Why farmers make such good investors

Why farmers make such good investors


There are many similarities in the principles of farming and investing.


Recently, as I spoke with my parents about the drought and the relentless feeding of their cattle, it occurred to me how many of the principles of farming, and investing, aligned.

Two very different fields, yet both based off the same fundamentals. Farmers are acutely aware that that:

1. There are good years and bad. During the bad farmers hunker down until the "drought" breaks - just like when investing. In the investment world an economic downturn is akin to a drought. It requires patience until conditions improve and you can resume your course.

2. Sowing, growing and harvest is timely business - just like when investing. When buying off-farm assets, you can't expect to invest (plant the crop) today and harvest a bumper return (crop) the next day. It takes time.

3. Farmers can do everything right, with timing perfect, but due to circumstances outside their control, things don't always work out. But they dust themselves off and get back on the horse - just like with investing. Sometimes, despite thorough research, an investment won't return as expected. But this shouldn't deter you from investing again.

4. When farm prices drop in response to drought, farmers know not to sell - just like with investing. You don't sell your quality off-farm assets as a reaction to a fall in value.

5. A geographical spread of farms allows for a spreading of risk as it's a fair better chance that there will be 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.

6. When producers see the price of land now, they wish they'd bought more land years ago - just like with investing. The best time to have bought off-farm assets was 20 years ago when they were far more affordable.

Our farmers and graziers generally stick to farming, as that's what they know, but perhaps they know more intuitively about investment than they realise!

Becoming an exceptional farmer takes years of experience, and so too with investing - that is, unless you get great advice from someone who has already done the hard yards.

  • Ben is an authorised representative of Charter Financial Planning. This isgeneral advice only. Seek advice tailored to your circumstances before taking action.

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