Why is timber a good investment?

The video below a section of our Money Doesn't Grow On Trees - True or False webinar, details some of the historical factors that make timber a solid investment. The video also gives the inside track on trends that will affect timber prices in the medium term

Why I'm Becoming A Tree Hugger by Chris Hunter

This great article was published in International Living and written by Chris Hunter

On Saturday, December 6, 1941, few Americans had any idea that their country was about to be plunged into war.

The following day, Japan’s “Operation Hawaii”—what became known as the Pearl Harbor attack—killed 2,402 Americans and plunged America into war against Japan and Nazi Germany.

Right now, mainstream investors have a similar view of the world as Americans did before that fateful day in December 1941. Although they know a crisis has struck (back then it was the outbreak of war between Germany and Britain; today it is the 2007-2008 stock market crash) they feel safe in the knowledge that everything is “under control.”

This is why so many investors are choosing to place their savings in U.S. government bonds—traditionally thought to be “safe havens.”

Unfortunately, given the jaw-dropping rise in America’s national debt (which is predicted to exceed the nation’s entire economic output in just two years) these traditionally “safe havens” are about as safe as Pearl Harbor was in 1941.

The fact is we tend to base our view of the future on past experiences. And if you were born during the two decades after the war, the past has been, broadly speaking, good to you.

In the great bull market the 1980s and 1990s, stocks trended upward and handsomely rewarded buy-and-hold investors. And America’s debt was relatively stable.

This is the pattern boomers naturally expect to resume once this crisis is over.

The problem is this resumption to “normality” is a pipe dream. Take a look at this chart from David Rosenberg, chief economist and strategist at Gluskin Sheff. It shows that, for the last 12 years, U.S. stock markets have been extremely dangerous places to put your money—swinging wildly from extreme highs to extreme lows.

My beat is long-term wealth protection. That means finding sustainable wealth-building alternatives to volatile stocks and soon-to-be toxic U.S. government debt.

One solution is timberland, for two reasons.

1. Timberland is a great hedge against inflation. Over the last century timber prices have outrun inflation by an average of 3.3%.

2. Timberland is a great way to diversify your investments. Timberland does not move in step with stocks. So when stock markets dive, timberland remains relatively stable. For example, in 2008 the S&P 500 index of U.S. stocks plunged 38%. But timberland rose by 9.5%.

In other words, timberland is great portfolio insurance. It gives you peace of mind that if we do get another leg down in stocks—another Pearl Harbor-style surprise attack from, say, a default by Greece or a blow-up in China’s real estate market—your investments won’t take a big “hit.”

There are a number of publicly traded companies that allow you to invest in timberland, such as Plum Creek Timber (NYSE:PCL) and Rayonier (NYSE:RYN). But these carry significant risks, particularly their tendency to use large amounts of leverage.

I’m exploring a much more direct way to invest in timberland through one of our strategic partners at Bonner & Partners Family Office, the wealth protection society set up by IL’s founding publisher last year.

It’s a Latin American investment company that manages not only timberland, but also vineyards. And it means our members will have the opportunity to buy timberland for up to one hundred times less than in North America.

Editor's note:Bonner & Partners Family Office is a wealth preservation forum for people who are serious about their money. If you think you could make use of the research and contacts available to Bonner & Partners Family Office members, let us know.

To read the full article in International Living just click here

If you would like to diversify your investment portfolio have a look at Nature Walk our most recent project, which combines the safety of a teak timber investment with the huge potential of development land with seaviews close to Jaco.

Why is timber a great investment?

Timber is extensively promoted as an economic crises "friendly" investment.

But why, who wants to buy timber right now - sales from furniture shops have fallen, construction has fallen and neither of these are likely to rise any time soon.

But of course investing in timber is not about the price of timber today.

Forestry analyst George Nichols, in a recent study has shown that the price of timber itself only accounts for a third of the return an investor makes on it.

The most important aspect of timber investing is the growth of the trees themselves.

Nichols points out that steady long-term biological growth accounts for 61% of the returns an investor makes on timber. Meanwhile, the quality of the land a forest covers accounts for just 6% of the return – it only really matters to the extent that it allows the trees to thrive (unless that land is development land as in our unique investment opportunity Finca Di Pacifico Dos)

In other words, if the forestry investors are not satisfied with the prevailing timber prices at the time of the proposed harvest, they can of course choose to allow their timber to continue to grow. And the longer they grow, the more valuable they become.

Trees do not know about banking crises, and global economic conditions, they just continue to grow on regardless.

Timber also has a great long-term track record between 1910 and 2000, timber prices rose at an annual rate of 3.3% above the rate of inflation. So if you’re prepared to wait, timber will be a very rewarding investment.

The United Nations Food and Agriculture Organisation estimates that world consumption of wood products will rise by 60% over the next 25 years. China alone has increased its appetite for wood 16-fold in the last 12 years.

China’s building boom may be tapering off for now. But building homes, and panelling public offices for an urban population that is forecast to swell from 530 million to 875 million by 2030, will still put pressure on the world’s supply of timber. China’s growth has already contributed to deforestation that has seen one tenth of global forests disappear in the last 25 years.

Burning wood for biofuel will also tax timber resources. Burning wood pellets or chips has proved a useful source of renewable energy, creating little in the way of polluting waste.

So the outlook for timber as an asset class is excellent.

The outlook for teak within that timber asset class is even better. Currently less than 5% of the world's teak production comes from plantation sources. The balance comes from natural jungle sources. World opinion has moved against the logging of our natural jungle reserves creating a shortage of teak.

Combining an existing teak investment with development land in a fantastic location in Costa Rica may just be "the perfect" investment and Finca Di Pacifico Dos, our premier project offers the best of both investments - development land and teak.

Investment in Green Growth Industries Will Help Avoid a Severe Recession

The UN recommended in October 2008 that Governments use the global financial crises to restructure their financial systems to support green growth industries and researchers at Deutsche Bank's Asset Management(DeAM) Division agree.

Deutsche Bank has published a whitepaper arguing that increased spending on green infrastructure can provide enough economic stimulus to avoid a severe recession.

"The current crisis is making the necessity of tackling climate change an opportunity to stimulate growth through investment opportunities," says Mark Fulton, DeAM's global head of climate change investment research. "Severe though it is, the current financial situation can eventually be fixed, and should not be used as an excuse for inaction."

The paper states the climate change sector is well-suited for public equity markets and particularly, private markets such as venture capital, private equity, infrastructure, and timberland.

"Governments have before them a historic opportunity to 'climate proof' their economies as they upgrade infrastructure as a core response to any economic downturn," according to Fulton."Infrastructure stimulus can be tied directly to climate-sensitive sectors such as power grids, water, buildings, and public transport, which present a vast field for the creation of new technologies and jobs."

The whitepaper covers the current status of the climate change sector and how it relates to government infrastructure, in two parts. Part I examines the climate change investment universe. The paper says encouraging investment in renewable energy is a key focus, while energy efficiency technologies are also highly desirable in economies facing recession.

Part II examines how regulation interacts with the underlying dynamics of technology costs and energy prices. It argues how government regulation, including carbon pricing, traditional mandates, subsidies, and incentives, is a major driver of investment opportunities in climate change.

Another reason for companies to invest in green now? The sector continues to grow despite the slowing global economy. According to new figures from bank HSBC, companies in the climate-mitigation business now generate $300 billion in revenues each year.

To download a copy of the whitepaper, "Investing in Climate Change 2009 -- Necessity and Opportunity in Turbulent Times", click here.


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What is the recipe for our investment?

As many people are now discovering an investment in stocks, bonds, securities (and pensions) is not as secure as they may have thought.

The ingredients of our investment recipe are:

1. Take an investment in timber (the basic ingredients).

2. Combine that investment with a spoonfull of development land (the yeast to make the investment rise)

3. Add in Costa Rica (the icing on your investment cake)

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And what have you got

The recipe for the "perfect investment"