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Here's How to Get $800 Million in Timberland for Free

By Sean Goldsmith
Saturday, July 5, 2008

As a financial analyst, I get paid to read the stuff no one else will.

Dry financial statements... longwinded press releases... 300-page annual reports... 500-page merger agreements.

It sounds like a simple task. It is. And after all, it's what a financial analyst trains to do. But luckily for a small group of investors, most Wall Street analysts won't put in the extra work to learn the details when a big company slices off a chunk of itself to sell to the public.

When a company does this, it's required to file lots of extra paperwork with the government. These filings usually read like tax code. If you make a habit of understanding these "spinoffs," however, you can set yourself up to buy incredible businesses for pennies

Let me show you an example of how this kind of investing can lead to huge returns... 

In February 2008, legendary money manager, Brookfield Asset Management (BAM) spun off an arm of its business that specializes in electrical transmission and timberland. Brookfield is like a publicly traded hedge fund... it's a collection of businesses operated by brilliant managers for the long term. 

Still, Brookfield felt its electric and timber arm would get a lot more recognition – and therefore sell for a much higher value – if they brought the business out from "behind the curtain" of the conglomerate. Thus, Brookfield Infrastructure Partners (BIP) was created...

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When we bought BIP shares in the S&A Dividend Grabber in March, it was a new face on Wall Street. You had to do some digging into the paperwork to learn what the company was all about. But anyone who bothered to do so would have realized they could buy an incredible amount of timberland for nothing... 

When it was spun off, BIP owned electricity transmission lines in Chile, Brazil, and Canada. It also owns nearly 300,000 acres of premium timberlands in Oregon, Washington, and Vancouver Island. The market was ignoring its timber because the housing market was in a slump (if people aren't building houses, timber prices go down). 

I looked at current timberland transactions from the same area, and using those prices as a gauge, estimated BIP's land to be worth $864 million. 

Now here's the amazing part: BIP was selling for $600 million at the time. Anyone who bothered to read the 400-page company profile would have noticed the blatant mispricing.

But they didn't... And we're up 30% in three months (the stock is so cheap it didn't budge at all during the recent market sell off). I still think this is one of the great inflation-proof investments in the market right now.

The same thing happened last year when Tyco spun off its medical equipment manufacturing business, called Covidien. Tyco owns a portfolio of world-class assets, but its famous legal troubles depressed its share price. It sort of "set Covidien free" last July. You could buy Covidien for about half the value of its competitors. We're up 18% on the stock (Covidien is so cheap, it hasn't even budged either).

In investing, everyone has the same information. It's how you use that information (or use it at all) that can make you a fortune. The best investors know you've got to read a lot in order to make a great decision.

Bill Ackman runs the hedge fund Pershing Square. For the past six years, he's been short a bond insurer called MBIA. He claims to have read 140,000 pages on MBIA over the course of his studies. He's made hundreds of millions of dollars on his position.

Probably the most famous example of this theory at work comes from the greatest investor of all time, Warren Buffett. Buffett's partner Charlie Munger says Warren is so successful because he "sits on his ass and reads all day."

If you want to follow in Warren's footsteps, I encourage you to check out the world of spinoffs for ideas. As I mentioned, there's not much competition here... which means you can find some incredible deals. You can even find $800 million in timberland for free.

Good investing,

Sean Goldsmith

Market Notes


For the past several years, we've filled these pages with commentary on how "real stuff" like oil, grain, and gold are in an era of outperformance vs. conventional stocks... especially stocks in the landfill stuffing business. We've run a ton of charts showing this theory at work.

The S&P 500 vs. gold is the centerpiece chart of our theory. The S&P is the world's most widely followed gauge of stocks. Gold is timeless, real wealth.

As you can see from this week's chart, stocks are still in a long downtrend when measured in gold. This trend won't reverse itself anytime soon.

– Brian Hunt 

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