How Risky Is Investing in Forest Land?

What are the risks of owning timberland, and how does it compare to other investments? While not risk free, forests are an asset like no other.
0:00 - How Risk Is Modeled
6:21 - The Risks of Stocks
8:42 - The Risks of Bonds
10:50 - Timberland and Deflation
15:32 - Biological Risks
18:21 - Fire
20:00 - Wealth Preservation
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[@thetimberlandinvestor]

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[@TheGbelcher]

3:20 Finance guy here (and former adjunct finance professor)… Higher risk not mean the investment WILL provide higher return. That’s 100% correct. Theory only states that an investor SHOULD require a higher return. That requires the investor to not only identify the risk but understand it to the extent they can roughly quantify it. How does one do that? With a reduced purchase price. That doesn’t mean the seller will give you a lower purchase price. It just means in theory you SHOULD demand a discounted purchase to compensate you for the risk. Properly quantifying the risk is another story. 😂

[@Galaxy001]

Right. Risk and reward are most definitely correlated in even a minimally efficient market.

[@northerncaptain855]

Really enjoyed your video. I’m also a Maine woodlot owner, which for a variety of reasons not all financial is probably the best investment I’ve ever made. I built an off grid camp on it almost twenty years ago, that after retirement, I now essentially live at full time. I enjoy the mixed forest and the wildlife. While I’ve not had a commercial harvest yet, it’s provided firewood and rough cut lumber for my purposes. It would please me immensely to see it passed down to children or grandchildren.

[@nathanryweck3137]

I just started watching your channel and I apreciate the info. I’ve always wanted to get into timberland investing, not just for the timber value, but also for other “resources” like wild mushrooms, recreation, etc. The timber value is great as well long term.

[@Kopp141]

GIS person here, VERY excited about your mapping app. I hope all the data can be local and without a subscription for basic functions.

[@perrinpartee557]

Timber prices went to hell in 2008 and still haven’t recovered. At least in the gulf coastal plain of US south. Land prices have appreciated in some areas but otherwise timberland has been flat. In southern Arkansas we get steady 3-5% return on hunting leases and timber sales. But it is my favorite asset because you can enjoy it & have direct control over this asset! It’s an excellent asset to add to one’s holdings. My family has held timberland for 3 generations since the 1900ss

[@andrewcooke-hedin1903]

very cool video. You're perspective aligns closely with my own. You and I are close to the same age. I studied finance in college but ended up moving back to my family's timberland in northern California. Neat Channel Ill watch some more of your stuff!

[@calebfast8088]

I was thinking I was picking up some Nassim Taleb vibes from a lot of atuff I've heard on your channel! He's got some great info and takes.

[@toberwine]

I like to see impactful events in forestry as opportunities - they give opportunities for increased harvest and restructuring to increase species and age class diversity (as long as they are localised!)

[@TomBTerrific]

I enjoy your presentations. They constantly make me think about things I was planning to do but needed some guidance as this is a topic I have little experience in. I was always an outdoors guy growing up but as my career progressed I found myself becoming a desk jockey. Not saying that was a bad thing because I found few desks I couldn’t ride. Now in retirement and I’ve been looking into forested property.mostly in the south but I’m open to other areas. My difficulty is getting my son excited about it. I will never benefit from any property but I like to think of a legacy property that could be generational. Thanks for sharing your thoughts I do find them stimulating.

[@chrismartin7579]

I have not owned a policy, but my understanding is that for mature stands a forestry insurance policy can protect an owner from catastrophic financial loss against some events. Per G&M Insurance, "Forestry insurance generally covers the destruction of trees as a direct consequence of fire, hail, malicious acts, impact, earthquake and as an option, windstorm." I'm sure you know more about that than me, since I know almost nothing and have never owned a policy, but that topic might make for a potential future video.

[@kenofken9458]

I don't know about forest insurance, but homeowners insurance premiums have tripled in the last year or two and in a growing number of places, you can't get coverage at all. Or if you do, it has so many exclusions that it effectively covers nothing in the event of loss.

[@sam78ize]

makes sense. another perspective is to asses loss of opportunity per time frame. the land investment I suspect would perform low for short-term and better long term. thanks for posting.

[@asknwclips7672]

50% tail risk (non-time adjusted) on an event that can happen over a week, with no warning and no way to stop/cut losses (after all preventive measures already employed is a very HIGH risk). Doubling a 60 year harvest cycle is actually a (constructive) total loss of productive value.

[@rrmachen]

Would be helpful for you to share the quant to amplify the point… Your words are valuable but the quant would provide much more credibility. Visual asset wealth accumulation comparison would be great to see.

[@juwright1949]

I find your channel interesting. I think that forests are a small and select asset class for a portfolio. Overall a forest is really a commodity (lumber) and land. Each has value and perhaps an alternative value. Raw land in the middle of Maine with NO forest is not that valuable because there is ALTERNATIVE use for the land. The Black Swan events that you dismiss and still there (insect, disease and forest fires) and they just don’t follow a normal probability distribution. I am interested, however I need the liquidity, duration and reinvestment risks are real. You do bring up some interesting points. Great video. 😊

[@Quietpart]

How do you find/finance the land? Would love a video on finding properties and how to evaluate them. Is seller financing common in this industry?

[@burtonkent4549]

What kinds of loans are possible for buying timberland? Possibly that can "juice" returns as long as the income from the land is more than the interest rates.

[@michellecelesteNW]

Fascinating! Do you know what zoning is best for this if someone wanted to say, have a homestead and forest ag too?

[@thetimberlandinvestor]

The best zoning is no zoning! Its hard to give any recommendations because of how different local laws are, but where I am from, there are very small townships that have virtually no local laws around such things, so they default to state standards, which almost exclusively concern what you can do around bodies of water. Other than that, you can pretty much do as you wish on your property.

[@vidard9863]

The risk you did not list is taxes. That is the major downside to real estate; it costs money and you get taxed every year regardless of what happens.

[@jacobmurray3621]

Connecting to your other video about population decline. That land value might not raise nearly as much as before us to Less demand.

[@thetimberlandinvestor]

Maybe, maybe not. You can also make the case that funding social security programs with a smaller workforce will require more deficit spending, which will increase inflation and, by extension, land and real estate prices. There are many possibilities for what the future may bring, and thus a lot of uncertainty.

[@jesseowen7304]

Would the online GIS tool you're working on be something that could replace Plothound? A replacement for that platform would be a very welcome sight.

[@thetimberlandinvestor]

Currently no, the program will be a replacement more for Google Earth or OnX, allowing for feature snapping, better data storage/organization and tracking, and the ability to create and export georeferenced maps for clients, lessees, and personal use. That said, over time, I would like to expand functionality to cover virtually anything a forest manager might need, including cruising. That's part of the reason Im building this alongside a growth modeling tool that pulls from FIA data. I could theoretically link someone's cruising data to the FIA database and provide estimates (albeit imperfect) of standing volume and growth trajectory. Its really just a matter of development costs, so this will be something that will be built over time and in accordance with user demand and feedback.

[@jesseowen7304]

That makes sense--sounds like a lot to come! Thanks for the info.@@thetimberlandinvestor

[@toberwine]

Continuous Cover Forestry can massively reduce risk.

[@jcm3301]

thanks for the interesting take. Bill bernstein mentions the 4 risks to protect against are inflation, deflation, confiscation, and devastation. The last two (you mention devastation somewhat), but not confiscation. It seems like in a rapidly warming planet, there are other risks for devastation probably some we cant anticipate.

[@thetimberlandinvestor]

Confiscation is an interesting one which I did think about including, but figured it might be overly specific. There is the common types of confiscation like not paying your taxes, and the more advanced forms of confiscation, like what happened to many landowners after communist takeovers around the world. Interestingly, because ownership of land is so well documented, after the communist regimes collapsed, a large percentage of those estates were returned to the rightful owners or heirs. That said, in such a situation Id probably prefer gold hidden under the floor boards or something. As for other "unknowns," I completely agree. I do think there are likely yet-unknown risks that this century will deliver, but even so, I think forest land is probably the *least* vulnerable because of the attributes I mentioned. But ultimately that's why calculating risk is so tricky...It can only be truly seen in retrospect.

[@justpete2748]

Something that made me think back in 2018 or 2019 was when the price of Christmas trees went through the roof. When it wasn’t worth harvesting during the GFC it meant that there was no room to replant. So it took a decade but the producers made their money back.

[@ericbloomberg5795]

Food for thought…..now take this down to the micro level and “follow the money” for one rotation.

[@dabigwilli]

Looking at stocks and not considering the dividends is about as useful as looking at timberland and not considering the timber. Just like anything financial, you want diversification in your investments, be that stocks or trees. I’ve watched almost every one of your videos over the last twenty four hours and have obviously been enjoying them to watch that many hours of your content, but that take didn’t come across well in my opinion.

[@rochrich1223]

No asset will protect you from a breakdown of law and order. Gold was effectively taken by the USA, Imperial Germany and many Socialist governments. Having food was considered hording many times. Land...there are 1.6 million acres of abandoned farmland in NY. That is accidental dispossession due to bad policies. Woke environmentalism will continue to get worse and could make it too difficult to make money from forestry in places.

[@TomBTerrific]

Possibly but you’re totally discounting the fact that the laws of nature are not affected by political or social trends. They are constant. Over time they are predictable regardless of changes to society.

[@rochrich1223]

You can't cover everything in a paragraph. First, ownership is a 100% political concept. Dispossession is as common a long-tail event in the various forms of land ownership as it is the examples of stocks and bonds he showed. Land can be more stable long run but only if it Isn't Leveraged. There is a subtle difference between an investment and a self-employment opportunity. The channel leans towards management ie self-employment. If it beats the alternative employment opportunities, all to the good. The land owning families near the abandoned locomotives have been there since the Civil war, however, did many land owning families on the loosing side of the war do as well? The big land owning families in my part of New York got the land in the first place by being connected to the King of England when English armies took the land from the French or the Indians(depending on who's claims you consider more serious) Anyway, they would have lost everything if they didn't traitorously choose the winning side and early enough. Most large land holding families chose wrong and are only remembered in place names.

[@auacc93]

​@rochrich1223 you clearly know your stuff, so what, in your opinion, are we supposed to do to ensure economic stability in these times?

[@rochrich1223]

That is indeed a tough one. Obviously it depends on your context and what you believe the threats are. Buying things of intrinsic value, productive land for instance, can be an effective inflation hedge. However, immobile things are subject to confiscation if political change is the threat. Low grade political threats can grow out of governmental indebtedness. The Southern landowners were mostly dispossessed by State property taxes. Same thing with NY farmland. I would not buy Californian land (outside of special circumstances) in anticipation of increased taxes to cover the retirement funds shortfall and woke environmentalism. From the examples, buying when prices are high anticipating even higher is often a mistake.(bubbles) Gold now in my opinion. Farmland now. Hearken back to the 1980s when the Japanese and Arabs were going to buy up all the farmland and leave us hungry. God, after all, is not making more farmland. Other than spies setting up next to bases, the Chinese buying farmland is not a problem. Mostly it's their wealthy preparing a place to go once the CCP collapses. The worst political risk I think is probable is the collapse of Communist China. What they buy will drop in price, copper, ores, coal. Oil probably unless fear offsets the drop in demand. If you wanted to park some cash, perhaps tungsten now. Electronics production might be disrupted. Not the best time to hold electronics company stocks. So what to invest in? Firstly, skills. Easily transportable, useful and tradable. I see small scale forestry much like small scale farming. Both are much like the rest of the "maker's movement". Smaller equipment combined with the ability to sell direct to consumers cuts the necessity to work for someone else. (the power of the gig economy to undermine Unions and patronage systems I believe is behind the attacks on it in some Liberal States and cities) Two of the most famous speakers from the small farm/homestead movement are Joel Salatin and Greg Judy. Besides soil health Joel is famous for portable infrastructure and stacking enterprises on the farm. Greg is most famous for raising other peoples cattle on leased land. What do I want to do? I think the 1.6 million acres of abandoned farmland in NY is a great opportunity so long as you don't own it. Someone owns it and should be willing to lease it to me so long as I can pay more than remaining abandoned. Since NY has tax breaks for farmed land and tree farms, I should be able to pay partly with tax breaks. There are 1200 sq ft houses an hour away from Buffalo, Erie and Cleveland that cost no more to buy than renting a one room apartment in Brooklyn for 10 months! Three million potential customers. Three different States in case one gets stupid(er). I would be in place if NY got really stupid and started paying for carbon sequestration and included farmland. Which enterprises to stack? A satellite picture of NY should convince anyone that forestry should be part of the picture. Livestock farming appeals more than vegetables, but works on smaller pieces of land, bees maybe. More detailed than that depends on what I find and the market demands. Where? The US is being goosed just about as hard as it can be but will remain the safest place in the world. Demographics are running hard against secular liberals. By 2100, 300 million Amish and 300 million Mormons will dominate the 150 million remaining small L liberals. At least we aren't facing the demographic collapse most of the rest of the industrial world is. Taxes in Liberal States and cities will rise and destroy many enterprises but other choices will remain open. We'll see if the parliamentarian English speaking countries can reverse the erosion of personal rights seen in the last couple decades. I guess that would be called a run on answer, so I'll quit here.

[@kenofken9458]

@@rochrich1223 Yes. Skills. Many years ago the father of the woman I was seeing told me about this. He came up during the 1960s and was convinced there would be massive societal collapse, maybe some apocalyptic nuclear war or whatever. He said he considered doing the traditional prepper thing - guns, remote hideaway, hidden supplies and wealth etc. He came to the conclusion that none of it was any good because it could always be taken away from you by a larger armed force or someone more vicious and cunning than yourself. He decided to go into boiler and HVAC. He reasoned that whatever government or warlord rose from the ashes would not tend to kill off or harm the people who had the critical skills to run the infrastructure. It didn't happen like that, but he got a good solid career out of it.

[@asknwclips7672]

naseem taleb is a muppet

[@pappamike6231]

Your intro was so boring I clicked off at 3 minutes. Good luck.