Investing Lessons From a Millionaire Dairy Farmer
A Case Study of a Real Life Successful Investor
Several years ago I was sitting in the office of a local trust officer at a major national bank. We were discussing investor psychology and client relationships. The banker with whom I was conversing talked about the different types of people he had encountered in his career, and told me that he found the most successful investors were typified by his richest client, a retired dairy farmer.
This dairy farmer was 80 or 90 years old.
Throughout his life, he had used the trust agents at the bank and took a portion of his farm's cash flow to invest in stocks of high-quality companies, including bluechip stocks. He then held onto these shares for decades, reinvesting the dividends and showing up a few times a year to make additional purchases. Approximately 30 or 40 years ago, he sold a business related to his dairy farm and came in with a substantial sum of cash. He had specific instructions for how he wanted it invested, including the fact he now wished to live on part of the passive income generated by his stock and bond holdings.
"No matter what I did," the banker told me, "neither I, nor any of my predecessors, could convince him to sell any of his investments for hardly any reason. It didn't matter if it was a world war, recession, stock market crash, a runaway inflation rate, or natural disaster, my client knew what he owned, he knew why he owned it, and our job was simply to handle some of the estate concerns and execute the trades."
The banker then went on to mention that the dairy farmer still held shares of companies such as IBM, which had been purchased back in the 1960's, some of which had a cost basis of a few dollars or even cents per share split-adjusted!
What I enjoyed about the story was the fact that the farmer still lived in the same tiny farmhouse he had resided in for most of his life, he drove the same pickup truck that he loved, and no one except his wife had a clue he was worth tens of millions of dollars—not even his children.
This man apparently loved the process of investing and, if I recall correctly, was planning on leaving most of his fortune to charity.
What Can We Learn From Our Millionaire Dairy Farmer?
What investing lessons can we glean from this humble, but successful investor?
- Choose your investments wisely. It is just as important to avoid a bad deal as it is to find a good deal.
- Don't have a lot of turnover in your portfolio. This will keep frictional expenses such as stockbroker commissions, market maker spreads, bond spreads, and capital gains taxes to a minimum. Own good businesses for the long-term; don't rent stocks.
- Think independently and don't follow the crowd. Educate yourself enough to know when to make a decision that goes against the advisers in your life so that you never do anything with which you aren't comfortable. This can help you avoid buying into the hype of the latest investing fad or speculative bubble. Ultimately, you have to be responsible for your own losses. Protecting your money is your responsibility.
- Don't worry about keeping up with the Joneses. Instead use your money as a tool to provide comfort, security, and financial independence for your family. Avoid credit card debt and other forms of consumer debt, paying in cash for items whenever possible.
Just like "eat less and exercise" is a sure-fire way to lose weight, our dairy farmer's investing advice may seem simple or even downright trite, but the truth almost always is. What looks like common sense is anything but common because many people struggle to implement the wisdom in their day-to-day choices.