We are fortunate to live in an agricultural community. I truly think a connection to the land and an appreciation for how crops are cultivated and how livestock grow is valuable. Plus, a strong work ethic is often instilled at a young age – you learn that real work involves getting some dirt under your fingernails.
But as I’ve written before, I think there are also some important investing lessons to be gleaned from living in an agricultural community.
Farmers, more than most, understand the key tenets of successful investing. Their biggest investment is typically land. As far as I’m concerned, farmers are some of the best investors around. By that, I mean farmers identify a good parcel of land, buy it at a reasonable price, and hold it for decades, perhaps a lifetime.
They understand there will be bountiful years and lean years. Ups and downs. But through it all, they never lose faith in their investment.
I wish that same behavior was practiced by investors in the stock market.
Many investors – farmers included! – behave quite differently when it comes to investing in the stock market. I’ve always found that puzzling. But I think it comes down to three things: understanding, availability, and control.
First, there is a general lack of understanding of what an investment in the stock market is. I’m not talking about investing in a particular company. I’m talking about investing in a broad mix of publicly traded U.S. companies through an investment fund.
Such an investment offers a stake in some of the best, most profitable companies in this country. Every day these companies have employees who show up to work, ready to make your investment even more valuable through their time and energy.
In general, the reasons farmland values go up are the same reasons stocks go up: new technology, better productivity, and supply and demand. If more people understood that investing in the stock market is quite similar to investing in land – and absolutely not like a bet on red or black at the roulette wheel – far more stock investors would buy and hold like a farmer.
Second, stock investments are far more available than land. By that, I mean they trade all day, every day. A new price is assigned to them every second of every trading day. Stock investors always know what the market thinks of their investments. And because prices are quoted every second, stock investors often feel like they must follow those price changes. Even more detrimental, some investors feel like they need to make buy, sell, or hold decisions just as frequently. That, however, flies in the face of how a farmer views an investment in land.
Farmers don’t ask for a yearly appraisal of their land, let alone one every second. They don’t care if the market wakes up in an overly pessimistic or euphoric mood any particular day. What they own isn’t for sale. They are in it for the long term. Investors in the stock market would be wise to behave similarly.
The third reason investors don’t treat stocks like farmers treat land, I believe, comes down to control. If you own a farm, you can see it and touch it. You can feel the dirt between your fingers. The landowner calls all the shots. That is very different from an investment in the stock market, where hired managers lead the companies in which you invest. You probably don’t even know the managers’ names or where they are located. And you certainly don’t call the shots at the companies in which you invest. So there is far less control when it comes to investing in the stock market. And some people like control.
But those reasons shouldn’t stop you from investing in the stock market. Over time, it has proven to be one of the most effective ways to build life-changing wealth.
The stock market will have fits and starts – in 2021 it was up 28%, this year it’s down 13%. But as long as you give it time, just like a farmer does with land, it is likely to grow your wealth faster than almost any other investment category. All you have to do is sit back and let it work for you.
And you don’t even have to worry about getting dirt under your fingernails.
Justin Lueger is President of Invisor Financial LLC, a registered investor adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at justin.lueger@invisorgroup.com.