LESSON 17Approach Risk Like a Farmer

You will not get this kind of advice in the Wall Street Journal or on CNBC. Honestly, it’s a new take on risk for me, and I have thought about risk as much as I’ve thought about anything. I owe this lesson to Will Ade, the oil wildcatter you met in Lesson 3, who grew up on a farm in Indiana. “Nobody knows risk better than a farmer,” says Will. “No hedge fund manager, no day trader, nobody: Crop prices go up or go down; it rains, or it doesn’t rain; disease and pestilence in the crops. Every day you deal with risk growing up on the farm.”1

Will’s cool attitude toward risk has helped him see investment opportunities when just about everyone else is running for the hills. His first major score came in the early 1980s, when he was living in Brunei. His father called with some very bad news for a farm family. “The banks aren’t lending me money anymore,” his father told him. Will continued, “He gave me a firsthand description of the Great Farm Recession of the 1980s.”

The roots of the crisis went back to the early 1970s, when the prices of agricultural commodities spiked after the U.S. negotiated a multiyear contract with the Soviet Union for wheat and feed grains. Between 1972 and 1974, the price of corn tripled; wheat prices doubled. Predictably, farmers borrowed money to ramp up production. As rural America thrived in 1973 and 1974, so did inflation, thanks to a rapid rise in oil prices due to the infamous Arab oil embargo in October 1973. ...

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