Posted by: davidgarnerconsulting | October 6, 2009

Forestry Investment – Outperforming Stocks for 20 Years

Today, we’ll start with a little game… A little investment trivia…

Simply match each asset with its return on $10k invested over the last 20 years (through 2006):

A.
Stocks
 
1.
$15,000
B.
Bonds
 
2.
$16,000
C.
Timberland
 
3.
$31,000
D.
Gold
 
4.
$83,000
E.
Cash
 
5.
$159,000

Think about it…

Two of these should be easy… cash earning interest and gold are at the bottom of the list ($15,000 and $16,000 returns over 20 years, respectively).

Now let’s think about the other three…

It should be an easy guess to say that stocks have beaten bonds. But where does timber fit in?

Is timber a lowly commodity and a boring business? Let’s see, if timber returned 7.35% a year, then the total return over 20 years would have been the $31,000 number above. Does that sound about right for trees?

Actually, timber is at the top of the list.

According to a recent S&P report, a $10,000 investment in timberland returned $159,000 over the last 20 years. That’s nearly twice the return of the stock market.

I’ve been writing about timberland to my readers for years. We bought shares of timber REIT Plum Creek Timber in my newsletter True Wealth, for example, at around $35 a share. Today, it’s closer to $46. And we’ve earned about $5 in dividends over that time, for an excellent total return.

In my letter Sjuggerud Confidential, we bought shares of timberland company Pope Resources for $31 in January 2005. Shares are around $43 now. Once again, we collected handsome dividends along the way, for a nice, safe, big return.

We’ve only sold one timberland recommendation in True Wealth – and that was Rayonier. Heck, you’d have sold it too! We just about doubled our money in no time on that one – in trees! (One of our Stansberry Research Advisory Board members is a timberland valuation expert, and he told our readers at our conference in Mexico last week that he’ll be a buyer of Rayonier shares again soon.)

During my timberland research, I’ve logged tens of thousands of miles on airplanes with an expert. We’ve looked at timber from the Pacific Northwest to the southeastern U.S. And we’ve even flown all over Argentina sizing up the timberland opportunities.

The chart on this page tells the story… Not only has timberland itself been a great holding over the last 20 years, the three timberland stocks I’ve mentioned have soared as well.

S&P just launched a new 25-stock Timber and Forestry Index. Backtested to 2003, the returns have been an astonishing 17.2% a year. This includes some tough times, as demand for lumber and building products has shrunk in recent years. What’s so great about timberland as an investment?

The list is ridiculously long…

High returns. We’ve already covered that.
It’s a sustainable asset that will keep giving returns for infinity.
No correlation to stocks.
Less volatility than the stock market.
“Stumpage” (all the wood from the tree) prices have beaten inflation by about 3% a year for nearly a century.
Unlike businesses, trees easily compound their growth at about 6%-8% per year.
Supply and demand… Fewer trees and more people could lead to higher prices.
Valuable real estate. Eventually, some timberland acres turn into expensive neighborhoods.
New demand for timberland. Big institutional investors are getting into timberland as an asset class for the first time in history.

I could go on. The return numbers speak for themselves – higher returns than stocks with lower volatility. And they have no correlation to stocks. It’s just about the investment Holy Grail.

 

I’ve found several more timberland investments that I plan to research (and hopefully recommend) in the coming year.

If you haven’t already taken a position in timber, it’s not too late. I believe the next years will give you returns similar to the past 20.

Good investing,

Steve

Source: www.Dailywealth.com

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