Thursday, 26 June 2014
This Farmer Is the Greatest Investor You’ve Never Heard of: What You Can Learn from Him
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This Farmer Is the Greatest Investor You’ve Never Heard of: What You Can Learn from Him
There was once a farmer named Mr. Womack who may be one of the greatest investors you have never heard of. Let me tell you his story.
People first came to know about Womack back in 1978 when John Train, a money manager, wrote an article for Fortune magazine. In his 60 years of investing, Womack never had a loss on balance. His investing technique was straight-forward. Wrote John Train:
“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 S&P Stock Guide and select around 30 stocks that had fallen in price below $10—solid, profit making, unheard of companies (pecan growers, home furnishings, 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.”
Being a farmer, Womack likened buying shares to buying pigs. The cheaper he could buy the pigs when the pork market was down, the higher his profits would be when the market recovered. Warren Buffett would be very proud of Womack; the former has a famous quote that goes, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful”.
During the most recent financial crisis between 2007 and 2009, “solid, profit-making” blue-chip companies with competitive advantages such as SIA Engineering Company (SGX: S59), Singapore Exchange (SGX: S68), and Keppel Corporation (SGX: BN4) could be bought for as low as $1, $3, and $2 respectively. Five years on since 2009, all the companies have recovered from their troughs to deliver returns of between 100% and 450%, excluding dividends.
We will never know how low any share can reach during a market crash. But neither did Womack know when a share would peak or reach its bottom – he was just happy enough to “buy or sell in the bottom or top range of its fluctuations”.
You may ask how does one have the mental fortitude to buy companies during a market crash? Mental fortitude can be cultivated by developing in-depth knowledge about a company’s business fundamentals and its management. If the market price is too low in relation to the growth potential of the company, then the business may be a good buy.
So, the next time a financial meltdown occurs (it will, the only question is when), do remember Mr. Womack’s story.
Read? In Theory. In Practice: Kep Corp
In practice:
Here got one little known farmer who is looking towards to sell a few pigs. Not sure will Mr Market quotes him an attractive price for him to sell?
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this farmer is not a investor, he is a trader.
ReplyDeletehe invest in his farm but he trade in the stock market.
Deletethis method will work if we have a volatile market like we have in the past 15 years. will the market clash again? ofcos it will but the question is when? can be tomorrow but also can be 50 years later.
ReplyDeletei see we are now in a more "efficiency" market with super low volatility, super low growth with no inflation in sight.many traders will be force out of the market as volatility continue to dry out. its going to be a long long wait i think.
Yup.
DeleteYou are right.
Fish cannot survive long in low oxygen water and traders cannot survive long in low volatile market.
when the fish is running out of air, he should quickly migrate to other location or transform himself if he could.
Deletemany fishes instead try to breath in more air by open their mouth bigger and bigger, sucking more water and other junk instead, killing the fish faster than ever.
the flexibility to adjust to market condition is the key to long term survival in trading, instead of trying to force the trade that will meet your personal requirement or goal or ego.
and i'll be the tappo in the water, if the days comes when the air is drying, but hopefully not, then i'll transform myself into a...
Deletefrog! (investor)
It's better to be a catfish in one of those ponds. If one's pond is drying out, can always wiggle to another.
DeleteThere is a fish name in Hokkien called "Quay Swa Chek". i am not sure what kind of fish is this?
really temperament?
Deletei thought catfish are pretty dump, you can even catch them with your hands. when i grew up in kampong, we use to catch them just for fun, cannot eat one le.
Catch catfish with your hands?
DeleteNot scare poke ah.
Poisonous poke.
can you guys share what you do the whole day (and night), can't be watching the market or news the whole day right? or counting the fishes that got caught in the net over and over again?
Deletehow you spend time being a "full" time investor thats what i mean?
ofcos not with hands la! yes they got pike on the top fin, we use tree brunch with a fish hook and earthworms as bates, very easy to catch.
Deleteif a 6 or 7 years old boy can catch a catfish, i don't know how you can discribe that kind of fish haha...that was my original meaning
Delete