Invest like a farmer

Today, let’s talk about investing like a farmer.

As a value investor,

who is our model? It’s the farmer.

Actually, in my other chapters about investing,

I also mentioned that you should invest like a farmer planting crops.

Today, I will systematically discuss crops,

moisture, and these elements.

A stock,

from a low price to a super bull stock,

is similar to the process of a tiny seed growing into a lush, fruitful crop.

During the crop’s growth process,

analyzing certain key factors is very important for achieving a good harvest.

For example, analyzing soil,

moisture,

climate,

sowing time, and the seeds themselves.

A farmer must not only be very familiar with the characteristics of each factor,

but also understand how they are interconnected.

There is a saying: “Don’t plant a high-quality seed in the desert,”

which in investing means,

first, you should not choose companies in terrible industries,

or else making money will be very difficult.

Farmers also wouldn’t start sowing in winter,

on a piece of fertile land.

In investing terms,

if an industry is in a structural decline,

you cannot buy in.

For example, I’ve mentioned before the newspaper industry,

offline retail, and so on,

which are industries in structural decline,

and you should not buy into them.

Even if the company’s performance temporarily recovers, it’s useless,

just like the tide receding,

a short-term rise cannot change the overall downward trend.

Therefore,

a farmer wouldn’t say spring has arrived just because a few days of warmth in winter,

and start sowing; nor would he think spring won’t come again just because of a few cold days in spring,

and stop planting.

So,

judging seasons and industry cycles is very important.

Farmers are confident in the seasons and timing,

so they won’t sow at the wrong time,

nor will they wishfully pull seedlings to grow faster.

Most people have a characteristic,

always wanting to get rich overnight,

being impatient,

always wanting to buy stocks that hit the daily limit.

Constant buying and selling,

is like the story of pulling seedlings to grow faster,

the person pulls them out to check,

and finally kills the seedlings.

The same applies to watching the market,

always seeking instant gratification,

pursuing short-term effects,

and not understanding delayed gratification.

We need to learn to be patient like farmers.

Not only patience,

but also confidence.

And your patience comes from your confidence.

You know that the natural order,

has four seasons every year,

and they will come.

Don’t be fooled by a few days of warmth or cold in the short term,

it’s the same principle.

You must believe in the power of natural cycles and seasons,

have confidence and patiently wait for value to return,

and don’t obsessively watch the market.

Farmers have common sense about crops,

so they understand these principles deeply.

Conversely, in the stock market,

many investors tend to make these basic mistakes easily.

Now, I will specifically analyze the analogy between farming and investing from the perspective of stock analysis.

A company is like a seed,

its DNA is the genetic code of the seed.

The company’s corporate culture,

management,

and inherent structural competitive advantages,

costs,

brand effects, etc.,

are all part of the company’s DNA.

So, what is the industry in company analysis? It’s the soil,

the nutrients,

the soil quality,

and its development environment largely determine the future potential and ceiling of this seed.

A good seed in the wrong industry,

is like a good management team in a poor industry—unable to develop well.

In summary, it’s essential to find good companies within good industries,

both are indispensable.

The company’s growth stage is also very important.

What is this growth stage? It’s the cycle,

which is very similar to the seasons in agriculture.

Is the company in an industry’s rising cycle or declining cycle? The same company,

with the same management,

and the same competitive advantages,

will have completely different profits and valuations depending on the industry’s cycle stage.

Therefore, the development stage of the company and its products/services must be considered within the cycle framework.

Additionally, attention should be paid to the management team.

If some people leave the company gradually,

or the corporate culture deteriorates,

that’s not good either.

On a higher level, it’s the industry’s cycle stage,

which also includes some smaller cycles,

and these factors greatly influence valuation.

And then there’s the overall market trend.

The market trend refers to bull and bear markets,

which are like moisture in the market,

representing liquidity.

If the market is good,

funds are abundant,

simply put, the pond has plenty of water,

so stock prices rise with the water level; if the market trend is poor,

funds flow out,

water level drops,

and stock prices will naturally fall.

But regardless of these factors,

as farmers, we must believe in the natural order.

In the eyes of farmers,

the natural order is the alternation of the four seasons,

and they will come.

So, we must trust common sense,

rely on the natural order to make full use of these resources,

and go with the flow.

Moisture, sunlight,

make good use of these,

and do what we should—loosen the soil when it’s time,

sow when it’s time.

We should do these things,

use moisture and sunlight to keep crops growing.

So, farmers are mostly unhurried,

they rely on following the natural order,

doing what each season requires.

Loosen the soil,

plant the seeds,

and after a while, water them.

When the weather is good and the climate is favorable, no watering is needed.

Eventually, there will be a harvest,

but it takes time,

so patience is required.

As long as we don’t pull seedlings to grow faster, there will be a good harvest.

We just let the natural order do its work.

The natural order is the true power,

like a giant.

We must learn to harness its energy,

not oppose it.

The natural order gives you strength,

you should cooperate with it,

it is your greatest ally,

and rely on it to harvest your wealth.

Don’t wishfully pull seedlings to grow faster,

that violates the natural order,

and in the end, you get nothing.

Then you truly become unheard by heaven,

and unresponsive to the earth.

So, in the stock market, stock prices are actually the fruits.

They are the final product after sunlight,

moisture,

soil, and seasonal factors,

all work together.

Don’t think of them as the cause.

Investors should not only focus on stock prices,

that’s the cause.

Don’t analyze stocks using only trend charts,

distinguish clearly between the fruit and the cause.

Just looking at stock price charts,

is like watching a person’s shadow,

and predicting their next move—ridiculous and absurd.

Also, don’t listen to insider information or rumors in the market,

most of these messages are useless.

Factors in the stock market,

such as government policies,

most non-substantive news are just stimuli.

They are like the wind and fog in nature,

seeming effective at the moment,

but soon dissipate,

and are insignificant in the long run.

Have you ever seen a farmer planting crops and use fog or wind as the basis?

Never.

Even if these messages sometimes have some effect,

they only work through the industry, the seed, and the overall trend.

Therefore, various news in the stock market are secondary and indirect,

listening to them excessively is harmful,

because it exposes many aspects of human nature.

So,

listening to news,

overemphasizing short-term effects,

will reveal human nature,

and are all secondary.

If your focus is on these,

you will definitely fail.

If you are into speculation,

you can review my previous chapter “Analysis of Value,”

which explains why speculation is a failed strategy.

Today, the main message is that to be a good investor,

you must plant crops like a farmer.