Timber: How to Play It and Why
The Investor’s Perspective
Here we list the major reasons why investors should be interested in timber as an asset class.
Timber does not really correlate with equities
The reasons why timber is a good asset for an investors portfolio is that it combines with other assets to make money over the long run, but do not correlate with one another, lowering overall volatility and increasing return per unit of risk.
Timber has interesting cash flow properties
Timber is similar to a long-term zero-coupon bond. You plant the trees with little money, wait a long time for the trees to mature, and then sell them for a lot of money. By rotating timber stock or an investors cash flow can be steady and predictable.
Wood is a commodity
Wood acts as a hedge against inflation. As prices rise over time, so does the value of your timber stock. Any periods of deflation are usually a short-term problem. Other reasons for investor’s managing inventory with a 15-30 year life cycle is that if there’s a year of poor timber prices, you can let your trees keep growing and harvest them when prices have recovered.