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How Investing Is Like Farming

Today I want to share with you a great story that I just finished reading.

It was first published in Forbes magazine on October 2, 1978 under the title How Mr. Womack Made A Killing by John Train.

I do wish to note that the story was actually sent in by one of his readers, Melvid Hogan, and Mr. Train merely shared it with the world. Normally this whole tale is attributed to Mr. Train and I just want to give credit to Mr. Hogan where it is due.

It seems that we are in the midst of a “get rich quick” mentality today. From the rapid rise of crypto these past few months to Ponzi schemes, like Bitconnect, finally collapsing only to have others fight to take its place – a certain amount of the population is now firmly under the assumption that getting rich quickly is easy. Until it isn’t.

Getting rich quickly often leads to getting broke quickly.

I study similar events in our past and can often see the connections between two similar events that happened decades or centuries apart.

Some people might say that the world this investor lived in is so far in the past that what is shared in the story isn’t relevant anymore. I say that human behavior hasn’t changed and by learning from the past you can avoid making the same mistakes.

Yes, sometimes you have to adjust the lessons of history to fit in today’s world, but the nugget of wisdom is still there for the taking.

So read the story and see if you can learn something.
(I wrote it all out below the image)

 

How Mr. Womack Made A Killing


“Right After I was discharged from the Army at the close of World War II and went into the drilling-rig building business, on the side (and at first as a hobby) I began buying and selling stocks. At the end of each year I always had a net loss. I tried every approach I would read or hear about: technical, fundamental and combinations of all these… but somehow I always ended up with a loss.

“It may sound impossible that even a blind man would have lost money in the rally of 1958 – but I did. In my in-and-out trading and smart switches I lost a lot of money.

“But one day in 1961 when, discouraged and frustrated, I was in the Merrill-Lynch office in Houston, a senior account executive sitting at a front desk whom I knew observed the frown on my face that he had been seeing for so many years and motioned me over to his desk.

“ ‘Would you like to see a man,’ he asked wearily, ‘who has never lost money in the stock market?’

The broker looked up at me, waiting.

“ ‘Never had a loss?’ I stammered.

“ ‘Never had a loss on balance,’ the broker drawled, ‘and I have handled his account for near 40 years.’ Then the broker gestured to a hulking man dressed in overalls who was sitting among the crowd of tape watchers.

“ ‘ If you want to meet him, you’d better hurry,’ the broker advised. ‘He only comes in here once every few years except when he’s buying. He always hangs around a few minutes to gawk at the tape. He’s a rice farmer and hog raiser from down at Baytown.’

“I worked my way through the crowd to find a seat by the stranger in overalls. I introduced myself, talked about rice farming and duck hunting for a while (I am an avid duck hunter) and gradually worked the subject around to stocks.

“The stranger, to my surprise, was happy to talk about stocks. He pulled a sheet of paper from his pocket with his list of stocks scrawled in pencil on it that he had just finished selling and let me look at it.

“I couldn’t believe my eyes! The man had made over 50% long-term capital-gain profits on the whole group. One stock in the group of 30 had been shot off the board, but the others had gone up 100%, 200%, and even 500%.

“He explained his technique, which was the ultimate in simplicity. When during a bear market he would read in the papers that the market was down to new lows and the experts were predicting that it was sure to drop another 200 points in the Dow, the farmer would look through a Standard & Poor’s Stock Guide and select around 30 stocks that had fallen in price below $10 – solid, profit-making, unheard-of little companies (pecan growers, home furnishing, etc.) and paid dividends. He would come to Houston and buy a $25,000 ‘package’ of them.

“And then, one, two, three, or four years later, when the stock market was bubbling and the prophets were talking about the Dow hitting 1500, he would come to town and sell his whole package. It was as simple as that.

“During the subsequent years I cultivated Mr. Womack (and hunted ducks on his rice fields) until his death last year. I learned much of his investing philosophy.

“He equated buying stocks with buying a truckload of pigs. The lower he could buy the pigs, when the pork market was depressed, the more profit he would make when the next seller’s market would come along. He claimed that he would rather buy stocks under such conditions than pigs because pigs did not pay a dividend. You must feed pigs.

“He took ‘a farming’ approach to the stock market in general. In rice farming there is a planting season and a harvest season; in his stock purchases and sales he strictly observed the seasons.

“Mr. Womack never seemed to buy a stock at its bottom or sell it at its top. He seemed happy to buy ot sell in the bottom or top range of its fluctuations. He had no regard whatsoever for the old cliché – Never Send Good Money After Bad – when he was buying. For example, when the bottom fell out of the bottom in the market of 1970, he added another $25,000 to his previous bargain-price positions and made a virtual killing on the whole package.

“I suppose that a modern stock market technician could have found a lot of alphas, betas, contrary opinions and other theories in Mr. Womack’s simple approach to buying and selling stocks. But none I know put the emphasis on ‘buy price’ that he did.

“I realize that many things determine if a stock is a wise buy. But I have learned that during a depressed stock market, if you can get a cost position in a stock’s bottom price range it will forgive a multitude of misjudgments later.

“During a market rise, you can sell too soon and make a profit, sell at the top and made a very good profit, or sell on the way down and still make a profit. So, with so many profit probabilities in your favor, the best cost price possible is worth waiting for.

“Knowing this is always comforting during a depressed market, when a ‘chartist’ looks at you with alarm after you buy on his latest ‘sell signal.’

“In sum, Mr. Womack didn’t make anything complicated out of the stock market. He taught me that you can’t be buying stocks every day, week, or month of the year and make a profit, any more than you could plant rice every day, week, or month and make a crop. He changed my investing lifestyle and I have made a profit ever since.


 

My Takeaway

I think the most important lesson here is how investing is like farming. You have to plant (buy) when the season is right and harvest (sell) when the time comes. In between you don’t have to do that much at all, you mostly wait until your crop (investment) grows.

That ‘nothing’ part seems to be where a lot of people have difficulty.

It’s too easy to get sucked into the day to day noise from the media, an investment forum, or a technical analyst you follow.

In the long run, jumping from investment to investment often is a losing proposition for many people. The ones that profit the most from this type of investor are the brokers or exchanges that charge them to buy or sell.

I’ve heard people say that the hardest part of investing is waiting. I’d say that is an accurate statement.

In this style of investing you have to go against the herd. You buy when everyone is panic selling, to sell when everyone is saying ‘to the moon’, and then do nothing in between is not something that a lot of people can do, but it is exactly these actions that can bring you incredible riches.

But then sometimes, while you are waiting for the big trade, someone comes along and offers you a truckload of hogs at a really bargainous price.

Did you learn something from this story? Please share it in a comment.

7 comments

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  1. OthalaFehu

    I liked that story, I wish I had the discipline to copy that strategy, but I am too me.

    1. MrDD

      I hear ya. I do enjoy researching new investments all the time.

  2. Mr Defined Sight

    What a cool post my friend! Plus one that I can relate to. We had pigs when I was young and feeding them was my job. And scratching behind their ears with a long stick haha! They are some of my favorite animals to this day.

    Farming and investing have many similarities when you think about it.
    Mr Defined Sight recently posted…5.09 Hump Day Heat: Bloggers Sizzling Up The Week!My Profile

    1. MrDD

      Oh, I grew up on a farm too. My Dad worked as a farmhand for a gentlemen’s farm and part of his pay was a second-floor apartment. I would take the scraps over to the pigs for feeding if there was enough to make it worthwhile. I especially liked feeding them corn husks.

  3. Reverse The Crush

    Thanks for sharing, Justin! I agree that farming is comparable to investing. You almost have to do the opposite of the herd to be successful. That’s a cool story and it makes a lot of sense. There’s a great message. As a dividend investor, I tend to be attracted to higher yielding stocks. Perhaps a takeaway for me is to always focus on the stock at the best price at for that given time instead of just the yield. Hope you’re doing well man!
    Reverse The Crush recently posted…Blog Traffic Report – May 2018My Profile

    1. MrDD

      It could be a good strategy. Rotate your investment additions as each sector falls out of favor, such as consumer stocks are today.

      I am doing well, you better be too!

  4. D.Marcel

    Awesome read and a very descriptive and interesting writing style.

    D.Marcel recently posted… hunter boots cleaning tips

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