Foolish Collective

Format for Printing

Format for printing

Request Reprints


By emiller8988
September 30, 2003

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

My father-in-law was a small time dairy farmer for all his life, he recently finally retired from getting up at 3AM for his entire adult life. While he graduated from college, from the day he was born he (or his father before him) made a living from the ground. As a result, he knows the value of land pretty well. He also keeps up with it via those constant conversations with all his old farmer pals. By the way, he thinks a high-risk investment is a CD... and thinks I'm absolutely crazy for "investing" in something as silly as stocks (pieces of paper!!)

I'm looking into buying a piece of land near home. Its got a nice little lake on it with a stand of trees and some nice views... it's a nice place. I decided to take my father-in-law out and get his opinion. While I showed him the view over the lake and how pretty it was from a certain point, this is what he did.... he pulled out a shovel and dug up ground in several areas, he smelled and held the ground in his hand (I thought he was going to actually taste it at one point), we had to drive to the timber and he walked though every bit of it counting the hardwood trees and noting their health.... on and on we went.

Finally it started to dawn on me... he was looking at something very different than me. He saw this land completely in terms of cash flows. How many bushels of soybeans or feed corn would it support? How much was the timber really worth? Was the ground good enough to support a certain number of cattle per acre? It didn't matter two cents to him where the land was, who the neighbors were, if home sites were pretty... it was all cash flows and was the land worth the price the fellow was asking. What could the land support? No emotion, none of this "isn't it pretty" stuff. By the way, when I showed up with my father-in-law, the old farmer who owns the land looked like I'd just stomped on his toe. I later realized the farmer knew he was selling to someone who understood the true value of land (not me).

It dawned on me... this is how you're supposed to evaluate a company (not a stock). It's all in terms of cash flows. The way my father in law looks at land is the way I need to evaluate a potential investment, whatever it may be. It seems a little silly to write this down... but it's given me a new insight on why I buy stocks, so why not.

By the way... you just don't see many dairy farmers buying land on the hunch that it'll go up in price over the next several weeks and I've never heard of them consulting a chart.... just a note for my journal.


Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.