Investing and Farming
Like farming, when a farmer plants his crop, the investor is buying stocks. Like the farmer who watches his crop and waits for a harvest, the investor watches his stocks from day to day. Neither one knows how good the harvest will be because they are both subject to conditions beyond their control. The farmer must contend with Mother Nature and the investor has to contend with Mr. Market, who can be as fickle as the weather.
Both the investor and the farmer should be humble and respectful of Mr. Market and Mother Nature because they can override anything a person or a group of people do. Both the investor and the farmer need to look out for various conditions can affect their crops and see how they can maximize their harvest any condition.
Both crops need to be nourished. Markets are hungry for corporate earnings growth, increased sums of money and credit at low interest rates. Markets and the economy normally rise with expanding amounts of money supply and credit.
Typically, an increase starts in a recession and continues until the economy and markets begin to overheat. When money and credits contract and interest rates rise too high, it resembles the beginning of a drought and the harvest/profits disappear. Know when to harvest early.
The farmer must contend with hail and wind; the investor has to contend with greed and fear – within both himself and the markets. Fear creates buying opportunities and greed creates selling opportunities. Both can create losses.
The investor needs to control greed and fear or his harvest will be destroyed. Preserve values and profits by knowing how to control greed and fear to preserve values and profits.
To realize good harvests, learn about compounding, emotional influences, interest rates (and earnings yields), money supply and credit. Use them to your advantage.