Let’s begin with a story from Morgan Housel’s book, “The Psychology of Money” –
Ronald James Read was an American philanthropist, investor, who died at age 92 leaving behind a fortune of $8 million For the major part of his life, he worked as a janitor and gas station attendant in his city. So how did he achieve this fortune despite being in such a job?
Did he run after returns or did he patiently wait for his investments to grow?
The essential principle that he followed is interesting and is worth studying. It is all about the mindset that an investor has towards wealth creation. Simply put, there are 2 kinds of mindsets one can adopt – The hunter or Farmer mindset.
What’s a Farmer’s mindset in investing? A farmer does a study of the soil, weather, and demand-supply and decides what to grow. He is willing to give the crop its due cycle time to grow before harvesting, while continuously monitoring its progress. Similarly, an Investor with a farmer mindset will study the potential options for investment, the risk-return, and invest accordingly keeping a long-term perspective of over 7+ years for investments to compound. This may sound boring, but it generates life-long rewards.
In contrast, a Hunter mindset in investing is always looking for new hunting grounds/newer pastures and new varieties of products, constantly in the hope of a bonanza. This may mean continuously churning the investment portfolio, bearing higher costs, and the risk of making wrong decisions. In this mindset, the excitement of constant change is the mantra, giving a feeling of being dynamic and in vouge with trends.
To come back to the story of Ronal James Read, over a period of 30+ years, he saved and invested whatever little he could with the right selection in blue-chip companies and patiently allowed his investments to grow. This was a combination of Farmer and Hunter’s mindset in action. He left behind a donation of $6M to the local hospital and school as a lasting legacy and giving back to the community.
- A combination of Save and quality-based returns works best for an investor.
- Patience, discipline, and perseverance are essential for sustainable success.