Spring is my favorite season of the year. I suspect many of you feel the same way based on the amount of outdoor activity I have observed in recent days. For me, spring means the start of the Major League Baseball season, hours of therapeutic and relaxing lawn care and landscaping activities, and the opportunity to watch my daughter Erin compete on the diamond for her high school softball team.
Every spring, as I put away the snow blower and snow shovels and ready the lawnmower and rakes, I am reminded of my grandparents who were farmers. As you can imagine, spring is the most important season of the year for farmers. All of the preparation and details farmers sweat over in the spring go a long way towards determining the success or failure of the fall harvest.
Quite a few years ago, I devoted one of my newsletter articles to some important financial and investing lessons I learned from my grandfather and his farming vocation. It is always helpful to revisit important financial and investing principles and axioms as we go about our busy daily lives and we focus on other things. As we weed our gardens, prune our trees and shrubs, and repair the bare spots in our yard this spring let us recall how similar investing and financial planning are to farming.
Faith and patience
My grandfather passed when I was in my mid-twenties and my grandmother a couple years later; but to this day, I am still awed by the amount of faith and patience they possessed. Farmers toil endlessly and sweat many details in the spring. Nevertheless, much of the success or failure of their harvest is left to random and unpredictable weather and climate patterns that farmers have no control over. Farmers can wait weeks for the tiniest amount of rain to water their crops. Investment markets behave the same way. The best-designed investment portfolio may show no returns, or even negative returns for a month or two. Before you know it, the months stretch into a year or longer. The bear market of 2007 through 2009 is still fresh in many investors’ memories, eight years later.
Farmers do not rip out their plants and start the process all over when the weather does not cooperate. Investors should not abandon their investment strategy when markets do not cooperate in the short-run. We have decades of evidence that show that investors are rewarded handsomely for their patience.
I also mentioned that my grandparents possessed a tremendous amount of faith. My grandparents had seven children; two of those children did not survive childhood. Those of us who are parents would be hard pressed to think of anything more tragic than the loss of one child, let alone losing two. Despite these two tragedies, my grandparents remained steadfastly devoted to their Catholic faith until the day they died. Investing requires a similar amount of faith, especially in bear markets. Fortunately, having faith in the investing markets is easier since we have ample amounts of data and statistical evidence to support the long-term payoff of remaining faithfully invested in good times and bad.
Investing, like farming is often boring
After they retired from farming, my grandparents sold the farmland and bought a small ranch house in South Toledo. Although my grandfather suffered from debilitating arthritis in his hips, farming never left his blood and he maintained beautifully manicured gardens and flowerbeds well into his eighties. His flowerbeds were meticulously edged, and his gardens grew row after row of vegetables lined neatly and protected by chicken wire to protect the plants from hungry rabbits.
One of my favorite memories of my grandfather is picturing him sitting on his glider in the enclosed back porch looking outside at his gardens and flowerbeds for what seemed like hours at a time. I am sure that he was admiring the beauty and splendor of nature after decades of toiling hard in the earth, but I also believe he was happily appreciating his own efforts and handiwork. Outside of a few birds, the occasional squirrel or rabbit however, there was not much activity going on in his back yard. Farming or growing a garden is an activity that involves short bursts of preparation and activity amid a lot of waiting. In this way, investing looks a lot like farming most of the time.
Investing has been likened to watching paint dry or grass grow. None of these activities is very exciting. But nature is persistent and so is investing. I like to think farming taught my grandfather patience and to appreciate that there is a time and a season for everything, as well as to appreciate the times that most of us would label boring. My wish would be for every investor to learn this lesson as well. Successful investing strategies are often boring and not very exciting to discuss at the country club.
Small seeds produce big harvests
Any of us who have done any gardening know firsthand that the tiniest of seeds can produce the largest of plants or yield the most fruit. One of life’s simplest pleasures that I enjoy is picking a ripe homegrown tomato in August, slicing it up and eating that tomato slice by slice accompanied by a light sprinkling of table salt. Tomato plants start from very tiny seeds, but can grow upwards of three or four feet tall and produce dozens of delicious tomatoes through the summer and early fall.
Investing works in much the same vein. Persistent and small investment contributions, through the power of time and compounding can produce huge investment portfolios over a few decades’ time. The earlier investors begin, the easier it is obtain a substantial retirement portfolio even with small, but regular contribution amounts. While many lament the demise of the traditional pension plan from the retirement landscape, those who understand the lesson of the small seeds appreciate the opportunities that 401(k), 403(b) and 457 type plans afford.
There are no ” forecasting gurus”
Since 1792 American farmers have had the Old Farmer’s Almanac, which is the oldest continuously published periodical in America, to provide them with weather forecasts of dubious accuracy. More recently, meteorologists using more sophisticated tools provide weather forecasts that are probably not a lot more accurate for farmers than the ones they receive in the Old Farmer’s Almanac, at least beyond a week or so.
As farmers know from experience, future weather patterns are not known with exact precision beyond the ordering of the seasons and that certain seasons provide more favorable growing conditions than others. Farmers cannot schedule planting or harvesting dates by the Old Farmer’s Almanac’s predictions. Likewise, investors cannot know what investing market conditions will bring from day-to-day, or even week-to-week, other than knowing from observation that equity markets experience more days with positive returns than negative returns. Over time (years and even decades), equity investors will be rewarded with higher returns than they would receive from other investments like bonds, certificates of deposit, or savings accounts.
Occasionally people approach me and ask my opinion of “what so-and-so said about the markets” or what I think about market conditions. My simple reply to all of these inquiries is “My crystal ball is broken, and I know no more about the day-to-day movements of the markets than you do. But I do know that investors are rewarded over time for their participation in the markets.” Farmers learned centuries ago that they did not need to forecast weather patterns to be successful. Investors do not need to forecast daily market movements to enjoy success either.
As you have just read, the seemingly simple occupation of farming can provide some very valuable lessons for us as investors. Keeping these four lessons in mind, especially in challenging market conditions, can mean the difference between reaching your financial goals like retirement and struggling to gain any traction towards your goals. If you or someone you know is struggling to make progress towards your financial goals, please give the planners at Bollin Wealth Management a call so we can help you get started on the right foot.