Sunday, December 21, 2014

Great Returns Breed Complacency

If there has been one truism consistent in the investing realm it is that great returns breed complacency. Many of you who have chosen to Invest Like A Farmer have realized significant gains over the past several years by investing in large, monopolistic companies with healthy dividends. Now what?

Yearly, or better yet on a quarterly basis, financial farmers should survey the farm and conduct a thorough review of holdings, seed capital, and expected harvest returns. Action isn't necessarily warranted, but rather a game plan, no matter how perfect on paper, should be routinely reviewed in the field to see if execution is proceeding as planned. Course corrections may or may not be warranted.

Those who survived any of the numerous "setbacks" in the markets over the past decade (or longer) well remember the pain of a correction and the ensuing panic which destroys accumulated wealth in the stock market. Seed capital is best to have on hand sitting in the silo well in advance of a downturn, though it may draw little interest in the interim.

Multiple prosperous years don't necessarily warrant a change in strategy, but rather a top-level review of holdings, seed capital (cash) available, and coming cash flow needs. As readers of this blog well know, I champion having a healthy silo of seed capital at the ready. It has tremendous value in terms of peace of mind and potential to invest when the economic winds change.

Selling into weakness is not a pleasant experience, one that many old farmers can recall with a tinge of heartfelt pain. Make hay while the sun shines, but silo some of those gains too.

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