How do you play forestry?
November 14, 2010
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RELATED TICKERS: WOOD
So I heard a great CNBC interview a couple days ago with Jeremy Grantham - his part was great; Maria Bartiromo did best when she wasn't talking. You can Google up the clip, it's 29 minutes of your time and well worth it.
Mr Grantham got on the topic of twenty-year plays, which is if anything a bit shorter term than the time horizon of my retirement fund, and he is a long-term commodity bull. One of the points he made is that forestry is a particularly attractive commodity because what it really involves is land, seedlings, sunlight and time; and then at the end of it you get a return.
So I thought, "hmm," and Googled up "FORESTRY SECTOR" and took a look at the links. I don't know what I was expecting - maybe to find the Citi, JP Morgan, Wells Fargo and US Bancorps of FORESTRY. But that's not what I found.
I found a lot of stuff about corruption and illegal practices in forestry, and complaints about low levels of regulation. I found some suggestion that forestry emits a lot of greenhouse gases (which is not strictly true; it's processing the wood that emits greenhouse gases; the trees are a CO2 sink which wasn't taken into account by the analyses I read); and I found a few people pointing out that a lot of forestry investment is privately held and thinly traded because people and firms tend to buy a few hectares, plant it, and wait. On the CAPS forums I read about a guy who put his money into a New Zealand Pinus radiata planting and was very happy with the management because basically they said they would plant trees on land and then they made good on their promise.
I also found a newly formed ETF, which is called WOOD - about a year and a half old - tracks an index that is composed of the 25 biggest publically traded forestry, timber, and downstream processing companies. (Scott Paper isn't in it, so I guess that means they are too downstream for the purpose of this index.) Like most iShares funds, there's about a 0.5% yearly load, though they don't call it a load. It's overweighted US - I think there aren't many publically traded timber corps out there. For instance, there's very little Canada.
As I looked around, I began to feel that I was in Peter Lynch land:
1) People complaining about no regulation.
2) No analyst paying attention.
3) So simple, any idiot could run it. (Business model: Grow tree; chop down tree. Repeat.)
4) Not particularly glamorous.
5) As a pure resource play, only slightly lower moat than a gravel pit, one of Lynch's favorite industries.
So that's what I know at this time. Any of you know anything more or better about forestry and timber? Anyone have an opinion about the iShares ETF, WOOD?
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