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Published: September 30, 2009
In the past few years, there's been an explosion
of investor interest in "hedges."
Investors want to own foreign real estate for a hedge against a
big depression in the United States. They want to own gold for a
hedge against a dollar crisis. They want to own oil for a hedge
against inflation.
But consider this "hedge factor"...
Between 1941 and 2002, average farmland values outpaced the
growth of inflation by 2%.
In fact, some call farmland as good as gold with yield --
because you clock in steady income from rents while you wait for
the value to grow. I can think of no better asset to own during
any kind of financial crisis.
In some ways, farmland is even better than gold or silver. At
least farmland is an intrinsically useful thing. It provides a
tangible yield in the form of good things from the earth. We all
have to eat. As consumers trim their sails, they'll give up a
lot before they give up their calorie intake.
Governments, particularly in times of crisis -- like now -- have
a tendency to flood the system with money in an attempt to
"goose" the economy. Mostly, such efforts have succeeded in
destroying the value of the currency in question.
Anyway, if you believe that we
will continue to feel the bane of
inflation, then farmland's
performance in the 1970s will give
you some comfort... While you lost
half of your money in the S&P 500,
your farmland kept its value nicely.
Again, I think that's rooted in the
fact that farmland is intrinsically
useful. It produces useful and
needed things.
Now imagine what farmland might do
in today's climate, in which you
have not only the likely prospect of
inflation, but also a tightening
supply of farmland and rising demand
for crops. You have biofuels eating
up more of our grain supply. I
imagine you'll do quite a bit better
than in the 1970s.
Farmland treated British investors
great just last year. As British
housing prices collapsed in 2008,
British farmland value rose by +21%.
During the past five years, Brit
farmland rose a total +135%. Forget
commercial property. That's not a
bad ROI in my book.
And there's one more way to look at
it: This hedge can outperform gold.
In Britain, the farmer outpaced the
gold owner. Expanding land values
rode up +115% since 1983, versus
gold at +81%. You can be sure
institutional investors are already
placing their long-term bets. Almost
half the farmland bought there last
year was snapped up by banks and
funds.
The obvious investment conclusion:
If you're worried about the dollar,
the economy, or any other problem,
buy farmland today. This is hard to
do directly through the stock
market... so I encourage you to
consider a private deal. You can
play agriculture through companies
that manufacture irrigation
equipment, produce fertilizer, or
operate grain-handling facilities.
Check these investments out soon. I
think we're in for broad
farmland/agriculture rally that
should be good for hundreds of
percent returns. As you can see from
farmland's past results, it's a
great hedge in all kinds of
environments. -- Chris Mayer
Editor
Capital & Crisis Editor's Note: This
article originally appeared in
Daily Wealth. |
