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Stock Investing and Trading: Tending the Garden

Andrew is a self-educated business owner and entrepreneur with plenty of free advice (which is worth exactly what you pay for it!).

Metaphors and Gardens

I'm a huge fan of metaphors any time I have a subject in front of me that I want to understand. After all, the subject I'm struggling to understand is foreign to me, but metaphors connect the strange with the comfortable. Besides, I'm in very good company: Warren Buffett, the consummate investor-preacher frequently will use analogies and metaphors in order to help his readers understand the way he thinks about investing. Over the course of my personal desire to understand how investing work, I've used a few very intuitive tricks to help guide me. These are heuristics that largely automate my own stock buying and selling process, or at least give me some rough principles to follow, including thinking of the stock market like it's the ocean. Here, I want to explore one of the most intuitive of all these rules: your portfolio is analogous to a garden.

stock-investing-and-trading-tending-the-garden

The Stage: the Great Depression

During the 1930s, America (and most of the world) lived through an economic recession so all-consuming that it came to be called the Great Depression. After a magnificently epic market bubble had built up during the 20s, a terrifying crash brought the fortunes of many investors down to zero, since many of them had borrowed (bought on margin) in order to own what seemed like a sure thing: lots of stocks. Unlike many of the past market bubbles bursting, this time was truly unique in scale, since it wasn't just the ultra-rich "investing class" who owned the stocks. Because of the availability of money to borrow during the times leading up to the crash, many more "regular" people were buying stocks for the first time. Even worse, they were able to use the stocks themselves as collateral so that they could buy even more stocks. This worked out just fine as long as the stocks were going up in price, as occurred during most of the Roaring 20s, but when things went down, brokers confiscated the stocks of anyone who couldn't make the margin payment, and many people lost every stock they owned.

In a horrible case of rotten cosmic timing, the Dust Bowl arose nearly simultaneously from a variety of factors, including the over-reliance on one type of cash crop depleting nutrients in the soil and a massive drought. This blight on farming made a lot of farmers go out of business, and these two horsemen of the apparent impending Apocalypse—the stock market crash and farmers losing their businesses (and land, in many cases) worked hand in hand to create some of the toughest economic conditions in American history.

The Literal Gardens

My grandfather, who had become an orphan during the Depression, came out of the toughest times anyone alive had seen with a burning desire common among many who had lived through the same experience: self-reliance and sustainability. This generation understood the life-sustaining importance of producing your own food, and they knew from experience that they might not always have easy access to food, or an outside source of income so that they could buy food in the store, and (maybe most importantly) that hard times can come seemingly out of nowhere. As a result, back yard gardens like the one my grandfather insisted on cultivating were very common in the postwar period, and thrift was ingrained in the so-called Greatest Generation in the same way that social media and openness on the Internet is ingrained in today's generation. Owning a garden was something you did in order to continue to survive, and tending to the garden because a skill set you would seek to master.

The Metaphorical Gardens

When I buy a stock, I'm planting a seed in my portfolio: the garden of stocks that I own. This is not some decorative garden, though—like the garden my grandfather insisted on owning when he built his home immediately following the Great Depression, this garden produces food for you to eat, not flowers or decorative plants to keep around the house. During the 1930s, many Americans learned the life-sustaining importance of producing your own food; during the pandemic, many Americans have begun investing in stocks. Hopefully the newer investors are following some best practices for investing, including portfolio allocation (how much of each type of stock to have in your garden).

Vegetables grow in your garden, but they don't all grow at the same rate. Some vegetables are gong to ripen long before others, and you might only have a little bit of time before the ripened vegetable begins to spoil. When I've planted a stock in my garden, I usually have some rough idea of how long I think the seed will take to sprout. Once the stock sprouts, just like with a real-life garden, I have to follow the young vegetable's progress and pick it at the right time, or else it will spoil. For the style of investing I use, a stock may never spoil, or it may take a much longer time than others take to spoil, but a stock can also be a jumping fish riding a wave (not to mix metaphors too much, but bear with me). In this case, it's going to ripen much, much faster, and will need to be harvested before it spoils.

When I buy a stock, I try to buy it when it's really cheap, and when a price climbs back up into the range of fair value, I start thinking about selling the stock. If a stock price gets higher than what I think is fair, it needs to be sold right then and there. If you're too greedy here, you wait too long, and the vegetable spoils: the stock price crashes back down to earth. Of course, if you don't wait long enough and try to pick the vegetable when it's tiny, you're leaving a lot of food still growing in the ground.

Discipline

Setting firm rules and sticking with them is a key to tending my portfolio-garden. If a stock has begun to sprout, but isn't fully ripe, I need to have the discipline to leave it alone and not pick it too early. If a stock is ripe, it needs to be picked (sold) right then and there, instead of waiting too long and giving the veggie a chance to rot (the price to fall back to earth). You'll have to determine your own rule set, but having a disciplined plan in place is incredibly important, and will likely have more bearing on your success or failure than any other individual factor (maybe even which stocks you pick!).

Comments

Andrew Smith (author) from Richmond, VA on February 15, 2021:

Thanks, Chuck! I'm enjoying playing the game.

Chuck Nugent from Tucson, Arizona on February 14, 2021:

Great Hub your use of a garden as a metaphor for investing is very apt as both activities involve risk of loss but the loss can be mitigated to some extend with planning and patience. Good work.

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