Let Farmers Farm and Financial Advisors Invest

At least you don't live in Zimbabwe. That is something that can get you through the direst economic downturn the world has seen since the 1930s.

Why am I bringing up this failed African state? Because it provides us with numerous lessons about what NOT to do if you want to create wealth.

Now... I know that most Americans do not follow African politics, as it does not directly affect the lives of the vast majority of Americans. This said, a little background.

Robert Mugabe, the current president of Zimbabwe, has been in power in the country since the early 1980s. In 2000, he embarked on a controversial land reform program. Veterans from the liberation movement that helped put Mugabe into power began to expropriate land from farmers, mainly Zimbabwean citizens of European decent. The result of this expropriation? Zimbabwe, once the bread basket of southern Africa, now has a third of its citizens reliant on the World Food Program to keep from starving.

The reason this occurred is simple. The veterans who took over the farms were not farmers. Okay, anybody can put seeds into the ground and harvest plants or animals for food, but the farmers who lost their land in Zimbabwe were knowledgeable about how to get the most out of their land. Many of these farmers were also trained in the UK or elsewhere, and were educated in modern farming techniques.

One can argue from a point of fairness that these few thousand farmers of European decent, who controlled nearly half of the arable land in the country, had too much and should give some of the land back to the native population. That was essentially the Marxist philosophy held by the ruling party. The result of this philosophy of fairness rapidly brought about the collapse of a once prosperous nation state, making life hard for all who lived there, and most difficult for the poorest of the poor in the country.

In a similar vein, anyone can invest money, just like anyone can farm. All you need these days is a bit of cash and an Internet connection. Maybe you can see where this is going...

As it takes someone with a wide knowledge set and experience to eek the most out of the land, so too does it take someone with knowledge to make the most out of your investments, whether these include a farm in Zimbabwe, a small mom and pop business, an Internet start up, or shares on the New York stock exchange. Think about it. Why is it that we have financial advisers? Because they are the ones who have intimate knowledge about the markets, not to mention experience. And why do companies spend vast amounts on market research? Because by spending a small fraction on research, companies can save themselves from making costly mistakes. (Does anyone remember New Coke?)

Essentially, in business or investing, it is the person with the right kind of knowledge who usually comes out ahead. Investing your money without doing thorough research is essentially gambling, and if you choose to do so, just remember that the house always wins in the end.

(Originally published at The Creating Wealth Blog on1/3/09)