This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Your Gardener Should Be Your Financial Adviser

By Jeffrey Baumert

NEW YORK (AdviceIQ) -- Gardeners have a lot to teach investors about how to plan with an eye toward long-term trends and to adjust that in light of unfolding events.

Just look at how many individual investors fled the stock market in the wake of the 2008 slump. They bolted even when the market began a powerful rally off its March 2009 low point -- a rebound that brought stocks to new heights and erased the losses from the downturn. While these investors are returning now, many missed that ride up.

And that's despite longstanding research that shows stocks, over time, trend higher. As Wharton professor Jeremy Siegel shows, equities are the asset class that historically delivers the best growth, notwithstanding the occasionally punishing bear market. His classic book, Stocks for the Long Run, demonstrates how stocks averaged a 7% return yearly after inflation over the past two centuries.

Economic and market forecasting involves high technology, system modeling and academic research, as well as committed and well-educated economists and investment strategists. As good gardeners know, experts put out useful forecasts, but it is important to remember that specificity is often not as accurate as we might hope it to be.

Investors are wise to follow the lead of the master gardeners and prioritize long-term trends while allowing for very minor adjustments with near term information. This approach helps avoid damaging mistakes that result in having to start the garden over from scratch and ultimately delaying the harvest.

The field of weather forecasting also involves high technology, system modeling and academic research, as well as committed and well-educated meteorologists. Every day we can hear or read what the weather is supposed to be tomorrow or even 10 days from now. Generally, the more near term the forecast, the more reliable it is.

But even that is not always accurate. It is not without some legitimacy that weather forecasters are occasionally referred to as "weather guessers." Still, there are times we rely so much on forecasts that when the actual weather deviates the result is devastating. In the Atlanta area, where I live, a winter storm shut down the metro area in February, though the forecast was for the storm to pass to the south of the city.

With gardeners, the question of when to plant is based on long-term trends, but in the short term it hinges on forecasts. For a number of weeks in April, we had more than 40 tomato plants on a temporary table in front of large windows in our living room. The plan, my wife the master gardener told me, was to allow the seedlings to get a good start while protecting them from potential cold0-weather damage.

Apparently the local master gardener's official no-earlier-than planting date is April 15 for our area and is considered a safe bet. Being curious, I of course went in search of the data which led me to The Old Farmer's Almanac website, which says there is a 50% chance of no freezing temperatures as early as March 24.

I understand not wanting to plant at the risk of a coin toss, which is why their planning date is so much later. In fact, by deferring one week, they reduce their chances of loss to less than 3% with freezing temperatures in only 15 out of 788 samples from April 1 through April 14 back to 1960. Clearly, they could plant earlier than April 15 with very little chance of loss.

Of course, planting earlier might mean fresh juicy tomatoes earlier in the year, but it also increases the chance of having to start over after an unanticipated freeze, which would ultimately delay the harvest.

Forecasts are tricky, and can be misleading, especially in investing. A 2012 McKinsey study found that companies' failure to meet analysts' consensus earnings estimates hardly ever translates to major long-term problems for the business. More than 40% of companies come in below estimates. One reason is that analysts are endemically over-optimistic.

Knowing this, you shouldn't hurry to sell a stock once you hear of its earnings shortfall. Yet that is what a lot of people do. McKinsey points to investors' over-reaction when auction site eBay missed the fourth-quarter 2004 consensus by a penny. The stock promptly fell 22%. And while eBay had a rough patch like other retailers during the Great Recession, the market's view of it now is as an online powerhouse, what with its ownership of payment service PayPal, Web ticket trading service StubHub and other units.

On a broader level, forecasts of the entire economy often are off the mark, as Len Berman, a Syracuse University professor, points out. The Congressional Budget Office, for instance, originally forecast 2.3% economic growth in 2008 and 2009. The economy ended up shrinking.

It turns out that this year on planting day, we had temperatures below freezing. No worries -- we didn't lose the tomatoes. My wife and her wise gardening friends were smart enough to watch the near-term forecasts, deviate a bit from their original plan and delay the planting date a few days.

-- By Jeffrey Baumert, a partner at Advisor Financial Services in Woodstock, Ga.

AdviceIQ is a network of financial advisers that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisers have no regulatory infractions.

Follow AdviceIQ on Twitter at @adviceiq.

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs