Bogleheads

[jstan88]

I finally got the chance to sit down with David Swensen's second edition of Pioneering Portfolio Management, and I must say that it was definitely worth a read. Swensen mentions that Yale's endowment has a significant percentage of its asset allocation dedicated to hard assets, and he specifically outlines the advantages and properties of timber in the book. An allocation to timber seems like a good diversifier to me, but outside some publicly traded timber REITs, I have no idea how the individual investor can gain access to this market. Does anyone here have any experience with timber investing, and is there a way for the individual investor to reap some of the diversification benefits in a low-cost manner?

[Murray Boyd]

[DaveS]

Housing and paper (including cardboard) are the biggest markets for timber. I would say prospects for growth are not to good. Maybe you should think of something else to invest in. Dave

[danwalk]

[Trev H]

.
"is there a way for the individual investor to reap some of the diversification benefits in a low-cost manner?"

In 1976 my Grandfather bought 1421 acres of Tennessee Timber Land for 115.00/acre. His main interest in the property was for Hunting. It was loaded with deer, turkey, and other wild game.

The timber had not bee harvested in (I'm not sure how long) but the Oak trees were huge (many in the 36" diameter range). In 1979 he harvested the timber on the entire tract (select cut 14" or larger trees).

After being divided between my father and his brother, my father deeded his part to his 4 children in 2000 (retained a life estate) and he passed away in 2004.

I inherited approx 200 acres of this property and it has been almost 30 years since my Grandfather select cut the timber. I had the timber priced last year and the total value per acre ranges from 2000.00 to 1200.00 per acre.

In the early 1990's I bought 30 acres of land out in the country. Cleared about 3 acres and built a new home on it in 2000. The rest is completely covered in natural hardwood timber and has some really nice select white oaks on it. Tall - straight - no limbs for 32' or more - venier quality trees.

I paid 29,250.00 for the 30 acre tract back then (bit less than 1000.00 per acre).

I extended the county road and electric service down to it when I built the house, which no doubt seriously increased the value.

A Oak tree adds about 1/2 inch in girth each year (normal rain levels anyway). So no matter what the stock market is doing, my timber investment is growing

1 acre = 43,560 sq ft.

I have 227 acres or 9,888,120 sq ft of timber land.

If you figure one tree for every 30 sq ft that = 329,604 trees (mostly white oak, red oak and chestnut oak).

Very little maintenance is required on natural hardwood timberland. It just grows naturally, but does take some time. If you select cut, it could be 30-40 years between harvest times.

If you have a 30 year investment timeframe in mind, you could shop around and buy some natural hardwood timber land (here in Tennessee or possibly other states) that had recently been select cut, and just keep it for the long haul.

You can lease the property to hunters to pay for the taxes, or you could use it for hunting yourself and just get that enjoyment from it.

Trev H

[Rose21]

Take a look at the Claymore ETF, CUT, which tracks the Clear Global Timber Index. This includes 27 producers of wood and paper products.

[Lbill]

Can look into timber REITS. Worth noting that El-Erian, who managed Harvard's endowment for awhile, said that Harvard had invested in timber also. He also said that when the idea became popular and everyone started piling in, Harvard started selling it's positions in timber. That's the problem with most of these hot alternative asset classes. Same thing happened to commodity CCFs and caused the massive bubble in 2008 that massacred everybody when it popped. They're only a good idea in the early stages before they become popularized IMO.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"Everyone has a plan, until they get hit." ~ Mike Tyson

[stratton]

How everyone forgets. We've had a thread with a research report by ExStockAnalyst: Timber Investing: My articles on ETFs and REITs. Link to his research in first sentence.

An existing thread on timber and another where I mention a timberland investment blog

The short form is your real choices are Plum Creek Timber (PCL) and Rayonier (RYN). Everyone else is a microcap or fairly far from timber and more of a pulp and paper play. The UK investor has a couple of closed end funds available, but *NO* Americans allowed.

Compared to regular REITs PCL and RYN have held up very well. 2 year Yahoo chart of PCL, RYN & Vanguard's REIT index (VNQ)

Paul

[SpringMan]

TrevH,
I have invested simalar to you. Bought 80 acres of timber land in Michigan's U.P. It was not for harvesting the timber but for hunting, fishing, and the outdoor natural setting. We paid $90 per acre in 1977, it had a geological feature on it called the big spring from which a creek flowed out of that had brook trout. It was accessed by unimproved woods roads (logging trails) and it is still much the same today. We moved a small mobile home up there around 1980 and in 2000 built a small log cabin (see my avatar). We have had the property logged twice, once in 1987, and again in 2008. We used a forester that took bids and surveyed the area with tape and marked certain trees with paint. Once an offer was obtained, 20% was paid up front, 10% for us and 10% for the forester. The remaining 80% was paid to us upon completion. We got a 1099-misc for the taxes. Apparently there are multiple ways to treat the income, I choose the simple way but not necessarily the smartest, and reported it as ordinary income. Our land had beech trees that were hit with an infestation so it was harvest them now or they die and become worthless. Because of the glut of beech trees on the market our stumpage price was pretty low. Our property is gated, the loggers built a half mile of new road, parallel to the gated road, when they were done they blocked off the entrance to the new road with a dirt pile, my choice, since I did not want to install and maintain a second gate. The loggers were required to leave the roads as good or better than they were. Smaller ATV trails required some clean up on my part. We have no regrets but as you know there are property taxes. For us it is a six hour drive which was expensive when gas was 4+ a gallon. Logging did offset many years of expenses.
_________________
Best Wishes,
SpringMan

[Trev H]

.
Springman,

The 200 acre tract that I own actually has about 400' of county road frontage (black top). We access the property from a Gated road (logging road) that we keep up (keep the road clear of tree limbs, had some dozier work done 8-10 years ago), not too much work to do on that.

It has creeks, waterfalls, and springs and some deep hollows with wide creek bottom flats. The area where the county road frontage has some very nice home sites or could make a nice small farm site.

I considered selling some of the timber last year and called the IRS (after spending some time looking around on their website) and the lady I talked to there talked like the timber I harvested could just adjust my basis in the property (and not be reported as income).

For example, I inherited it in 2004 when my father passed away.

If the FMV at that time in 2004 was 1500.00 / acre and I harvested 800.00/acre timber in 2008 then my basis would adjust down to 700.00/acre.

If I sold it after harvesting the timber for 800.00 per acre, then my gain would be 100.00 per acre.

I remember specifically asking her if I had to treat that timber sold as regular income and she said No.

Not sure if that has changed recently or not ?

Trev H

[alvinsch]

FWIW: I own POPE. - Al

[deerhunter]

I bought 10 acres of timbered land in Ohio in 1978. Paid $31,000 for it. Selected and sold 1000 dollars of timber the first year. The taxes were minimal as I had it listed as timbered land which receives a special tax excemption in Ohio. Taxes started at $30 bucks a year and now is only about $60 bucks a year. Used it for hunting camping and showing kids and grandkids what nature is like. Cut and sold about $4000 worth of firewood so far. Sold selected 15 trees again in the 1980's Got $8700. Sold another 20 mostly dead trees in the 90's and got $2500. Sold another 20 trees last year and got $6700. Should have $4or 5 thousand dollars worth of firewood on it now. Still have some nice white oak and four nice black walnut which they tell me one tree will be worth 3 or 4 thousand in a few years. So I took $22,900 worth of firewood and timber off so far and the land is conservatively worth about $80,000 right now. Best investment I ever made including the recreational value.
_________________
Living off the land is a family tradition.

[mtl325]

I'm going to second PCL.

As for timber as a store of value, take a look at Barton Biggs book hedgehogging. It's mostly about the characters in the hedge fund work, but he ultimately gets to the thesis that timberland has returned some pretty flashy numbers over time. He anecdotally goes back to Bismark.

I don't know where timber would fall into a portfolio, but timber has been demolished with the decrease in new construction.

With the ability to hold off harvest, it would seem to be a nice contrarian investment. But that presumes that timber acreage prices of decreased substantially (something I don't know).

[jstan88]

So, it looks like the consensus is that PCL is a decent choice for timber. I own about 50 shares of it, so I will probably buy some more. I was just wondering if the forum members knew of any better alternatives to PCL.

If I ever manage to accumulate enough money, I'll consider buying some real timberland. That will probably lead to some issues of its own, though!

[paddyshack]

I've thought about this a lot myself. I grew up in southern Oregon, in a small town that was devistated by a slump in the timber industry (lots of factors, but the locals largely blamed the spotted owl endangered species listing). As a kid (35 now), the raw timer prices went through the roof when the environmentalists were able to lock up a lot of the public land, leaving private timber holdings suddenly a premium. Made millionaires out of quite a few local land-owners.

Since I have 30 years until retimrement, I thought of picking up some remote land that's been clear-cut and replant with fir and let it sit for 30 years. There's a pretty good chance it would be worth quite a bit by then - available timber land is shrinking world-wide. TI beleive the biggest risks are:

- Property could get locked up by environmental laws as well (although the species that live there could somewhat be controlled by the owner).

- Trees could be devestated by a pine beetles, etc (which would either force a sale point, or devestate prior to it being harvestable).

- Drought/climate change results in land becoming inhospitable to the species, particularly when the trees are young.

I believe the latter two could be insured against, and in OR, there's been a trend to force the taxpayers to compensate landowners when laws take a way that kind of opportunity.

I believe the margin of safety is sufficient that the investment is attractive, if you find the right spot. But there's some sweat equity involved, some know-how, and of course proximity helps.

[jegallup]

[Bigfoothunter]

My great grandfather bought substantial acreage for range of 1 to 5 dollars an acre in the 1930's to 1940's. I have not been able to find another investment that would have yielded this substantial return, but doubt it can be duplicated. Timber has been cut 3 times, minerals leased, hunting leases, rights of way, crop lease, cell phone tower and a gravel deposit have all yielded pieces of income many multiples of what the original land cost. I think it is a true hedge against inflation if purchased correctly. I also own PCL, RYN and BWEL.pk in this space. I think over time they are a good bet. Calculate PCL market cap by number of acres and you get an value not reflected always in the P and L statement. Bigfoot

[stratton]

[snowman9000]

I smell the potential for a timber bubble.

[cfoken54]

My family owns around two hundred acres in UpState New York. My brother is a logger and cuts hardwood from time to time from this property. Come to find out this part of the country has alot of natural gas. Who would of known. There calling this rural part of New York Little Texas. If you buy timberland make sure you also have mineral rights to go along with the timber.

[rich]

[psteinx]

Investing directly in a timber tract is a somewhat interesting proposition for me.

I live in Southwest St. Louis County. There are many wooded semi-rural areas within reasonable accessible distance to my (rough) southwest.

On the one hand, it seems foolish to even contemplate such an investment, as I have no experience or expertise with this kind of thing, and presumably my costs would be higher and my productivity lower than an organization focused on such a thing and experienced.

On the other hand, I've contemplated off and on getting a tract of land as a camping or potentially cabin site anyways. In theory, an investment could pull double duty - part recreational/lifestyle, part investment.

I wonder how much the performance drag of me doing this myself would be:
Performance Drags
1) I would have lower skills at evaluating and managing timber property
2) I might have to higher experts to help me (whereas a big company handles more stuff in-house)
3) General economies of scale for me would likely be low

Performance Boosts
1) In general, small motivated managers can sometimes outperform big companies (due to agency issues and such)
2) At least some of the effort to learn about and execute on this would be a borderline "fun" activity for me - not really work. It might be a bit like gardening on a very large scale
3) As mentioned above, the side benefits of having recreational land add value for me in a way that they wouldn't readily apply to a big company.

For those who've done this and are basically amateurs/hobbyists, how difficult is it (land selection and purchase, planting, management, and cutting)? If I got a nice piece of land and select cut it, would the select cutting make the property messy/ugly and significantly diminish it's recreational value for multiple years? If I clear cut it (or bought land already clear cut), I assume it would be ugly for a few years, but with fast growing timber, after a few years (5-8?) it might be nice and natural again and I'd then have many years of recreational usage before it would be ready for cutting again, right?

It probably wouldn't be a good financial move for me, but it is fun to think about...

[deerhunter]

There are ways to increase your knowledge. I don't know about your state but Ohio has a state forestry division. State foresters will come out and look at your property and tell you what should be cut or not cut. Get a book on trees and learn how to identify them. Try to find some tree buyers or people that have sold trees and learn what you can from them.
Do be advised that many tree buyers are flat out crooks. My sale of 15 veneer white oak had bids of from $500 to the $8700 that I got. A timber buyer tried to convince me on my last sale that all my good timber was gone and the 20 trees I sold were only worth $2500. I told him I would check around and he stalked off angrily telling me that I had wasted his time. I called a former buyer I had worked with and he looked at the timber and immediately offered me the $6700 that I took.
Buying timberland may not be the best investment in the world but you also have the intrinsic value of hunting, fishing and camping and if you have kids or grand kids the education you can give them about trees and nature was to me the most valuable part of the investment.
_________________
Living off the land is a family tradition.

[Tramper Al]

[psteinx]

I found a lot of good info at the Missouri Department of Conservation website (again, I live in Missouri), here:

http://mdc.mo.gov/forest/

and in particular, found a very good primer on forest management here:

http://mdc4.mdc.mo.gov/Documents/318.pdf

One thing that surprised me is that the typical "rotation length" for oak sawtimber is 60-120 years, which is much longer than I'd expected. Assuming you don't get started quite young, then any oaks you plant (in Missouri anyways), will likely not be harvested by you. Things may be different in different states and/or with different types of trees (though Missouri seems to be mainly a hardwood state).

[tadamsmar]

We own about 40 acres of timberland on a farm I inherited with my brother. Here's a bit of what I have learned.

1. I got a auction agent (10% fee) to auction timber. He sent notices to over 100 mills. The bids varied by a factor of 3, with the local mills bidding the lowest. Made me a believer in auctions. If I had just tried to sell it to a local mill I would have gotten a 60% lower price.

2. The US Forest Service and the County Forester are helpful. They can advise you and bid on planting, thinning, other operations. The feds will subsidize planting if you follow a development plan that protects water resources; the plans are good, you'd want to have buffers around water anyway. Sometimes private foresters can beat their bids. One thing: the feds can't advise you on selling timber because it is interferes with private business activities. They won't advise you against a bad offer.

[tadamsmar]

One more thing. The County Forester can sort of QA any work done by a private firm, for free. Mine kept the loggers from cutting a section of trees that were blocking kudzu. If he had not done that, I would be fighting kudzu in the pines I planted after logging.

[mtl325]

[psteinx]

Are there any good sources for data on current cross-sectional prices on land/timber (i.e. land prices in various parts of the country, timber prices on various grades), and/or historical graphs/tables to see changes over time?

[Lucio]

I found this to be an interesting endorsement for timber as a long-term investment.

The Fuggerei, possibly the world's oldest social housing complex still in use (built in c.1520 in Augsburg by Jacob Fugger, the banker), has invested its endowment in timberland. Apparently, the foundation lost money in higher yielding bonds during the 17th century and thereafter settled for the safer and steadier returns of timberland.

Wikipedia article: http://en.wikipedia.org/wiki/Fuggerei

Jacob Fugger biography: http://books.google.com/books?....mp;f=false

Fugger foundation website: http://www.fugger.org/en/l1_administration.htm

WSJ article, "In This Picturesque Village, the Rent Hasn't Been Raised Since 1520" (12/26/2008)
http://online.wsj.com/article/....34413.html

Lucio

[nisiprius]

[MWCA]

[scuttlebuttrp]

[fishndoc]

Another risk not mentioned so far is liability.

A friend and his hunting buddy went in together and bought a tract (maybe 75-100 acres) in south Georgia to use for deer hunting, with the long term goal of selling the timber when they retired in 10-15 years.

Earlier this year, despite it being posted, some local rednecks were riding their ATV's, and one of them flipped and broke his neck, leaving him partially paralyzed.

Despite the land being posted, if a trial were held in this very poor county, with disabled local guy vs "wealthy" outside landowners, I would put my money on the local guy.

My friend hasn't been notified of any legal action yet, but says he gets a sick feeling in his stomach every time one of those personal injury attorney ads appears on tv

Wayne
_________________
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

[norookie]

[MWCA]

[phill]

there is a very recent two part article on morningstar related to this topic

http://news.morningstar.com/ar....amp;part=1

[honkeoki]

[cosimdm]

I have owned a timber Reit for years and been quite happy with the dividends.

[Ariel]

[roundrock]

Grandfather (had a degree in forestry) bought 340 acres for $15 a acre after WWII about 100 cleared remainder in oak, hickory. About every 25/30 years the family hires a consulting forester who conservatively selects& marks the timber as well as handles lump sum auction for 10% of proceeds. Last time was in 93 and we netted about 70K. This is just average quality hardwoods. The thing about timber is if the prices are bad your inventory continues to grow until you can get the price you want.
If we had too we could do a more aggressive cut for more money but hey our name's just on the deed for a litte while. God & mother nature are the real owners and I like to walk in the woods too.

[Trev H]

I spent some time on my 200 acre timberland this morning Ginseng Hunting.

Brought home a bit less than a pound (green).

I took a nephew ginseng hunting last year and he is hooked now. He's calling me every week wanting to go somewhere hunting.

We have been several times this (late summer/fall) and have close to 9 lbs dry ginseng now, and more on the drying racks.

Price is in the $360.00 per dry pound range now and seem to be headed higher.

We will probably dig a few more times this year (have a week off next week) and then call it quits for the season.

If you like getting out and tromping thru the woods, Ginseing Hunting is a fine old-time sport and you can make a bit of profit from it and get some darn good exercise doing it. It mostly grows on hillsides or from the bottom of the hollow, up about 1/2 way on the hill side (round here anyway).

Been a very rainy spring/summer and fall here, expect my thousands of Oak trees put on a bit of extra girth this year.

Ok with me

Jumped a few deer and saw a few grey squirrels and turkey too this morning.

===

[TreeGuy]

[Trev H]

Treeguy asked...

===
Is this for resale or personal hobby?
===

I would say a bit of both.

Ginseng Hunting is something that I enjoy quite a bit. Now you have to be the type that enjoys getting out and tromping thru the great outdoors to enjoy it, and there is the thrill of seeking something and finding it (remember easter egg hunting when you were a kid ?).

In my State - Tennessee - Ginseng Hunting season opens August 15 and you can hunt it until well a good frost or two kills the plant/top for the year. The root remains and sends up another top the next spring.

The season opens as the Ginseng Berries get ripe (in Tennessee that is Mid August). They do that as conservation effort.

When you harvest Ginseng roots, you only harvest the mature plants (3 & 4 prong plants) and you first pick the berries and plant them in the same spot you harvested the mature plant root.

That way you leave all of the youger plants and plant seeds for future generations to enjoy ginseng hunting and help to ensure the survival of the plant itself.

Below is a link to a youtube slideshow showing several nice Ginseng Plants someone harvested (looks like this year).

Oh yes - even though it is a fun hobby for the avid outdoorsman - it's nice to put several hundred dollars in the old pocket after a season of ginseng hunting.

http://www.youtube.com/watch?v=4oIeSykmT9g

After you harvest the ginseng root, you wash it (cold water rinse, just grab a handfull of roots and rub them together with both hands while letting cool water run over). You don't want to wash it too much, don't have to get all of the dirt off, just the majority of it off - need to preserve the root hairs - that is where most of the benefical meds reside.

After a decent washing, just spread it out on something like a window screen and put in a room with decent air flow and it takes 4-5 weeks (possibly less depending on airflow and humidity) to dry well enough to sell at dry price.

The State of Tennesse requires those who buy/sell Ginseng (Dealers) to register and pay a fee. I emailed them and they sent me back a list of all registered dealers in TN.

When you are ready to sell, shop around, the price offered by different dealers can vary quite a bit. Sometimes small local dealers all sell to a larger dealer who sells to those who export over seas.

If you can find that larger dealer, and you have a decent quantity, he may give you the same price as he pays the smaller dealers. That is what I managed to do last year. We had to travel 50 miles to get to that larger dealer, but he paid us 30.00+ more per dry pound than our local dealer was offering. We had about 7 lbs dry after last years harvest and it was well worth the effort to make the visit to the larger dealer rather than selling locally.

==

[TreeGuy]

Trev - thanks for all the helpful information. I'll check into it.

[Trev H]

TreeGuy,

I went Ginseng Hunting agian yesterday from about 10:30 - 3:30 and ended up with 1.5 lbs (24 oz) of green ginseng.

Here in Tenneessee the Ginseng is starting to die back and that has sort of speeded up here over the past two weeks.

A few weeks ago we were finding mostly green plants and they still had red berries.

Now a lot of the ginseng we find has yellowed and the plants are no longer standing up-right but laying down and find very few with red berries now - they have all dropped. Many of the plants have dropped leaves too. Several times yesterday while digging a plant or two I noticed a stem of a plant sticking up that had no leaves on it.

I expect that up in Indiana you may a bit a bit ahead of us fall/winter wise and your ginseng may be even further along in that phase where the plant tops yellow, drop leaves and eventually die out for the winter.

I plan to go one more time this year - tomorrow morning with my nephew then call it quits for the year.

I have a nice box full of dry ginseng, and my drying racks are also full.

We will probably sell it all in 4-5 weeks once all of this last batch are dry.

===

[honkeoki]

[Trev H]

FYI on the Ginseng Hunting.

We did our last few hunts the first week in October and put that seng on the drying racks and it was ready to sell this weekend.

I went a total of 14 times this year and expect we averaged hunting for around 4 hours per hunting trip.

I sold 3.73 dry pounds and the price had gone up a bit from (what I mentioned earlier) - we got 380.00 / dry pound.

3.73 lbs at 380.00 = 1417.40

I had a little bit of golden seal (yellow root), false unicorn (star root) and blood root that I had harvested a little along the way while ginseng hunting and sold that too. Small amounts and the price for those are much lower than ginseng, but it rounded my check off to 1425.00

I averaged making a bit over 100.00 per trip and around 25.00/hr.

While harvesting mature ginseng plants this late summer/fall we planted back several hundred ginseng berries (which contain the seed). My son is currently 7 years old. In another 5-6 years I hope to be taking him back to some of those same locations & teaching him how to find & harvest ginseng and plant those seeds back so someday he can teach his son....

====

[LHerr]

[stratton]

See this thread on actually investing in timber: http://www.bogleheads.org/foru....hp?t=17145

PCL is about the best bet. There are others mentioned in the thread. You will have to follow links and do a fair amount of reading if you want to understand more than what you're doing.

Paul