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Σάββατο, 17 Οκτωβρίου 2015

Why You Should Invest Like a Pig Farmer

An important, if mysterious, character in stock-market history was introduced by noted money manager and financial journalist John Train back in 1978. One of Train's readers had sent him a note describing a man only known (to this day) as "Mr. Womack." Mr. Womack wasn't a high-flying fund manager, influential deal maker, trader or government official. He was, in fact, a farmer who raised pigs and rice on a farm outside of Houston. Investors who took Train's article about Mr. Womack to heart and have applied techniques that Mr. Womack allegedly used have likely done very well in the stock market over the past 37 years. And Womack's techniques, developed before the Second World War, can still be used today.

Train's reader, a Melvid Hogan of Houston, told of his attempts to make money trading in stocks in the years after World War II. No matter what "guaranteed to work" system or approach Hogan used, he lost balance year after year. Even in big up years like 1958, Hogan's attempts to get a profit buying and selling stocks produced negative results. All that changed in 1961, when Hogan met the man whom he'd help make a legendary figure in stock market lore.

Meeting a Stock Market Winner

Back in 1961, you couldn't check stocks prices on your phone, nor were there were TV channels with tickers running 24 hours a day. If you wanted to check your stock prices, you actually had to call your broker or wait for the next day's newspaper. Most brokerage offices had customer lounges where clients could hang around, drink bad coffee and watch the ticker tape. One day, when Hogan was in his local Merrill Lynch office, an older broker took pity on him when he noticed the despondent Hogan checking his prices and adding up his losses. He offered to introduce Hogan to a Mr. Womack, who had never lost money on balance in the stock market for almost 40 years.
Hogan discovered that this winning stock picker wasn't dressed in a fancy suit but rather was wearing overalls. The farmer was happy to talk stocks and mentioned some of his current holdings. Hogan was stunned to find that Womack's portfolio as a whole was up more than 50% since the stocks were purchased and that some of them were triple-digit winners. When he asked Womack the secret of his success, the latter was happy to share his simple but profitable approach to investing in stocks.

Ignore the Day to Day

Most of the time Womack just ignored the stock market. He spent his days raising pigs and growing rice and spent his leisure time hunting on his farm. Whenever he noticed that the evening newscast was full of talk about how bad the economy was doing, with dire predictions of the Dow Jones Industrial Average falling precipitously, he'd get up the next day, drive into Houston and buy a basket of 30 or stocks. He would sort through the Standard and Poor's stock guide and select stocks with solid financials that had fallen below $10 a share in the weak market environment. He limited his buying to dividend-paying stocks.(For more, read: How and Why Do Companies Pay Dividends?)
After completing his purchases, he would drive home and go back to farming and hunting. He didn't think about stocks much, if at all. If the outlook for stocks grew even more dire and depressing, Womack would add to his stake in financially solid dividend-paying stocks and go back to the farm again. And then a few years later, whenever he saw that newscasters and forecasters were upbeat about the future and predicting stock prices to rise to new highs, with good times ahead for all, Womack would get in his truck, drive to town and sell his basket. It might take three to four years but eventually the bust would turn to a boom and Womack would harvest his profits.
According to Hogan's letter to Train, Hogan became friends with Womack and they often hunted together and talked about stocks. Hogan adopted the farmer's approach to the stock market and said he'd turned a profit from that point forward.
The core of the "Mr. Womack" investing policy is simple. In farming, there's a time to plant and a time to harvest, and the same is true of the stock market: there's a time to buy and a time to sell. So if you buy sound, dividend-paying stocks when market conditions are weak and sell them after a few years when the market's in one of its more ebullient phases, you, like Womack and Hogan, should be able to become a long-term winning investor.

Farming for Stocks

It's far easier today to farm for stocks. Looking for companies that had fallen in price but still had solid financials to enable them to survive a market downturn would take hours when using the S&P stock guides. Today, an investor can accomplish this task on their computer, using tools like the Altman Z-score and Piotroksi F-Scores to measure a company's financial strength. It often takes less than three minutes for a decent stock screening program to produce a list of investing prospects.
That said, today's barrage of instant information makes it harder to have the Womackian approach to investing. The constant flow of news, rumors, tips, ideas and predictions that pours out of televisions and even our phones induces a desire to take action for many investors, who feel an almost compulsive need to trade just because the market is open. Researchers have found this need to be "in on the action" is a leading cause of the poor performance of individual investors. (See also: The World's Worst Trading Strategy.) Those who go about their regular lives and ignore the noise of the stock market should do much better with their investment portfolios.
Mr. Womack compared investing to raising pigs. When the pork market was cheap, he would buy more pigs than usual, knowing that eventually the market would turn and that he'd be able to sell the cheap pigs at inflated prices. He didn’t know exactly when that would happen but he had a high degree of certainty that it eventually would. He took the same approach to buying stocks and, as he said to Hogan, he found it even more enjoyable, as pigs don’t pay dividends.

The Bottom Line

When approaching the stock market, it might be a good idea to ignore the ticker flashing on your smart phone. Instead step back, take a deep breath and ask yourself “What would Mr. Womack do?”

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