One of our clients forwarded this article to us from The Palm Beach Research Group. A world-class financial research company. To learn more about Palm Beach Research, go to: www.palmbeachgroup.com
By Nick Rokke, analyst, The Palm Beach Daily
Nope, none of those. It’s not cryptocurrencies either—they’re too new.
According to investment management firm TIAA, the best-performing asset class over the past quarter-century (the blue line you see above) is… timberland.
Yes—land for growing trees has outperformed all other asset classes.
Timberland returned 13.5% annually during this time. Stocks and hedge funds returned about 10%, while bonds and gold returned only 8%.
In today’s Daily, I’m going to show you how timberland is another sector reaping the benefits of a trade war… why it will continue to be a great investment going forward… and how to invest in it today.
But first, let’s go back to what we said last April, when we nailed this call…
Trump’s First Trade War Happened a Year Ago
It was a story overlooked by most last year. But we were on it. We found out that Canada planned to impose a tariff on ultra-filtered milk made in America. And that Wisconsin dairy farmers were suffering from this.
We said, “Don’t be surprised if we see tariffs imposed on Canadian maple syrup or a reinstatement of the tariff on Canadian lumber.”
That same day, President Trump announced tariffs of at least 20% on Canadian lumber. That extra boost sent lumber prices parabolic.
The thing is, as I’ll explain below, most timberland companies haven’t even realized the gains from these higher prices yet.
This means timberland companies are about to be making more profits—and are set to continue their long-term uptrend…
Timberland Still Has Plenty of Room to Run
You see, it takes anywhere from seven to 30 years from when the trees are planted to be ready for harvest. It’s a long product cycle.
In other words, most timberland companies are about to see a huge boost.
You see, timber prices haven’t gone anywhere since 1993. That year, prices peaked at $488.
And as you can see in the chart below, lumber futures have gone back and forth between $200 and $500 multiple times.
But even if I’m wrong, that doesn’t matter. Timberland could still outperform all other asset classes… Just like the past 25 years.
You see, if you have a well-managed forest, you don’t need to sell your trees at any given time. So if the price is low (like in 2000 and 2008), you don’t need to sell. You can hang onto your trees.
And your inventory doesn’t sit around idle like almost every other business. Your inventory (trees) is growing. Insiders say if you don’t like the price you can, “bank it on the stump.”
As trees age, they get bigger. And bigger trees sell for more money. Your inventory is always growing. Downturns in the price of lumber are no big deal. Just wait for the cycle to turn.
This gives investors a good sense of approximately how much money they will make over the next five to 10 years. And with high prices, anyone who banked it on the stump over the past couple decades is going to be looking to convert their trees into cash.
Timberland Has Two Other Investing Advantages
First, timberland is a great inflation hedge. We’ve written how the slight pick-up in inflation has started. And that it could mean trouble for the market. One way to diversify is with timberland.
When inflation comes, you want to own physical things. Timber is physical. And so is the land it grows on.
Second, timberland is uncorrelated to the market. That’s means the price of timberland does not follow the overall market.
It’s estimated that 80% of the price change in stocks is due to the movement in the overall market. So if you just own stocks, your investments will follow the whims of the market.
The holy grail of investing is to find a group of investments that give market-beating returns with little to no risk. You need to find “uncorrelated assets.”
Adding timberland is one way to get closer to the holy grail. Timber has a very low correlation to stocks, bonds, and even other commodities.
How to Invest in Timberland
The way to get the best diversification is to buy a few hundred acres and have it professionally managed.
But assuming you don’t have six figures to lock up over decades, there are some stocks you can buy.
The easy, one-click way to own timberland is with the iShares Global Timber & Forestry ETF (WOOD). It’s not a pure play in the U.S., but it holds many companies that have holdings in the states. These include PotlatchDeltic Corp, Rayonier, and Weyerhaeuser.
Timberland has been the best-performing asset for the last 25 years. And as I showed you today, it’s poised to continue its dominant run.
This is one of the surest bets you can make today. Plan on buying and holding for years to come.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. Not all the lumber price increases can be directly attributed to tariffs. The California wildfires burned a lot of trees this fall, and Hurricane Irma shut down Florida and Georgia mills for a bit. But the fact that it costs a lot more to import wood from Canada made the situation worse.
The increased price of lumber is adding $3,000–$8,500 to the cost of making a new home. One homebuilding company, Classic Homes, said it’s only able to pass on half the cost to buyers. So, we may see homebuilders’ margins decrease this year as a result of more expensive lumber.