What is the internal rate of return on any potential investment?

I can easily see a 10% internal rate of return on improving your productivity per acre. That is very attractive to any business and certainly a better price/earnings ratio than buying another 40 acres.

The 1980s taught us that you can always overpay for capacity. If you have a stock that pays you a $5 dividend annually, that’s not good if the stock cost you $500 (that would only be a 1% ROI). But if you paid $1 for a stock and it paid a 20¢ dividend, that’s a great investment. Run your own numbers. But in most cases the best investment is not buying more ground in this current market.

Scrutinize any potential investment’s price/earningsratio. A wise investment might be a retirement fund or an investment outside of farming. A P/E ratio is a common measure of value. Wells Fargo, for example, has a P/E ratio of about 10. Land’s current average P/E of 30 would need an incredible growth story to make sense. But there typically is limited growth potential there; it’s already been captured when you paid what you did for it in today’s overheated environment.