Value-investing legend Jeremy Grantham’s investment team and his firm GMO recently offered predictions on the performance of various asset classes over the next seven years.
You may be surprised to learn that timber was #1 on that list.
Nor is Grantham alone in his enthusiasm for timber. During the past few decades, top university endowments, pension funds and even newfangled “Timber Investment Management Organizations” have plowed an estimated $40 billion into timberland.
Last year, the Harvard Endowment Fund had about a 10% weighting in timber, which included New Zealand, Brazilian and even Romanian forestry.
And Harvard has just increased its bets on timber for the coming years.
Timber’s Unique Investment Characteristics
It’s easy to see why Jeremy Grantham believes that timberland is the single-best, long-term investment there is.
Unlike investors, trees remained blissfully unaware of the “Great Recession,” the jobs picture and how much money is being printed in Washington.
Trees keep growing no matter how negative today’s headlines may be.
Timber has other unique advantages. Unlike other agricultural commodities, you don’t have to harvest timberland every year. When timber prices are low, you can always “bank it on the stump.”
In fact, older trees provide higher-quality wood. So, while timber companies will see inventories rise during bad times, the value of that inventory will increase steadily.
The price of timber has also grown at a remarkably consistent rate throughout the years, increasing by an average of 6% every year for the past century — through two World Wars, the rise and fall of the Soviet Union and 9/11.
Recent historic returns to timber have been even more impressive. Between 1971 and 2010, timber boasted average annual returns of over 14%. That’s enough to turn $10,000 into more than $1.5 million.
Timber has been the only asset class that has risen during three out of the four market collapses of the 20th century. During one of the worst-ever bear markets in stocks from the late 1960s until about 1980, timber never had a losing year. In 2008, while the S&P 500 fell 38%, the value of timberland rose 9.5%.
If there is a way for you to protect yourself against a crash in financial markets, timber is it.