How Growing Pecans Made Me a Better Investor

Finding a special bit of Georgia clay... Waiting will pay off... How growing pecans made me a better investor... Preparing for adversity... The two modes of thinking... Getting great ideas on the tractor... Unveiling 10X Investor...


Two decades ago, I (Mike Barrett) made a serendipitous discovery on my central Florida homestead...

A lone pecan tree...

Now, 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 farther north. There's too much sand and not enough "Georgia red clay."

But the spot where I discovered this pecan tree is unusual... There is quite a bit of red clay all around it. It's so much red clay that, after doing some additional research, I planted 60 more pecan trees.

Those trees started as sticks in the ground. Today, some 20 years later, many of them are between 20 and 30 feet tall... and provide a robust supply of pecans. Take a look...

If all goes well during the 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. 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...

It takes a newly planted pecan tree 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, once it's established and properly cared for, a pecan tree can produce strong annual crops for decades. In effect, a pecan grower doesn't cash in on early crops in the hope of annuity-like crops long into the future.

Twenty years later, I can wholeheartedly say the trade-off has been worthwhile.

When I began growing the trees, I thought that my grove would never reach the quality of production possible in more fertile areas, like southern Georgia. But year after year, my harvests continue to impress me.

Nowadays, the 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 long-term investor instincts...

I've come to appreciate 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, including 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"... He writes about it in his shareholder essays. Here's how he describes it...

Patience [is] 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.

To help our Extreme Value subscribers accomplish these two crucial objectives, my colleague Dan Ferris and I have created a special subsection of our model portfolio that we refer to as "crown jewels." (I wrote about this concept in the Digest in July 2020.) When trading up to our maximum buy prices, these elite businesses represent attractive long-term, sleep-well-at-night investments.

Some of these crown jewels are large, well-known companies... But many of them are smaller firms you've probably never heard of.

Last month, we added our 18th and 19th crown jewels... And if the stock market closed tomorrow and didn't reopen for five years, we're confident each of these stocks would be far more valuable then.

Currently, eight of our 19 crown jewels are within buy range.

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 doing this, I now know one thing for sure... Each year, Mother Nature will throw me a twist that I haven't experienced before.

Knowing and accepting this idea ahead of time makes it easier to deal with whatever that twist turns out to be. That's because I've already prepared myself mentally for adversity, considered some of the likely scenarios, and developed contingency plans.

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. Here's what I wrote then...

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 nerve 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 [time horizon] 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 in advance when adversity will appear on our path ‒ as farmers or investors. But by thinking through how we'll respond before the adversity arrives, 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... To do that requires unlocking 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 onto a book that I had purchased for a very 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. As it turned out, she didn't need the book at all.

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...

[To] 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 provided 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... And, in turn, helped me become a better investor.

In fact, I often get my best ideas when I'm not sitting at my desk...

One of those ideas came in 2018... I was frustrated that many obscure stocks turn into big winners before I even know they exist. So I decided to do something about it...

I created a system that gets me into the right stocks early enough to experience the tremendous gains I was previously missing out on. It was a complex, multi-faceted project that consumed lots of diffused thinking ‒ much of it while I was out riding the tractor.

But along the way, I developed a method that helped me find several "10x" opportunities – for myself and for our Extreme Value subscribers.

Now, Dan and I are going public with this process...

In short, we've created a new product called 10x Investor.

With this publication, we'll aim to do one thing...

Recommend stocks capable of making you 10 times your money within three to five years.

These are the kind of returns that would turn $2,500 into $25,000 or $10,000 into $100,000. In many ways, they're the life-changing gains that all of us want to achieve.

These kinds of opportunities are rare, though... And finding them among a vast universe of 11,000 stocks has its challenges.

That's why Dan and I have spent years developing a proprietary five-step system to separate the wheat from the chaff and highlight only the most exceptional "10x" opportunities.

To learn more, click here now.

Everything You Missed Over the Long Holiday Weekend

Matt McCall returns with the latest episode of his video podcast Making Money With Matt McCall...

In this week's episode, Matt breaks down all the conflicting headlines around the newest variant of COVID-19 after investors, on the day after Thanksgiving, sold first and asked questions later. He details what it all means for the market going forward. And he also talks about interest rates, bitcoin, and more...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 11/30/21): Apple (AAPL).

The feedback continues to pour in for our colleague Kim Iskyan's Monday Digest about the Omicron variant of COVID-19. Tell us what's on your mind at feedback@stansberryresearch.com.

"I, for one, thought Kim's Digest on the importance of projecting 'soft' power in order to reestablish American world leadership was well reasoned, and that providing the Third World with vaccinations would be an excellent way to do that, accomplishing multiple goals at once.

"I don't typically respond to the daily Digest, but felt compelled to do so as a counter to the multiple 'Nattering nabobs of negativism' whose comments were published Tuesday. In contrast, I say to Kim, 'Keep up the good work and don't allow yourself to be cowed by the loudest voices!'" – Stansberry Alliance member Ted G.

"With regard to Kim's 'Omicron' issue of the Digest: I couldn't agree more. It's high time we recognized our self-interest in helping the world through this pandemic. The parallel with the Marshall Plan was interesting, and entirely appropriate. We need to get this done!

"We also need to avoid penalizing countries (e.g., South Africa) for transparency in reporting new variants.

"I know the administration doesn't want to be accused of not doing 'everything possible' to keep the variant out of the U.S., but that's a fool's errand! The variant is most likely already here.

"And the penalizing of countries for transparency and good surveillance of the virus is totally wrong, ineffective, and counterproductive. Require testing and quarantines, but we should not ban travel." – Paid-up subscriber Ken L.

"Hey team, in reference to Kim Iskyan's latest letter about vaccinating the world, [my response] is 'Keep drinking the Kool Aid, Kim!' Regards." – Paid-up subscriber Duncan R.

"[Kim,] I realized that a lot of what you read is from those who support immunization fully. What concerns me is that the side effects of these shots are not being truthfully reported...

"Why are they pushing a shot for those under 18 who are healthy when they have a 99.997% chance of getting over COVID-19? That same child is more likely to die in a car crash than from COVID-19. So why subject them to the long-term side effects that are not being published?

"Yes, if you are over 65 and have several of the risk factors, you should consider getting vaccinated with the guidance of your doctor. But for those of us who had COVID-19 and recovered, there is no reason for us to get the jab. I had COVID-19 over a year ago, and when I went to my family doctor in November, the test showed I still have a healthy amount of antibodies to covid circulating in my system.

"So why should I get something that has to be boosted every three to six months?" – Stansberry Alliance member Phill N.

Regards,

Mike Barrett
Orlando, Florida
December 1, 2021