In 1986, I purchased a 400-acre farm, located 50 miles north of
Omaha, from the FDIC. It cost me $280,000, considerably less than
what a failed bank had lent against the farm a few years earlier.
I knew nothing about operating a farm. But I have a son who loves
farming, and I learned from him both how many bushels of corn and
soybeans the farm would produce and what the operating expenses
would be. From these estimates, I calculated the normalized return
from the farm to then be about 10%. I also thought it was likely
that productivity would improve over time and that crop prices
would move higher as well. Both expectations proved out.
I needed no unusual knowledge or intelligence to conclude that the
investment had no downside and potentially had substantial upside.
There would, of course, be the occasional bad crop, and prices
would sometimes disappoint. But so what? There would be some
unusually good years as well, and I would never be under any
pressure to sell the property. Now, 28 years later, the farm has
tripled its earnings and is worth five times or more what I paid.
I still know nothing about farming and recently made just my
second visit to the farm.