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Anybody on MFO have a dedicated investment in a timber ETF? Anybody overweight emerging market bonds and emerging market equities to the extent suggested by the graphic?
I was skeptical about GMO, but I took a quick glance at their benchmark-free world allocation fund and the returns and volatility look quite good, actually. http://quotes.morningstar.com/fund/gbmfx/f?t=GBMFX Maybe I should pay attention to this forecast.
Not sure if this fits your thread question about timber, but it seems to fall along the edge of the forest:
A couple of quotes:
"The latest news from the American Institute of Architects (AIA) has some economists alarmed, because it shows a potential shrinkage in housing related activity. The AIA publishes data based on surveys of member firms, known as Architecture Billings Indices, and their two main index products are the Billings Index and the Inquiries Index. Billings represents actual work that gets billed to the customer, while Inquiries is a softer data set reflecting customers potentially generating new work."
and,
" I have found that lumber prices give a 1-year leading indication for housing activity....an even better leading indication foretelling trouble in the housing sector, and thus in the economy. Lumber price data are shifted forward by a year to reveal how lumber prices lead what happens in the housing market."
My question, where will the demand for timber products come from?
-Student loans will strap newly minted professionals, -Retirees need less house (not more) -China has plenty of housing for their new middle class. *Maybe India...?
Note: Now that 5 mugs of coffee a day is in our best interest...how about coffee trees?
@MFO Members: If you believe in GMO's 7-Year Real Return Forecast, I have a bridge for sale. Regards, Ted
Not just that but if you listen to *anyone's* forecast, 7 years or whatever. There are no "experts" in the forecasting or prediction business.
Edit: I played that game long ago when I was a losing investor/trader. The game that there is someone out there that knows where the markets are heading. So like so many I read all I could about the forecasts and predictions of the self proclaimed experts thinking I could somehow come up with an my own opinion based on the opinions of all those experts.
1. Essentially every academic and professional analysis I've read which looks at GMO's asset class projections concludes that they are reliable and actionable. That is, they tend to be right both about the ordering of performance (their top-projected class does tend to outperform their second class which outperforms their third and so on) and the magnitude of returns. Two caveats: most of the analyses cover 2000-2010 so I haven't seen much on the current cycle and most of the analyses are couched in terms of "good but not perfect."
You might look at the chart plotting GMO projections against actual returns at CXO Advisory, an interesting simulation that includes a portfolio which shorts asset classes that GMO projects to have the lowest real returns (a strategy that would have made money every year from 2000-2010, 13% annually on average) and an academic study out of Duke University, "Are GMO’s Predictions Prescient? Using them to predict Vanguard’s Mutual Fund Returns" (2009, whose title you'd need to Google since it's a downloadable Word doc). The latter concludes:
The correlation between the GMO predicted returns and the Vanguard realized returns for equities, bonds, and all assets taken together are 0.954, 0.959 and 0.677 respectively. These are average geometric returns from The end of July 2000 through the end of July 2010. They are for asset classes ranked by predictions. Thus, asset classes predicted to have high returns do have high returns.
Why? Because they're modeling just one simple assumption: overpriced assets don't remain permanently overpriced, they regress toward their mean valuations.
The responses, of course, are "it's different this time" (yes, I know, it always is) and "what have you done for me lately?" (which is to say, reversion hasn't occurred yet, which is taken to be evidence that they've lost it). And, indeed, both positions might be right.
2. Many of the studies of timber focus on managed forestland rather than on the stocks of forestry companies or wood product users. Here's the basic logic of owning a forest: it costs almost nothing and every tree becomes more valuable with every passing year; as a result, if you don't like this year's prices, you harvest less then sell even more valuable lumber into the next rebound. That seems to be the strategy originally taken by the folks at Harvard's endowment. I'm not sure how well the strategy translates into buying shares of Plum Creek Timber or Rayonier, much less ETFs like WOOD or CUT.
Here's a study that indicates that when stocks are especially expensive, they tend to keep rising rapidly for a few years more... but then over 10 and 20 years periods the return is subpar. http://seekingalpha.com/article/2934926-are-stocks-most-expensive-on-record#comment-48503146 I think the takeaway here is that mean reversion happens, eventually, but if you expect it to happen right now just because assets are overpriced right now you risk losing a big chunk of upside. I'd bet junkster's techniques are far better for figuring out what to do right now.
Reversion to the mean works over the long term, but momentum works over shorter terms. How soon it fails and when to switch to another strategy is the great puzzler. We do know that the average investor gets in late, (buys high) and sells late (sells low).
You noted: "Reversion to the mean works over the long term, but momentum works over shorter terms. How soon it fails and when to switch to another strategy is the great puzzler."
This statement pretty much sums the whole picture.
We are long term??? investors until we are not..... Some of long term holdings have been years (since the crash) and others sections have had a months time frame.
More than 25% of our current equity holdings are related to healthcare. This works until it does not, eh?
I have long respected GMO. They do high quality work. The GMO 7-year forecast has a reasonable, but imperfect, accuracy score; it is much superior to most forecasters. Therefore, I hesitate to challenge any of their fine research. But I have in earlier MFO postings, and I do now.
Here is an internal Link that actively discussed the pros and cons of their 7-year forecast:
Today, I would do the same analysis that I completed in August, 2013. I still feel that GMO is too pessimistic, but not quite so much. Given the market's positive outcomes recently, there is a stronger pull towards a reversion-to-the-mean. The issue is the timing; nobody knows when that reversion will be initiated and how long and the depth that it will take.
Please access my earlier MFO post. It captures most of my current thinking on this matter. I'm too lazy to update those small areas that I would marginally adjust my positions.
These debates never have a winner as we are colored by our biases, me included. I have never been a fan of Jeremy Grantham of GMO. While not a perma bear, at the very least a very pessimistic guy. In his interview above in October 2009 he was his usual pessimistic self. And just look at his prediction then of the seven forward year returns for stocks.
There are a few CEF's on the London AIM exchange, but it looks like they haven't been run well (large discount due to poor earnings and risky assets). Forex is also a headwind. Operations are proving too costly and there are some legal issues. I think both are available at Fido. They provide more direct access to timber rather than paper products or mills. Okay, maybe I shouldn't have brought these up, but paper/wood manufacturing is different than timber.
Cambium Global Timberland (TREE.L) Phaunos Timber Fund Limited (PTF.L)
Lumber/Timber, I have been hearing about some future acute shortage for decades. Just checked lumber prices in 1980. Looks like a double. Pretty miserly when compared to equities.
Edit: Correction: not even a double in price since 1980.
I own WY. They own over 6 million acres of timberland. WY has converted to a REIT and in the process spun off it's homebuilding division. I consider it a long term holding. Mitchelg
There are a few CEF's on the London AIM exchange, but it looks like they haven't been run well (large discount due to poor earnings and risky assets). Forex is also a headwind. Operations are proving too costly and there are some legal issues. I think both are available at Fido. They provide more direct access to timber rather than paper products or mills. Okay, maybe I shouldn't have brought these up, but paper/wood manufacturing is different than timber.
Cambium Global Timberland (TREE.L) Phaunos Timber Fund Limited (PTF.L)
I owned a little of the Cambium fund for a while a few years ago (there is a pink sheet share in the US). Would be nice to have a solid pure play on timber, but unfortunately, this just wasn't it. I can't believe it's down as much as it is since I sold it. I thought there was an activist shareholder in this at one point but I guess nothing came of it.
The best option I can think of in terms of something resembling a pure play is Acadian Timber (ACAZF.pk), which is owned by Brookfield Asset Management.
Bought a bit of WOOD several years ago, I think about the time GMO recommended forests. Up 45+%, which is so-so, but it takes a while to make a tree. Don't know what I would do now. WY looks like it has a good dividend, but the rating services at TDA dislike it. The chart is steadily up, however. Will watch. If Fido's New Markets Income counts, I was heavily in, but less so now. Out completely a year or so ago, but lightly in now and positive returns so far. Haven't had the nerve to plunge as I age. VGHCX for > 10 yr; FBIOX has been good; peaking, but probably safe with Republicans controlling Congress. Looking around the sidewalks, health care funds have to do fairly well. The services can't be moved off-shore; the demographics can't be ignored; and cost controls won't be placed to any great extent.
Comments
Anybody overweight emerging market bonds and emerging market equities to the extent suggested by the graphic?
http://quotes.morningstar.com/fund/gbmfx/f?t=GBMFX
Maybe I should pay attention to this forecast.
Regards,
Ted
A couple of quotes:
"The latest news from the American Institute of Architects (AIA) has some economists alarmed, because it shows a potential shrinkage in housing related activity. The AIA publishes data based on surveys of member firms, known as Architecture Billings Indices, and their two main index products are the Billings Index and the Inquiries Index. Billings represents actual work that gets billed to the customer, while Inquiries is a softer data set reflecting customers potentially generating new work."
and,
" I have found that lumber prices give a 1-year leading indication for housing activity....an even better leading indication foretelling trouble in the housing sector, and thus in the economy. Lumber price data are shifted forward by a year to reveal how lumber prices lead what happens in the housing market."
Article:
mcoscillator.com/learning_center/weekly_chart/architecture_billings_index_flashes_warning/
My question, where will the demand for timber products come from?
-Student loans will strap newly minted professionals,
-Retirees need less house (not more)
-China has plenty of housing for their new middle class.
*Maybe India...?
Note: Now that 5 mugs of coffee a day is in our best interest...how about coffee trees?
Edit: I played that game long ago when I was a losing investor/trader. The game that there is someone out there that knows where the markets are heading. So like so many I read all I could about the forecasts and predictions of the self proclaimed experts thinking I could somehow come up with an my own opinion based on the opinions of all those experts.
1. Essentially every academic and professional analysis I've read which looks at GMO's asset class projections concludes that they are reliable and actionable. That is, they tend to be right both about the ordering of performance (their top-projected class does tend to outperform their second class which outperforms their third and so on) and the magnitude of returns. Two caveats: most of the analyses cover 2000-2010 so I haven't seen much on the current cycle and most of the analyses are couched in terms of "good but not perfect."
You might look at the chart plotting GMO projections against actual returns at CXO Advisory, an interesting simulation that includes a portfolio which shorts asset classes that GMO projects to have the lowest real returns (a strategy that would have made money every year from 2000-2010, 13% annually on average) and an academic study out of Duke University, "Are GMO’s Predictions Prescient?
Using them to predict Vanguard’s Mutual Fund Returns" (2009, whose title you'd need to Google since it's a downloadable Word doc). The latter concludes: Why? Because they're modeling just one simple assumption: overpriced assets don't remain permanently overpriced, they regress toward their mean valuations.
The responses, of course, are "it's different this time" (yes, I know, it always is) and "what have you done for me lately?" (which is to say, reversion hasn't occurred yet, which is taken to be evidence that they've lost it). And, indeed, both positions might be right.
2. Many of the studies of timber focus on managed forestland rather than on the stocks of forestry companies or wood product users. Here's the basic logic of owning a forest: it costs almost nothing and every tree becomes more valuable with every passing year; as a result, if you don't like this year's prices, you harvest less then sell even more valuable lumber into the next rebound. That seems to be the strategy originally taken by the folks at Harvard's endowment. I'm not sure how well the strategy translates into buying shares of Plum Creek Timber or Rayonier, much less ETFs like WOOD or CUT.
Off to grade.
David
http://seekingalpha.com/article/2934926-are-stocks-most-expensive-on-record#comment-48503146
I think the takeaway here is that mean reversion happens, eventually, but if you expect it to happen right now just because assets are overpriced right now you risk losing a big chunk of upside.
I'd bet junkster's techniques are far better for figuring out what to do right now.
You noted: "Reversion to the mean works over the long term, but momentum works over shorter terms. How soon it fails and when to switch to another strategy is the great puzzler."
This statement pretty much sums the whole picture.
We are long term??? investors until we are not..... Some of long term holdings have been years (since the crash) and others sections have had a months time frame.
More than 25% of our current equity holdings are related to healthcare. This works until it does not, eh?
Thanks and take care,
Catch
I have long respected GMO. They do high quality work. The GMO 7-year forecast has a reasonable, but imperfect, accuracy score; it is much superior to most forecasters. Therefore, I hesitate to challenge any of their fine research. But I have in earlier MFO postings, and I do now.
Here is an internal Link that actively discussed the pros and cons of their 7-year forecast:
http://www.mutualfundobserver.com/discuss/discussion/7387/gmo-is-wrong#latest
Today, I would do the same analysis that I completed in August, 2013. I still feel that GMO is too pessimistic, but not quite so much. Given the market's positive outcomes recently, there is a stronger pull towards a reversion-to-the-mean. The issue is the timing; nobody knows when that reversion will be initiated and how long and the depth that it will take.
Please access my earlier MFO post. It captures most of my current thinking on this matter. I'm too lazy to update those small areas that I would marginally adjust my positions.
Best Regards.
These debates never have a winner as we are colored by our biases, me included. I have never been a fan of Jeremy Grantham of GMO. While not a perma bear, at the very least a very pessimistic guy. In his interview above in October 2009 he was his usual pessimistic self. And just look at his prediction then of the seven forward year returns for stocks.
Cambium Global Timberland (TREE.L)
Phaunos Timber Fund Limited (PTF.L)
Edit: Correction: not even a double in price since 1980.
and in the process spun off it's homebuilding division. I consider it a long term holding.
Mitchelg
The best option I can think of in terms of something resembling a pure play is Acadian Timber (ACAZF.pk), which is owned by Brookfield Asset Management.
If Fido's New Markets Income counts, I was heavily in, but less so now. Out completely a year or so ago, but lightly in now and positive returns so far. Haven't had the nerve to plunge as I age.
VGHCX for > 10 yr; FBIOX has been good; peaking, but probably safe with Republicans controlling Congress. Looking around the sidewalks, health care funds have to do fairly well. The services can't be moved off-shore; the demographics can't be ignored; and cost controls won't be placed to any great extent.