I suppose it no surprise that, at FORECON, we really like trees.
In all honesty, first and foremost, they are the cornerstone of our livelihood, and they do provide our society with a host of benefits including: clean air, clean water, wildlife habitat, aesthetics and, certainly, wood products of all shapes, sizes and uses. I say that to say this – even though we’re a bit biased we like to think that an investment in trees/timberland is a wonderful alternative to the risks associated with the stock market (as has been shown in our 401Ks and IRAs over this past year, and especially over the last few weeks!)
We’ve provided more in-depth thoughts in the past about this topic, but as this year comes to a close and we see the downward trend of the stock market, we thought it would be a good time to highlight a few reasons why owning and managing timber as an investment is a great counter-investment option to those that Wall Street offers.
There is no question that long term investing in the stock market has played out well over time; with a few exceptions (good and bad years), stocks have increased consistently over the last 100 years. Timber has also played out well over time – sure, like certain stocks, some timber tracts perform extremely well and others not so much, but as long as the world has a need and desire for wood products (and there are many), timberland investments will continue to provide good returns over time.
And timberland has always been thought of as a good inflation hedge, as well as provide investment diversification. An entire segment of the forestry realm – Timber Investment Management Organizations (TIMOs) – have established a very solid position in the financial world by educating substantial pension and endowment funds as to the benefits of timberland as a solid way to diversify their investment portfolios and facilitating their acquisition of such investments.
The fact too that hardwood timber types (which are the dominant types in our operating area) inherently provide biological diversity is a valuable benefit as well. The variety of species that naturally occur in our hardwood forests allows the landowner to take advantage of changing markets; as one species may fall out of favor by the consumer, market demand for another species in the same forest tract may increase. Hardwood forests are inherently a diversified investment.
Also, timberland not only grows trees that a landowner can financially benefit from, but it provides other tangible benefits such as hunting, fishing, bird-watching, cross-country skiing, mountain biking, camping, etc. – things that a paper stock certificate can’t touch.
Lastly for now, unlike a share of stock, a tree continues to increase in quantity (and often quality) just through biological growth. In our specific hardwood regions, a stand of timber typically increases in volume anywhere between 3% and 5% per year on its own. Unless you have a stock issue that splits continuously, you won’t find that kind of benefit in a Wall Street investment. It’s kind of like a twenty-story apartment building adding on an additional floor every year without any substantial effort on the investor’s part.
In future issues, we’ll tease out some detailed comparisons of how timber investing compares with the stock market in general. In the meantime, certainly should you have any questions about how your particular woodlot may be performing financially in relation to stock market conditions, give us a call – we’d be delighted to help you figure that out.