Wisdom of the Ages - Part IV

Marcus Aurelius

If you missed PART I - click here to read it.

If you missed PART II - click here to read it.

If you missed PART III - click here to read it.

We see a number of similarities in the practices of farming and investing.

Planting a crop not only requires preparation but also an understanding of what you intend to harvest - no one should expect to harvest a crop they did not sow.

So too, investors should not expect returns that they did set out or plan to achieve.

Understanding what to expect of your investment is a critical part of the process.

An economically sustainable farmer is unlikely to rely on only one crop. They diversify (by crop and location) - as would any wise investor. Common sense suggests that investors hold a diversified portfolio of assets and to hold them across geographies.

In farming, as with investing, the effects of external factors (e.g. weather and crop prices) are unpredictable. Diversifying as mitigation for that kind uncertainty is essential to both practices.

Furthermore, the longer it takes for a crop to yield fruit, the more valuable it is likely to be.

So too it is with investing. Investments focussed on the long-term, that deliver returns far into the future, will always be more valuable than those focussed on the short-term or of a speculative nature.

There is also an interesting analogy between fertilizer and leverage.

Farmers use fertilizer to increase the yield on their crops. Investors often use leverage to increase the yield on their investments. But here’s the thing: too much fertilizer can destroy your crops, and too much leverage can bankrupt your investment. Too much of a good thing, whether in farming or investing, is not always a good thing!

Balance is required. Our chief concern currently is that investors have become impatient for returns on their investments.

Let’s consider this still using our farming analogy: does it make sense to plant a crop and expect a return immediately thereafter? Certainly not. Every crop has a gestation period. Similarly, we would caution against getting two women pregnant if it were your expectation to have a child in 4.5 months. The same principle applies to investing. We would suggest that you rather change your expectation.

And so, as with most things in life, understanding yourself, understanding what you want from the future, practicing balance and patience is essential.