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Value Investing and Law of the Farm

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via Safal Niveshak

Centuries ago, a Chinese King was sitting in his cabinet meeting discussing about the poor economy of his country. One economist said, “Sir, we can’t do anything about it. It’s the Law of Supply and Demand.”

The King said, “I’m the King. I will repeal that Law!” The Cabinet kept quiet, but one brave soul said, “Sir, you cannot repeal the Law of Supply and Demand. It’s like the Law of Gravity.”

And the King said, “I’m the King. I will also repeal the Law of Gravity!”

Obviously, this story is purely fictional. But the message that comes out is clear – You cannot repeal some laws that govern this universe.

Like the Law of Gravity, and…

The Law of the Farm
What does the Law of the Farm mean?

It means that a farmer cannot expect to harvest a great crop unless he carefully plans for the development of that crop and works diligently and consistently over a long period of time.


So, a farmer needs to –
  • Prepare the soil
  • Fertilize the soil
  • Plant the seed
  • Water it and nourish it continually as it grows
  • Tend to the weeds
  • Protect it from insects and diseases
  • Monitor it constantly to know exactly when the best time to harvest will be

These things take ongoing effort throughout the whole process.

The farmer cannot plant a crop, do nothing for six months, and then expect to have a great harvest magically.

There are natural laws and principles that govern agriculture and determine the harvest. But, ironically, in social and corporate cultures, we somehow think we can dismiss natural processes, cheat the system, and still win the day. And there’s a great deal of evidence that seems to support that belief.

Most students would rather cram their textbooks in one night than learn gradually for a year before sitting in exams.

Most of us with junked, drugged bodies would want to get lean and fit by exercising vigorously for just a few hours and days.

Most companies would dump a lot of money on projects and expect them to reap rewards instantly (look at companies that make a lot of acquisitions).

In the stock market, most of us would want our stocks – mostly bought on tips and borrowed conviction – to fly and earn us fast returns.

There’s no effort that most of us would want to put to earn a rich harvest (read, good returns) in the future. We wish for results in quick time.

But then, Warren Buffett wrote this in his 1985 letter to shareholders…

No matter how great the talent or effort, some things just take time: you can’t produce a baby in one month by getting nine women pregnant.

As on the real farm, success in life, business, and investing comes from regular disciplined, regular effort.

Like a farmer cannot expect to reap a bumper crop by being lazy for six months and then “cramming” to catch up, the greatest successes are built slowly and deliberately through focused, consistent, high-quality efforts on a regular basis.

Investing is no different.

Cramming doesn’t work in a natural system, which is based on principles. And investing possesses characteristics of a natural system over long periods of time. You can go for the quick fixes and techniques with apparent success in the short run (like four-baggers in four months). But in the long run they just don’t work.

So, very much like in farming, in investing –

  • You reap what you sow (buy bad businesses, and you’ll lose capital permanently)
  • You must get your hands dirty (it’s important to research your investments well before you buy them)
  • You may often sow for someone else to harvest (your future self, and your future generation(s) will benefit from the compounding you do)
  • Rewards don’t come instantly, but in time (there are ample examples of successful long-term investors, but almost none of traders)
  • You must follow a sound process, and the outcome will take care of itself
  • It’s important to tend to the weeds (however careful you are, you may get stuck in bad businesses and big losses. Just cut them off!)
  • Entire process makes you a lot humble, because you understand you don’t control a lot of things (the best long term investors are the most humble beings – look at Warren Buffett, Charlie Munger, Sanjay Bakshi, Parag Parikh, Chetan Parikh, Howard Marks, and Seth Klarman)

It’s All About Process, Efforts…and TIME
You see, farming and investing are both about the right process and the right efforts, and then you must let time take care of things.

But then, most people in investing miss out on the time part – the waiting part – which, by the way, is the most difficult but most important in the compounding process.

You can learn all the right things in investing and invest in the best of businesses, but it will be futile – you won’t be able to compound your money – unless you have a long-term view.

Like a farmer, you cannot forget to seed, water, and nurture your investments, and then think you can “cram” it all at the time of harvest, which may be 15-20 years later (when your financial goals come up).

So please remember, in investing as in farming, a rich harvest would come to you not from finding easy shortcuts, but from disciplined, focused effort, directed tirelessly toward a desirable goal.

Try putting the Law of the Farm to work in your investing life. I’m sure you’ll be amazed with the results over time.

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