Timber May Be the Best Investment

By on June 21, 2011

Robert Smith, writing for Oregon Business, highlights the attributes of timber as an investment class.   Smith points out that worldwide demand, especially from Asian countries, is contributing to pricing power for wood products derived from timber.  Smith states, “Worldwide demand for softwood lumber rose 18% in 2010, continuing a trend that started in early 2009. In the first quarter of 2011 global wood consumption is up 20% compared to the same period last year.”

Smith also quotes Jeremy Grantham who claims timber is the best long-term investment available.

The Stock Market Advantage portfolio has two wood products companies with large timber holdings structured as REITs (Rayonier, RYN; and Weyerhaeuser, WY).  There are several more available in the publicly traded markets including:

  • Plum Creek Timber (PCL)
  • Potlatch (PCH)
  • Deltic Timber (DEL)
  • Pope Resources L.P. (POPE)

There are also a couple of ETFs focusing on timber and forestry:

  • Guggenheim Timber (CUT)
  • iShares S&P Global Timber & Forestry Index Fund (WOOD)

The chart below shows the Guggenheim Timber ETF has outperformed the S&P 500 over the past 2 years.

Timber has various attributes that other commodities don’t possess.  Timber companies can harvest their “crop” whenever they choose.  Preferably when prices are high if they are well capitalized.  Timber will not die on the vine like agricultural commodities.  Trees are constantly growing, therefore the value of timber holdings become more valuable over time.

Caveat: During bear markets timber companies have plummeted to almost unbelievable depths.  The Guggenheim Timber ETF plunged from $20.90 to $7.26 (a drop of 65%) over the one year period ending March 9, 2009 (the bear market low).  The S&P 500 dropped a “mere” 47% over the same timeframe.  It pays to be patient and wait for those times when investors are panicking and dumping their shares for whatever they can get when investing in timber.

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