The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 60

And It Never Was, Either

So, you accept that farm real estate was a disaster in recent years, but what about over the long term? Farm land hasn't been an above-average investment in any long-term time frame except the 1965–1980 superinflationary era. If you don't believe it, take a look at this chart. It shows the history of farm real estate prices from 1912 through 1975, both in nominal dollar terms and adjusted for inflation.

The index increased from about 82 in 1965 to about 220 in 1975. A quick pass with your trusty financial calculator indicates that to be an average annual increase of about 10.4 percent, which doesn't seem too bad. Of course, you actually wouldn't have done quite so well. First, when you sold your farm, you would have suffered a real estate commission—which is about 10 percent on raw land. So the 220 would have dropped to about 198 net to you, reducing your annual return to 9.2 percent. Then, throughout that time period, property taxes would have averaged about 1 percent per year of the property's asset value—which would drop your average annual return to about 8 percent. So the best period in history for farm real estate was worse as an investment than the average return on stocks over the last 60 years (see Chart 12).

The bigger picture looks worse. If you bought in 1912 at 25 and sold in 1975 at 220, and netted 198, your 63-year average annual return would have been only 3.3 percent—before property taxes. That's about equal to inflation or the ...