One should never have limitations when it comes to learning. We can learn from anyone, at any time, and at any place. One only has to observe their surroundings keenly. Have you ever wondered what lessons you can learn from a farmer, mechanic, or even a driver? You would be surprised to know that some of the traits that these people possess may actually help in understanding the dynamics of other domains or industries.
Let’s take the case of farmers and see how their decisions and characteristics can help us understand investment in a completely different perspective. The key takeaways from this analysis may differ for each person. However, it is the essence of the analysis and the intent which is more important. Before you ponder over the actual comparison of farmers and investments, you need to clear any preconceived notions that you may have. It is absolutely important at this stage so that you may get a chance to evaluate all aspects in its purity.
Before we discuss the investment lessons that one can learn from farmers, let us take a look at the lifestyle of an average farmer. Farming requires a lot of patience. And trust me, it is not easy to wait and watch, and let nature take its course. It is also not easy to always lay your trust on the environment. However, a farmer will always ensure that every small detail is considered and the foundation of the crop is laid perfectly before letting the environment work.
Basically, a farmer is investing his time, money, and efforts on something where the results can be predicted but not assured due to the dynamics of the environment. If you think about it, this situation is pretty similar to stock market where the investments are made and the outcomes can be predicted. However, there is no guarantee or assurance of returns and the results are affected by the dynamics of the market. So it would be interesting to see how a farmer’s life can inspire people to change the way they manage their investments.
Here are 4 investment lessons that we can learn from farmers.
Lesson #1 – Choose Your Investments Wisely
A farmer doesn’t plant crops in haste. There are several factors which need to be considered before seeds can be planted. The soil has to be just right; the weather has to be perfect; and the farmer will need to have the financial capacity to manage personal expenses for the entire period until the crops are harvested. Moreover, a farmer will not just plant any crop. He will check future demand for the crop, evaluate the cost-benefit, review the feasibility of planting the crop in the available plot, and then consider laying the foundations of a bountiful crop.
Similarly, one should evaluate every aspect of an investment before actually making one. It is important to evaluate one’s risk profile and plan the budget for investment. One should not simply invest all savings at one go. It is also important to select the right investment mechanism and sectors in order to get better returns from them. One also needs to plan for the duration of holding the investments. Of course, patience is required to bear with the stress of waiting to see your wealth grow.
Lesson #2 – Never Put All Investments in One Basket
A farmer usually plans crops for different seasons. He will never invest everything in just one crop. In a way, the farmer never puts all his investments in one basket. By diversifying his investments, he is able to mitigate the risk to some extent and also ensure better returns by getting different returns from various investments.
This lesson may be simple, but it one which has a lot of significance. In most cases, people have been known to put all of their funds in a single investment. The prospects may have appeared to be lucrative. But it is not a wise decision to put everything in just one investment. When it comes to stock market investments, you should consider using a theme based strategy to plan your investments with a diverse portfolio. This allows you to make the most of the respective investment theme, and you can also lower the risk of losing everything.
Lesson #3 – Never Rely Solely On Nature
A farmer may be dependent on nature for producing a good harvest. But a good farmer will never rely solely on nature for the outcomes. There will be alternative plans and infrastructural changes which will allow the farmer to compensate any shortcomings that may have occurred. For example, by using rainwater harvesting and smart irrigation techniques, a farmer can mitigate the risk of poor monsoon or less rain.
Similarly, a person who has made investments in the stock market should NEVER rely on the stock market completely. Stock market investments are subject to market risk and one cannot guarantee any profit. This does not mean that one cannot earn profit at all. With proper planning and gaining an understanding of the dynamics of the stock market, it is possible to have better predictions which will allow the investor to plan his moves smartly. Diversifying the investments will also provide a good alternative to managing market changes.
Lesson #4 – Different Investments Produce Results Differently
Farmers harvest various crops. Different crops require different handling and the duration for reaping the benefits also differs. For example, it takes 210 days to harvest garlic whereas spinach takes 30 days to harvest. Every crop has to be treated in a different way to ensure proper results. Otherwise, it would just end up getting wasted.
When it comes to stock market investments, you should never have just one strategy for all investments. It is important for you to understand the specific characteristics of an investment, and then plan trades in a way that will help you get the most out of it. You should also consider the timelines of different stocks or sectors before building up expectations that are not realistic.
Key Takeaway – The Best Results Come From Data-Driven Analysis
Successful farmers base their actions on data driven analysis rather than going with their gut instincts. Assumptions never really work out well in the real world. In fact, they cause more problems than one can image. Who would you trust more – a person who assumes when it is going to rain, or the local weather department who have the data to prove their prediction? Obviously, you would trust the latter. Similarly, the best results are derived from data driven results where the outcomes can be predicted based on past data or current data. After analysing the trends, one can arrive at an informed conclusion which would provide more clarity.