Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
timber
Old 03-19-2005, 11:00 PM   #1
Dryer sheet wannabe
 
Join Date: Feb 2005
Posts: 17
timber

After reading many very good posts here, I've
noticed several people mentioned timber as one of
the asset classes to hold on a diversivied portfolio.

I have no experience in timber investments so I'm
curious...and have lots of questions:

- why should I hold timber, ie. how does timber help
me diversify my exposure and returns? What is the
correlation of timber to other investment classes?

- how do I invest in timber? Specific timber stocks?
Mutual funds?

- what kind of returns can I expect from timber
investments?

- what has your specific experience been with timber
investments?

Thanks,

Joe
__________________

__________________
zakenjanei is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: timber
Old 03-20-2005, 01:57 AM   #2
Recycles dryer sheets
 
Join Date: Sep 2004
Posts: 108
Re: timber

Quote:
After reading many very good posts here, I've
noticed several people mentioned timber as one of
the asset classes to hold on a diversivied portfolio.

I have no experience in timber investments so I'm
curious...and have lots of questions:

- why should I hold timber, ie. how does timber help
me diversify my exposure and returns? What is the
correlation of timber to other investment classes?

- how do I invest in timber? Specific timber stocks?
Mutual funds?

- what kind of returns can I expect from timber
investments?

- what has your specific experience been with timber
investments?

Joe

Hi Joe,

I would recommend reading the last 2-3 years of annual reports from Plum Creek http://www.plumcreek.com Investors Tab (short). They give a good overview as to the benefits of timber and how they manage their 7.8m acres to get the highest return. Also http://www.Rayonier.com and http://www.Timberwest.com to get the other major US player and the Canadian player.

Timber provides a way of owning a renewable resource that replaces what it produces (unlike a gold mine). Biological growth averages 7%, timber increases in value as it growth taller and wider. Timber companies harvest 5-7% a year, payout a good portion of the cash flow this generates and reinvest some. The capital expenditure costs unlike real estate are very low and margins are high on their operations. It is also an environmentally friendly operation with certificated forestry, which appeals to some investors.

The demand and uses of timber as not correlated highly with the movement of stocks. There is some correlation to real estate but it is more on the development side and even then it is not substantial. One can receive the 4-5% yield and happily live off that and never need to sell off any shares should one wish. A very simple investment in that sense. There are few things that can go wrong. Plum Creek, for instance, owns forests in 21 states across the U.S., this reduces the risks from fire which are minor today. Less than 0.50% is loss to such risks.

Returns have varied over the years. The early 90s was a boom time, currently timber prices are lower and returns have fallen. Returns comprise the cash flow from harvesting the 7% biological growth each year which is paid out as a dividend (Plum Creek & Rayonier are both US REITs with mandated payout levels) and the capital appreciation from their standing timber & land values. Timber has appreciated up to 4% above inflation. US timberland from 1970-present has higher returns than the S&P 500 Index. Over 10% annualised. 10-Year returns to 2002 were 9.9%. All the public companies above have offered good returns circa 8-12%. Respected Jeremy Grantham of GMO thinks 7% real is possible for timberland. Companies like Plum Creek are also selling off timberland that is choice vacation or second home property, releasing latent value there and recycling that into cheaper core timberland elsewhere. This adds incrementally to their returns from the considerable assets they own.

For my own purposes I plan for the steady harvest of 4-5% yield and inflation uplift on the value of the timberland itself. Whilst in recent years timber has not appreciated as well as it has in the past, there are enough other opportunities for excess returns and smart management to benefit. Plum Creek often delay harvesting when prices in local markets are low, waiting out better pricing. This boosts returns over time. They're very smart managers of their assets. It is important to understand that it is the steady returns and consistency that investors like about timberland investment. It is not a dot com flashy investment and will not provide 20% annualised returns over time. It does however provide a way of isolating yourself from the day-to-day concerns on market price movements because income is steady, valuations rise with inflation over reasonable periods of time and the accounting is simple enough that you do not get an Enron-type situation.

It is worth noting that as REITs PCL and RYN are included in the MS REIT Index however the allocation is small. Timber is a separate asset class, the companies just use the REIT format because of the large asset nature of their businesses, the high cash flow and the tax beneficial nature of the structure. Timber is a very different asset from the ownership of commercial & residential real estate and so one should consider it separate and consider allocations to timber on its merits. I include timber in my natural resources asset class which includes energy and metals & mining. Real estate securities are a different asset class because their return drives are very different.

PCL, RYN and TimberWest lookup on Yahoo for ticker are the main investment vehicles.

Article from respected author Andrew Tobias:
http://www.andrewtobias.com/newcolumns/030814.html

Good one pager on Timber:
http://www.timbervest.net/investing_in_tim.htm

Hancock Timber manage timber properties for major endowments including Harvard who have 10% in timberland:
http://www.htrg.com/htrg/research_li...current_n.html

Directly-held timber index returns:
http://www.ncreif.com/indices/timberland.phtml

Petey
__________________

__________________
peteyperson is offline   Reply With Quote
Re: timber
Old 03-20-2005, 03:44 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: timber

I wood not touch it.

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: timber
Old 03-20-2005, 04:26 AM   #4
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,112
Re: timber

Quote:
I wood not touch it.
I'm board by your post.

REW
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: timber
Old 03-20-2005, 04:39 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: timber

Oh, don't be sap. Feel free to leaf it alone and branch out elsewhere.
I won't pine for you.

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: timber
Old 03-20-2005, 06:32 AM   #6
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
Re: timber

I would add Deltic Timber as another company in the timber business. They are not structured as a REIT but I think they will at some point. One more quick note about some of the timber companies. I have read that some are sitting on prime real estate and I believe are selling lots at huge premiums to boost their returns. I think it was Rayonier.
__________________
"These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"
wildcat is offline   Reply With Quote
Re: timber
Old 03-20-2005, 07:42 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: timber

History never repeats but it often rhymes(misquote from somebody - Eugene Weber??).

Shakey dollar, gold and interest rates rising, inflation/stagflation perhaps on the horizon??, and higher oil/gas prices.

Been there - done that. Except this time I'm in ER.
Timber always comes up after the horse has left the barn. So - will the trend last long enough to make it worthwhile. Plan to dump my Timberland in the near future - hopefully when it is popular. So do I replace it with some Plum Creek, Rayioner, or Deltic - don't know yet.

I did own Weyerhaeuser back in the days when it yielded 6% - that was a long time ago.
__________________
unclemick is offline   Reply With Quote
Re: timber
Old 03-20-2005, 07:44 AM   #8
Dryer sheet wannabe
 
Join Date: Jan 2004
Posts: 14
Re: timber

I dont want to open up a canopy's but punning is a sickness. I'm not trying to bark, but it rub's some people across the grain. The root of the problem (for those not into punning...please, just lumber along with us) is that once you have the disease, you wood not stop if you could . I'm sure some of you saw this coming!
Forest of you....sorry!.
__________________

__________________
fufund is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Yale's Swenson on portfolios donheff FIRE and Money 24 10-09-2006 10:04 PM
Roth IRA & Timber Rights/Tree Farm terminator FIRE and Money 6 07-16-2006 04:09 PM
Timber? brewer12345 FIRE and Money 25 12-21-2005 06:54 PM
Now that you've shown yours... cute fuzzy bunny FIRE and Money 13 07-18-2004 05:20 PM

 

 
All times are GMT -6. The time now is 10:21 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.