If a tree falls in the woods, can it make you a lot of money?
It can if you invest in a commodity like timber. Timber is hot — so hot, that paper and forest products company Boise Cascade filed for a $575 million dollar initial public offering of stock last Friday.
Timber has attracted some big names on Wall Street: Carl Icahn, Harvard University and a bunch of hedge fund managers are big investors in timber.
It turns out that, these days, money really does grow on trees. Robert Saul planted 35,000 hardwoods on his Massachusetts farm and is expecting a very big payoff.
“It is growing in value regardless of what the market is doing,” he said. “The stock market, the bond market, can go up go down, the trees are growing.”
Saul knows something about investing in trees. He manages U.S. timber investments for an $80-billion investment management company called Grantham Mayo Van Otterloo.
Saul's firm recently bought a million acres of land in Maine and New Hampshire from International Paper.
Harvard Management, which invests $27 billion of the university’s endowment and pension money, has 10 percent of its assets in timber.
And last week, Temple Inland disclosed that billionaire investor Carl Icahn registered to buy up to a billion dollars worth of its shares. Part of its appeal is two million acres of forest land.
What’s all the buzz is about? A booming housing market and strong growth in China are part of the appeal. They create strong demand for timber. During the past decade, timber has returned eight percent per year, compared to 12 percent for the Standard & Poor’s 500 index. Over the past five years, timber investments have outperformed stocks.
Grantham Mayo sees returns of seven percent during the next seven years — better than bonds and better than large cap stocks, which it says will fall. But Stephen Hurley, a Boston hedge fund manager, sees reason for caution.
“My big concern is that a lot of money is chasing a few assets," he said.
Saul is hoping his 35,000 trees are another way to tap into timber. A recently planted tree that’s essentially worthless today, could be worth $500 in 20 years, he said. That comes out to more than $5 million for them all. Not a bad return on a $35,000 dollar investment and a lot of hours pruning.
One other advantage to investing in timber: unlike other commodities like oil or steel, timber literally grows by anywhere from four percent to 10 percent per year. That’s is one of the things big investors really like about it.
But buyers beware. Timber is a tall investment for individuals; large funds require investments of a million dollars or more and can lock up your money for a decade.
Individual investors can turn to shares like Plumb Creek Timber and Rayonier, though they've already had a pretty good run.