Is Harvesting a New Investment Strategy?

When a farmer grows a crop of corn, soybeans, or wheat, it is harvested each fall. The farmer keeps the land but sells what is grown on it. It is the cash flow from his business.

If you invest in stocks or real estate, how can you use this concept but still be a value-and-hold investor?

Let’s assume you buy a stock that, according to your or the expert's calculations, has a value of $10 per share, but it is selling for just $5. You did your homework and determined that, in your mind, $10 is the accurate price. You buy 10,000 shares for your investment retirement account.

Each month the company pays you an annual dividend of 7% on your $5 purchase price. For some reason, the entire stock market goes up after six months, and your stock is now worth $10 a share. Nothing has changed for this company. It’s still something you want to own for at least 10-20 years.

But because the stock is nearing what you say is the actual value, you decide to sell 3,000 shares, creating a profit of $15,000. You still own 7,000 shares for the long term. You continue holding the stock until some 2 years later the market crashes and your stock goes with it, dropping back down to $4 a share. Nothing has changed in your company it just got dragged down by the market. You move back in, buying 3,000 shares at $4 each. This is what I call harvesting.

You have harvested the profit from the rapid rise in the stock and continued to hold the rest. As the market crashed, you bought back in, as a farmer would plant corn to harvest later. Nothing has changed with the company you invested in. It’s still a solid buy for you. You still have 10,000 shares for the long-term hold, but an extra $18,000 in cash from the harvesting strategy. You can purchase more shares in the existing company at $4 or invest in another better opportunity if you have one. If not, you have the money in the account to sit and wait. 

Harvesting doesn’t mean you are predicting market fluctuations. You are clear on the value of a company you own and harvesting profits when it makes sense or buying more of the company when the price warrants it.

I realized this harvesting strategy worked well with real estate investments some years ago. In a future podcast, I discuss this in greater detail. Part of this strategy came from advice I received from my father-in-law when I asked him what to do when one of our first buildings was valued significantly above what I felt the value was. I had better use for the funds. I never wanted to sell any buildings we purchased. His advice to me was simple.

“Nothing wrong with taking a profit”. I listened, sold the property, harvested the profit, and invested in better opportunities on the East Coast. George, a very successful farmer, taught me to take that profit but keep investing. Great advice has helped me today and spawned the Harvesting Investment Strategy.

The exciting part of this strategy is that it lets you harvest profits and cash while holding the stocks or real estate for the long term. I have since modified the strategy to be able to sell part of a real estate asset but keep the remainder for a long-term hold. Taxes are always owing on any sale, so check with your accountant to see if this strategy is right for you.