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Is Lumber a Good Investment?

Started by Tome, December 12, 2004, 08:10:41 PM

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Tome

I was wondering if anyone out there invests money in lumber instead of the stock market or any other places?

I was thinking about putting some money in raw lumber, air dry it and either hire it kiln dried or get a kiln and dry it myself.

It seems the price of lumber over the long haul keeps going up so does anyone have any stats on how it has done over the past few years.  And how may believe that it will continue to rise.

Thanks, Tom

etat

Thinking it'd take a huge amount of inventory to show a substantial profit after expenses of buying, stacking, drying, and storing.  And to buy it, and set on would tie up a lot of cash.
Old Age and Treachery will outperform Youth and Inexperence. The thing is, getting older is starting to be painful.

TomFromStLouis

If you want to profit from drying lumber, you are talking about a business venture, not a passive investment. If you are thinking of buying lumber and sitting on it while it appreciates, I think it is a poor idea. Timber maybe, since it grows and has a long history of holding value over time, but a few thousand bf of walnut or something is purely a play on commodity prices (assuming you have proper storage and can find a buyer at the right time etc.).

This is not something that offers enough to cover the costs and labor of storing, moving and selling. in short, transaction costs are much higher than the ~1% you'd pay to buy a paper investment. Tangible assets like land, timber, gold, etc. are valid sectors for investment, but each has specialized knowledge required to succeed and has relatively high transaction costs (friction). And the first rule of successful investing is to stay within your circle of competence, whatever it is.

If you think you can make money from drying some lumber, good luck in your business. But as a business, you won't want to sit on a bunch of inventory for ten years trying to make an extra X%.

Ron Wenrich

Well, there is money to be made and lost by speculating on lumber.  But, buying the commodity and sitting on it is the best way.  Too many risks.

There is a commodity of lumber that is actively traded on the Chicago Merchantile Exchange (I think).  It is based on the realtive value of a 2x4.  But, it isn't 1 board, its a railcar load.  

You need to be able to put up a margin which is probably around $3000, and you will have to maintain it.  You can buy or sell it, depending on which way you think the market will go.  There is also a time limit, as contracts do exprire.

You can make a ton of money in a short amount of time, as long as you are on the right side of the market.  Movers of the lumber commodity tend to be things like interest rates, amount of construction, tariff restrictions, forest fires, hurricanes, etc.  Anything that effects the rate of lumber.

You can also buy or sell an option.  Then, you have to be right in both time, price and direction.  

I've dabbled in commodities for years.  Its a really quick way to win or lose money.  I stay away from options, but lots of people go that way due to less risk.  

Putting lumber up has too many downsides, if you want to cash in on market movement.  
Never under estimate the power of stupid people in large groups.

Brian_Bailey

QuoteI was wondering if anyone out there invests money in lumber instead of the stock market or any other places?

Tome,  

I invest in myself rather than let someone else control my money. I was never happy with the meager returns that conventional investments offered and didn't have the $$ to play with the big boys :<(.

Twenty plus years ago I decided to set up a wood business to invest my money in rather than give it to some banker or broker.

I've experienced most of the ups and downs that one might expect in such a venture but after all these years I have identified the markets that I want to cater to and the dividends paid are worth the effort for me.

My advise would be to identify the niche market(s) in your area and concentrate on that rather than throwing money at a pile of lumber (wholesaling) and hoping it will sell for a profit.

One of my favorite mottos is "Nothing ventured, Nothing gained"

The one I use on my wife when I want to buy a new toy is "It takes money too make money" but I thinks she is getting wise to that one :>).
WMLT40HDG35, Nyle L-150 DH Kiln, now all I need is some logs and someone to do the work :)

OneWithWood

Tome,

I did divest myself from the market and put the money into capital goods to maintain my tree farm.  I agree that timber on the stump can be a good investment and I think a better one than the market in general.  I would not recommend buying a buch of inventory and sitting on it.  The carrying costs are likely to eat up any gain.
One With Wood
LT40HDG25, Woodmizer DH4000 Kiln

WH_Conley

About ten years ago I bought a tract of cut over timber, several hundred acres, cut hard, bought cheap,I was looking for a 20 year payoff. Had an ice storm a couple of years ago, figure I lost out of my "retirement" 100k or more. Still should repay around 10 times investment amount and still have the land. Land prices around here for cutover timber have about doubled since I bought this tract. Course another ice storm or good fire can change all that real fast. Bottom line; stock market, real estate or anything else is a gamble. Do your homework real close to take as much gambel out of it as much as possible. Good Luck.
Bill

Tome

Thanks Guys,
  I appreciate all the replys, hopefully I can make some good decisions because of all the information on this forum and whatever I can learn elsewhere from others experiences.

Hopefully next year I will have my kiln up and running and be able to add value to my raw lumber that I already have.

Again Thanks,
Tom

Kirk_Allen

Tome:

Lots of great input to absorb.  

Hope this info helps.

I have been cutting free logs in my spare time and storing most of the wood in an old chicken barn.  I currently have about 15-18,000 bf stacked lumber of varying hardwoods.  I have sold around 5,000 bf to date generating about $12,000 in rev.  

As a hobby sawyer I have been able to make a profit, of which I put back into my hobby in the way of buying more tools and stuff ;D

The wood I have on hand was free so I look at it as my IRA.  Its not going any where and I keep my eyes open for good sales while at the same time taking care of a few local customers.

I guess it depends on how you track your time?  I have had folks say, yeah you got a lot of wood but look how much time it cost you.  Well, for me, the time was spare time. If I wasnt cutting wood and being productive I would have been sitting in front of a TV watching sports of some sort.  I finally concluded that we all have 24 hrs in a day, its how we spend them that makes the difference.

By spending a few hours a week gathering logs, cutting and stacking I can say its been one of the best investments of my life.  On the financial side its been fair, but on the personal experience side its been priceless.  The people I have met and relationship that have come out of those meetings are priceless, not to mention the fact that I feel much better after a day on the mill.

Just my two cents worth ;D

rebocardo

Unless you have the wood and barn insured it sounds like a risky investment to me because fire could easily wipe it out. If you moved your entire inventory once a year on average, that would be different.

As long as the wood is free, I suppose it is okay, though the thing is to get paid to cut down the tree and then it truly is free wood. Just taking stuff laying around is not really free.

The thing to invest in, long or short term is acreage, woods, or real estate. If you buy almost any urban property for cash AND rent it out, you have a solid investment that will give you a much higher return then just about anything in the stock market.

I bought a house for $29K and 20 years later it was worth $140k, plus, I lived in it not paying rent. If I had rented it out for $1200 a month when I moved, it would have been almost all profit every month on the original investment.



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