World consumption of tropical hardwood has multiplied nearly 25 times in just the last four decades, to more than 100 billion board feet of tropical hardwood now being consumed each year. The United Nations FAO estimates a 50% increase in demand for timber within the next 15 years. We are increasingly seeing professional investors actively looking to acquire tropical hardwoods and other plantation assets in Malaysia.

Portfolio Diversification

Because forestry investments tend to move counter-cyclically with stocks and bonds, and independent of the real estate sector, forestry can provide portfolio diversification. Forestry is most commonly placed in the real estate portfolio, but it can also be placed in an alternative or specialty investment portfolio. Some larger institutional investors may also place forestry in a natural resource allocation.

Why Timber as an Investment?

Timber beats stocks. Managed timber (as the professional investors call it) has actually beaten the stock market - with less risk - over the long run. From 1973-2002, managed timber returned roughly 15% annually as an investment, while stocks returned about 11%.

Timber is uncorrelated to stocks. Trees don't know about the war in Iraq, or the bear market in the Nasdaq. While stocks couldn't keep up with inflation in the 1970s, timber investments never had a losing year! Trees just keep growing year after year. So investing in forestry is an excellent way to balance your portfolio as its value rises even when stocks are falling.

Forestry investing is relatively cheap. While real estate soared, forestry values fell in 2000, 2001, and 2002. A "perfect storm" hit the value of forestry. That's good for us now… while everything else is expensive… stocks, bonds, real estate, commodities, you name it… investing in forestry is relatively cheap.

The price of timber has consistently beaten inflation. Think of your timber investment as a good inflation hedge-the numbers show that to be true. According to legendary investor Jeremy Grantham, over the last century, timber prices have risen at 3.3% above the rate of inflation. Add 5% a year in income, and you've got a timber investment asset that has returned double digits, competing with stocks over the long run.

The Demand for Timber Isn't Going Away!