Timber Correlation


Timber offers extra value in two ways.

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I love wood.  Here I examine some of the dying hemlock at our farm.  There is a terrible blight (Wooly Adelgid) on the East coast that is killing the hemlocks.  Bio Wash has held it back, but we cannot reach all the trees to spray them with Bio Wash.  We are harvesting the dying and dead and trying to determine how to gain added value.  However, we have literally saved, however, hundreds of trees while others have died all over the eastern states.

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Each year we log dying trees.  I  delegate this most of the time but do enjoy getting out the protective gear, dragging out the chain saw and pretending to be a lumberjack.  My family has a long history of preachers, officers, merchant marines and lumberjacks… probably due to the family tree in Oregon… so maybe it is in my genes.  Though I do always keep in mind that the last lumberjack cousin I knew was crushed and killed by a log… so I take care!

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Here is a dead popular we harvested and milled.

Then we build.

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Our seminar center was built of local poplar.

The rest of the forest is a growing asset. This is one reason why I love timber… in good times and bad… the asset grows in volume, if not always in value.

Another reason I like timber as an asset is because of its contrarian nature.  Timber is an excellent negatively correlated asset.

Negatively Correlated Assets

Negatively correlated assets are important to have because a lot of good investing relates to investment timing… in other words, “Being able to choose when to sell” an asset.

Many of our posts are based on our view of and belief in the influence of approximate fifteen year bull and bear stock market cycles and global equity correlations.  History shows that few investors get into equity markets at the darkest hour… just as a 15 year bull cycle is about to begin.  Right now everything thwarts the idea of investing in equities.  All the news is negative… bleak… black.

Smart value oriented investors see through this facade and understand that this negative, short term, out of touch news creates extra value and opportunity.  Smart investors “buy on the rumor and sell on the news”.  Really smart value investors buy on the fundamentals that they know will create the rumors!  Then they wait for nature to unfold its remarkable and beautifully balanced state.

However, the functional words in this philosophy are approximate and wait.   Apparently nature’s rhythms were not informed when the Gregorian calendar replaced the Julian Calendar in 1582.  So the fifteen year cycle has at times eased along for seventeen years.  Other times it rushed forward in 13 years.

If one requires liquidity now, one cannot wait an extra two or three years for nature to do its job.

Negatively Correlated Assets  provide an added opportunity for profitable liquidity during down times.

Timber as a negatively correlated asset balances the liquidity value of a portfolio.  Not everyone has a farm… but it is easy to invest in time via Timber ETFs.

Five years ago this month (November 2007) a message was posted at this site about timber ETFs…

At that time the stock market was about to collapse and the message said:

Timber ETFs make good sense now.

The great news about timber is that it is the only commodity that has had a steadily rising price over 200 years, 100 years, 50 years, 10 years.  And a unit of wood, just the price of a piece of wood — in real terms — beat the S&P over most of the 20th Century, from 1910 to 2000. The price of a piece of wood actually outgrew the price of a share of the S&P.  The yield from timber averaged about 6.5%. The yield from the S&P averaged 4.5%. In each of the three great past bear markets the price of timber rose.

Timber is the only reliable negatively correlated asset class when it really needs to be. This is because timber owners can withhold the forest. If they find the price of lumber low, they just don’t cut. There is no cost of storage and the tree continues to grow and increase in value.

The post recommended the iShares Global Timber and Forestry ETF and said:  Barclays Global Investors just launched this ETF under the name “iShares Global Timber and Forestry exchange traded fund”.  The companies within the fund include forest products companies, timber REITs, paper products companies, paper packaging companies or agricultural companies engaged in the ownership and management of woodland. The goal of the fund is to peg growth to the Standard & Poor’s Timber and Forestry index.

The fund is traded on NASDAQ as the symbol WOOD.

Let’s look now on how it performed over the five years.

Timber-share-chart

(Click on photos to enlarge)

Five year chart of Ishares Timber ETF (symbol WOOD) at www.finance.yahoo.com.

Over the five year period performance has been similar to the S&P 500 performance.

S&P share-chart

Five year chart for S&P 500.

Yet often in the short term, this ETF has been out of sync with the S&P… such as in the last three months.

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Three month S&P chart at finance.yahoo. The S&P has had a distinct down trend.

Timber-share-chart

The timber index in the same period has been distinctly up.

Timber offers special value in Smalltown USA as well.  Many of our neighbors with land in Lake County Florida have timber (mostly pines) growing on their land.   Land with timber growing is taxed as agricultural land at a far lower value.

Ecuador also has some good timber opportunity I’ll cover in a post on Monday.

Adding timber to your portfolio in the form of a farm or ETFs can provide profit and balance the liquidity of your savings.  Timber  is one asset often represents value and creates liquidity, stability within the portfolio.

Gary

Learn more about timber and multi currency investing at our upcoming Super Thinking + Investing and Business seminar.


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