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The #1 Investment of the Iron ChancellorBy
Tuesday, July 18, 2006
Otto von Bismarck was one of the most prominent statesmen of the 1800s. Before Bismarck, Germany was a collection of independent kingdoms. When he died, it was a unified empire and the most powerful nation in Europe. They called him the “Iron Chancellor.” We’re interested in Bismarck for another reason: He was an outstanding investor. According to a story by Barton Biggs in his book Hedgehogging,Bismarck’s investments delivered about 10% a year for 25 years, in a time of zero inflation. It was enough to make him a very rich man by the time he died in 1898. When you’re the most powerful man in Europe – in the 19th century - it’s not hard to make money in the stock market. You control the military and the politicians and there are no laws against insider trading. That’s how Bismarck made his money. Insider trading. No skill required there. The hard part was holding onto your fortune through all the political and economic turmoil. This is where Bismarck excelled and the reason we mention him today. Bismarck always plowed his profits into timberland. “Bismarck’s appetite for timberland was insatiable,” writes Biggs. Bismarck’s insight was spot-on. The 50 years in Germany following his death featured hyperinflation, depression, war and defeat. Timberland held its value better than any other investment. We believe the investment proposition of timber today is just as powerful as it was in Bismarck’s day. Here’s why: 1) Excellent returns We calculate that, between 1972-2006, an investor in timber saw average annual returns of over 14.5%. In other words, if you had invested $10,000 in timber in 1972, you'd be sitting on close to a million dollars today. Here’s a rough breakdown of timberland’s average annual return over the last century:
2) Beats every other asset Most people don't know that timber beat all major asset classes over the last 30 years. Consider the chart below from the Campbell Group... it shows a comparison of the annualized returns for timber versus several other investments. As you can see, timber has performed better than stocks, bonds and commodities. The total compounded gain for timber during the period 1987-2002 was about 15%. 3) Less volatility than stocks Not only does timber beat other assets, it does it with lower volatility. We find timber has had three down years in the last 45 years. That makes it much less risky than stocks, which have had 12 down years over the same period. 4) Timber goes up when stocks go down Timber does best when stocks do badly, so it’s a great asset to own when stocks are in a secular bear market, like today: The last great bear market in stocks began in the late 1960s and lasted until about 1980. An investor in stocks during that time literally lost money due to inflation. However, an investor in timber never had a losing year. And more often than not, the returns were in the double-digits... with a 55% return in 1973 and a 47% return in 1977. In layman's terms, the trees don't care about the War on Terror, or the Nasdaq Bubble. They just mind their own business, growing exponentially in value every year! On such investment - timber REIT Rayonier – brought True Wealth readers a safe, 60% gain in just over two years. Bismarck would be proud. Good investing, Tom Market NotesTHE BULL MARKET IN CASH YIELDS CONTINUES… Two years ago, money in the bank paid just a little better interest than leaving it under a mattress. Instead of settling for those tiny cash returns, investors chased the yields offered by stocks and bonds from risky countries like Brazil and Russia. Now – after 17 consecutive Fed rate hikes - playing it safe actually pays. We now have the highest short-term rates in five years. Several U.S. banks offer 3 month CDs with rates above 5%… and chasing returns in riskier foreign bonds doesn’t look so appealing anymore… If you’re in the market for high bank yields, click here for a list of the nation’s highest yielding CDs. -Brian Hunt |
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