous edition, I referenced the idea that when you look at business and look at investments, there are often two things common to those who lose. They can happen in any order, but the two circumstances often present are overconfidence and a liquidity crisis. Like a farmer, whether you are a buy and hold type of investor or buy low, sell high investor, both can be susceptible to natural disasters, unintended consequences, wars, market crashes, etc. etc. Farmers have been trained that “winter” is coming. Sometimes I wonder if investors understand this. How do Farmers deal with winter? Well, they do many preparations but common to most farms are silos. What is a silo in the context of a farm? Simply put, it is a tower used to store grain.
These articles are not meant to give all the answers but rather provoke deeper thought and hopefully inspire deeper conversations with yourselves, a Thoroughbred, or your trusted advisor.
Questions For Our readers…
- Can you concisely describe your investment philosophy?
- Do you have a “silo” for the “winters” of your life?
- Do you have all of the context you need to make informed decisions?
There is much that can be learned from observing the way farmers work and live. Although techniques and technology have evolved, the ancient wisdom used by farmers today can be applied to the way we grow and protect our money.
If you are interested in a complimentary consultation to learn more about our philosophies and techniques at Thoroughbred Advisors, we would welcome a meaningful conversation.
The information provided herein is for general informational purposes only and should not be considered investment advice. Any strategies described may not be suitable for everyone. Readers are encouraged to evaluate all information in light of their own situation, and seek the advice of an appropriate professional advisor.
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