I believe that there is a sector in the commodity area that is so out of favor, due to the current economic market dynamics, that savvy investors with an eye toward long term investing should be able double their money in the next decade, while getting a dividend to wait.
This sector is known for its slow steady growth. You won’t find get rich schemes. You won’t find over stated reserves, or nonexistence capital assets. In fact, if you are unsure of the quality of the assets, you can rent your own helicopter and fly over their assets and estimate their value yourself.
This out-of-favor sector is where kings and royal family invested for centuries. In fact, this investment class is the gold standard of a steady return. Are you ready to invest in an asset that grows every year in size? If so, consider this…
The old money of the world, used to be large forested land owners. They knew that every year between spring and fall, their forests would grow by about 2.5% on average. This rate of return was the basis for estimated standardized wealth creation before the era of fiat currencies.
If you wanted a risk free rate of return, you owned a forest. If you wanted to earn more than a forest would grow, you had to set up and take additional risk. Long before governments offered risk free rates of return, it was Mother Nature and the rate she grew a forest.
While a farmer took chances on yearly yield, and a miner was risking his life and financial security on the next ton of rock, the forest owner was able to estimate his real long term returns years in advance. So it’s not surprising that timber, and wood products in general, are considered some of the least interesting investments in the market today.
In these economic hard times, trees give us a chance to invest in an asset class that is out of favor today, but will be in demand the next time growth returns to the western economies . In fact, timber will be one of the first and most obvious products that will see their demand increase first, once this Grand Recession is truly over.
While timber is a slow and steady growth industry in most areas in the world, there is one location where the trees grow faster than in most places in the world. It is not surprising to find two of the major timber companies are both headquartered in this high growth area.
If you are an investor in timber lands, like Germany or Russia, your tree’s can only grow during half the year. That is, the period of time when the sap is not frozen inside the tree. If a heavy blanket of snow falls and buries your forest, they won’t start to grow again until the sun has melted the snow and the wood can start to move fluids again inside of it.
In the Pacific Northwest, tree can grow as much 8% or more in a year. This area of the world offers everything a tree could want to grow. Rain, sun & temperatures year around above freezing near the coast line.
The two largest timberland investments vehicles available are Plum Creek Timber & Weyerhaeuser. They both were formed out of early railroads that were given large land grants to extend their lines into new areas of the country. Plum Creek was formed out of the Northern Pacific Railroad. This railroad morphed throughout the years into the Burlington Northern railroad, which morphed into Burlington Resources. Plum Creek was spun off in 1989. It converted into a REIT in 1999
Plum Creek is the largest single private land holder in the United States today, with over 7 million acres. They are actively managing their forest holdings, via strategic investments and divestitures. Plum creek is significantly smaller in revenue and market cap than Weyerhaeuser is. However, both stocks have seen better days in the market.
Weyerhaeuser is the second largest private land owner in the United States, and is one of the largest pulp and paper companies in the world. It was formed out of the land holdings for the Great Northern Railroad. Weyerhaeuser currently holds title to over 7 million US acres and logging rights to over 35 million acres in Canada.
Weyerhaeuser is currently in the process of converting itself into a REIT. This process has included the need for a special dividend. This has dropped the value of the NYSE traded stock to a 52-week low range.
It is my expectation that Timber from the Pacific Northwest will help rebuild Japan in the coming months and years. These two companies are in the situation to provide the trees as needed.