The Weekend Edition is pulled from the daily Stansberry Digest.
It all started with a lone pecan tree...
A lot of agriculture is produced in central Florida – most notably citrus, blueberries, and winter vegetables. But almost no one grows pecans commercially.
You see, most native soil types here in Florida aren't ideal for pecans like they are a couple of hours north. There's too much sand and not enough "Georgia red clay."
But the spot where I discovered this single pecan tree was unusual. There was red clay all around it... so much that after doing some additional research, I planted 60 more pecan trees.
Those trees started as sticks in the ground. Now, 20-plus years later, many of them are between 20 feet and 30 feet tall. And they provide a robust supply of pecans. Take a look...
If all goes well during a given year, the crop is harvested in September, dries in October, and then gets "shelled" in early November – just in time for the holidays. It's hard work, but the payoff is enjoying some of the best pecans I've ever eaten.
Another benefit of my two-decade journey growing pecans is the investment insights I've picked up as a result. And today, I'll share my three most valuable lessons with you...
No. 1: I learned to forgo early returns in favor of greater long-term gains...
A newly planted pecan tree takes about seven years to produce its first substantial crop. That's a long time to wait for a return on your investment.
But if all goes well, a pecan tree can produce strong annual crops for decades. In effect, a pecan grower doesn't cash in on early crops – he's hoping for annuity-like crops long into the future.
Twenty years later, I can wholeheartedly say the trade-off has been worthwhile.
Nowadays, my harvest is large enough that I can sell the pecans locally, give some to neighbors, and still have plenty left over for my family and me to enjoy.
This success has emboldened my instinct to remain a long-term investor...
I've come to realize that having a longer time horizon is an edge in today's financial markets. As a result, my portfolio is filled with stocks I hope never to sell. These include volatile small caps that I expect ‒ despite significant ups and downs along the way ‒ to grow into larger businesses with higher stock prices.
Saber Capital Management's John Huber is a money manager who also believes strongly in what he calls the "time horizon edge." Here's how he describes it...
Patience an attribute that forms the foundations of one of the most enduring edges in all of markets; an edge whose moat is only widening as time horizons continue to shorten and the speed of information continues to quicken... The edge in today's stock market comes not from trying to compete within that noisy arena for better information, but rather from going "over the top" of all of that noise and truly evaluating stocks as long-term ownership stakes in real businesses.
A funny thing happens when you start thinking of stocks as "long-term ownership stakes in real businesses"... You become much more selective. You pay more attention to the likelihood they'll grow into larger ‒ and more valuable ‒ businesses over time.
In other words, you capitalize on the time horizon edge by focusing on both quality and durability.
Now, let's move on to my second important lesson...
No. 2: I learned how to prepare for adversity...
Most people love an unusually long period of dry weather. They also consider periods of heavy rain as nothing more than a minor, short-term annoyance.
But when you're growing pecans, both can severely harm your crop... even if the harvest is still months away. Last spring, for instance, I couldn't spray my trees or put down any fertilizer for almost a month due to extreme dryness and high winds.
After decades of farming, I know one thing for sure: Each year, Mother Nature will throw me a twist that I haven't experienced before.
Knowing and accepting this ahead of time makes it easier to deal with whatever comes my way. That's because I've already prepared myself mentally for adversity, considered some of the likely scenarios, and developed contingency plans to limit my losses.
For example, since May tends to be an unpredictable month, I had my supplies on hand and ready when the weather returned to normal in June.
Adversity is a big part of investing, too...
Most often, it results from sharply declining stock prices.
None of us know for sure when a stock – or the market as a whole – will drop. But if you're mentally ready before it happens, you can better avoid "falling prey to desperation," as I discussed in my July 29 Digest about legendary football coach Bill Walsh...
The March 2020 market freefall occurred because many folks became indiscriminate sellers...
They wanted out of everything they owned, no matter the price... They had fallen prey to desperation.
This is almost never the best course of action – and it certainly wasn't last year, either... As we all know, stocks soon rebounded and have since gone on to all-time highs...
We can't practice for these kinds of situations like a football team can. But we can (and must) consider how we'll respond to them before they arrive...
That way, as Walsh eloquently put it, "we can concentrate without falling prey to desperation."
Said another way, we must have the discipline to stick with our long-term financial plan...
Earlier, I discussed the investing edge that emanates from extending your time horizon. But as Huber also reminds us, it comes with a bit of a challenge...
The price of gaining this edge is the volatility that could occur in the near term. You have to be willing to accept the possibility that your stock will go down before it goes up. Very few investors are willing to pay that price.
He's right. It's hard to hold a stock that's declining. But it gets easier when your confidence in the original thesis remains high... and you got in at an attractive price.
In short, we don't know when adversity will strike. But by preparing for it, we can avoid the panic that often leads to bad decision-making.
Finally, let's close with my third and most valuable lesson...
No. 3: I've learned to unlock the potential of "diffused" thinking...
Great investment opportunities are rarely obvious. It takes time and hard work to uncover them.
That's why a normal week for me involves reading dozens of articles, scouring through hundreds of pages of transcripts, screening thousands of stocks, and running dozens of the best ideas through our valuation models.
Then, the real work comes from synthesizing these data fragments into actionable advice... That's the full potential of "diffused" thinking.
Because I've figured out how to do this, I can honestly say I'm more productive today at age 60 than I was at 30. And it's all because I stumbled upon a book that I had purchased for a completely different reason...
Five years ago, I was looking for a way to help my youngest daughter as she struggled with math. After researching different options, I purchased Barbara Oakley's A Mind for Numbers: How to Excel at Math and Science (Even If You Flunked Algebra).
Little did I know that this book's first 40 pages would do far more for me than for my daughter.
Oakley likes to refer to the two networks our brains switch between as "focused" and "diffused." Focused thinking is what we use when we're concentrating on something... like reading this essay. Diffused thinking is a more relaxed resting state. You're either in one mode or the other.
And here's where it gets interesting...
Solving difficult problems involves an exchange between the two modes. But as long as you're in the focused mode, you're blocking the diffused mode. The key, according to Oakley, is...
do something else until your brain is consciously free of any thought of the problem... Once you are distracted from the problem at hand, the diffused mode has access and can begin pinging about in its big-picture way to settle on a solution... This generally takes several hours.
Armed with this insight, I suddenly appreciated the double duty that routine farm chores could achieve. For me, farming is mostly about three things ‒ mowing, spraying, and fertilizing. And each of these chores often takes two to four hours.
Because my day usually starts between 4 a.m. and 6 a.m., that gives me as much as 15 hours of daylight to mix focused- and diffused-thinking activities. For instance, I might evaluate a stock or start writing an article for a couple of hours in the focused mode. Then, I'll stop and spray trees for a couple hours, allowing the diffused mode to kick in.
When I go back to work at my desk again, I often find the extended diffused "break" has helped me solve whatever problem I had left behind – and has provided me with fresh insights that weren't there before.
When I'm not doing farm chores, I find that playing the drums, swimming, and weightlifting ‒ all done back-to-back ‒ can also be excellent diffused-mode activities.
In short, learning how my brain best solves problems has unlocked tremendous productivity in my regular day job. This, in turn, has helped me become a better investor.
Farming and investing don't share an obvious link... But the life lessons I've learned from decades of growing pecans have equipped me with the patience and discipline to handle any market environment.
As we wrap up a turbulent 2021 and start preparing for the trials and rewards that 2022 may bring, I hope you keep these lessons in mind.
Good investing,
Mike Barrett
Editor's note: Mike just released the 39-page inaugural issue of 10x Investor, a brand-new newsletter with a bold goal: to find stocks capable of making you 10x your money in three to five years. In it, you'll find his 10 best ideas on how to do just that. Of course, gems like these are rare. That's why he has created a novel system to find these 10-baggers early... increasing your chances of turning $2,500 into $25,000, or $10,000 into $100,000. Click here to learn more.
