The Most Profound Market Lesson I've Ever Learned (From a Pig Farmer)

As we embark on 2025, I want to share one of the most profound market lessons I have encountered in my decades-long investing career. This story first came to me in 1988 while working at Dean Witter’s Modesto office, and it has shaped my investment philosophy ever since.

The tale comes from a John Train article in Forbes magazine, featuring a letter from Melvin Hogan of Houston, Texas. Hogan’s story begins after World War II, when he built a successful drilling rig business in the booming Texas oil fields. Like many successful businessmen, he began investing his profits in the stock market, trying his hand at various approaches – fundamental analysis, technical analysis, and combinations of both.

Despite the incredibly bullish market of the 1950s, when making money should have been relatively straightforward, Hogan consistently lost money. He fell into the common retail investor trap: excessive trading, buying high, and selling low – precisely the opposite of what successful investing requires.

Then came the turning point. One day in the early 1960s, while sitting frustrated in his Merrill Lynch broker’s office in Houston, Hogan was offered an introduction that would change his investing life forever. His broker knew someone who had never recorded an annual loss in forty years of investing – a period spanning the Roaring Twenties, the Great Depression, World War II, and beyond.

This mysterious investor turned out to be Mr. Womack, a rice farmer and hog raiser from Baytown. Picture the scene: a man in overalls, completely out of place in the formal Merrill Lynch boardroom of 1961, where people still dressed up for baseball games. Yet this unassuming farmer held a portfolio of over fifty long-term positions, with most showing profits exceeding 50%. Many had doubled, tripled, or even quintupled in value.

Womack’s investing strategy was breathtaking in its simplicity. He would spend his days tending to his rice fields and hogs, but in the evenings, he would watch the news and read the papers. When pessimism reached its peak – when experts were predicting economic disaster and market collapse – he’d drive into Houston and consult the Standard & Poor’s Stock Guide.

His criteria were straightforward: he looked for profitable companies trading under $10 per share that paid dividends. These were not household names – they were solid businesses that had fallen out of favor. He’d invest about $25,000 (a substantial sum in those days) across 25-30 stocks. Then he’d return to his farm and go about his life.

Years later, when the media was bubbling with optimism about endless market gains, Womack would return to town and sell his package of stocks, often at multiples of his purchase price.

He compared buying stocks to buying pigs – a comparison that perfectly encapsulates value investing. When pig prices are low, smart farmers buy them, knowing that some farmers will exit the business, reducing supply until prices inevitably rise again. The same principle applies to stocks. But as Womack noted with his characteristic wisdom, “Stocks have one huge advantage – pigs don’t pay dividends.”

Womack never tried to time the exact bottom or top. During market downturns, if his chosen companies remained profitable and maintained their dividends, he’d simply buy more. He was content to buy in the bottom 20% of a stock’s 3-5 year range and sell in the top 20%.

Critics might argue that Womack’s approach defied academic and technical wisdom. But his results spoke for themselves, rivaling those of the era’s most successful investors – including Warren Buffett, who was applying similar principles in Omaha at the same time.

The beauty of Womack’s approach lies in its patience and simplicity. He did not chart prices, chase buy signals, or obsess over daily market movements. Like a farmer tending his livestock, he focused on the fundamentals: buy quality when prices are low, hold patiently while collecting dividends, and sell when enthusiasm peaks.

This approach parallels another great investor of the era, Walter Schloss, who managed to generate remarkable returns using similar principles. Schloss, like Womack, focused on buying good businesses at multi-year lows, ensuring they were profitable and dividend-paying, and letting time and value do the heavy lifting.

As we navigate the markets of 2025, Womack’s wisdom remains as relevant as ever. You will not own the most popular stocks or chase the latest market darlings. Instead, you will build a portfolio of solid, dividend-paying companies purchased at attractive prices. While others obsess over daily market movements, you’ll be content to follow Womack’s farmer’s wisdom: buy quality when nobody wants it, collect your dividends, and sell when enthusiasm peaks.

Remember, the next time you’re tempted to overcomplicate your investment approach, think of Mr. Womack and his pigs. And never forget his timeless observation:

Pigs don’t pay dividends.

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