[Part 4 of 5]
During the last market rally (from 2001 to 2008) too few investors spent any time studying and discovering agriculture as an asset class. Like robots the masses focused mostly on the stock market and real estate. While both stocks and r/e did terrifically well during that time, few investors ever stopped to think about the other side of economic cycles. What goes up does come down.
A few savvy investors however – those with a solid understanding of an agricultural asset allocation – not only did well when the economy was strong, they did well when the bottom fell out too. Their portfolios were built for stability in both up and down cycles, and this stabilization minimize their losses and compounded their gains.
Unfortunately, like the last bull cycle in stocks and real estate (2002-2008), the very same pattern is here today with over-valued equities and runaway r/e values (especially commercial r/e) waiting for the trigger that will end this cycle (2011-20??). Most investors will get caught again and see another slashing in the value of their nest-eggs. The high’s always go higher and last longer than expected, and the lows oftentimes do the same. So what is it that some investors do that most investor do not?
Looking back over 2008, 2009, 2010, and 2011, when most everything seemed to be losing value consistently, The National Council of Real Estate Fiduciaries Farmland Index (NCREIF farmland) went up 16, 6, 9, and 15 percent respectively. In a nut shell, when all other asset classes were imploding during that period, agriculture continued to deliver solid, single and double-digit gains.
“Right now could be the perfect time to take some of your profits off the table before the next correction and allocate them to agriculture.”
Agriculture is a tremendous inflation hedge, and it is most often positively correlated to inflation. It is a defensive investment that could stabilize a portfolio during uncertain times. While many investors experienced severe losses during 2008-2011 (and will likely experience the same next time around) those that had allocations in agribusiness saw those assets go up when everything else was going down.