Aunt Fanny opened her black-and-white marbled composition notebook and flipped a few pages. Then she closed the book and pulled out her HP calculator. She spoke while punching numbers into the HP.
“Nephew, you’ve taught me a lot about my forest and how it can make me money. I see the cash flows. And investing more in timber sounds good. But I’m not sure the returns are there.”
Before retiring, Aunt Fanny managed a group of bank branches in middle Georgia. She had worked her way up from secretary to regional vice president. I remember her telling me once, years ago, while helping me with my math homework, “Numbers don’t lie. People do.”
Aunt Fanny continued clicking away on her calculator. A woodpecker in a nearby ash tree stopped poking for grubs and turned to watch. Aunt Fanny looked up; the woodpecker bobbed its head and flew off. I waited.
Aunt Fanny turned to me. “Alright, Nephew. Dazzle me.”
“If want to buy more timberland, your returns depend largely on three things. One, what you pay for the forestland. Two, how long you stay invested. And three, how much you pay in fees to manage the forest.”
Aunt Fanny nodded. “My valuation, my time horizon and my expenses.”
“Right,” I said. “These three largely determine your results. This is true for individual investors as well as for the largest institutions.”
“Nephew, are you oversimplifying this for me?”
“No, Ma’am. But I’m careful not to confuse simple with easy,” I said. “We don’t earn bonus points in forestry for making it complicated.”
“There is no premium for complexity,” said Aunt Fanny, nodding her head.
“Yep. That’s what Dad always said.”
We both looked into the forest with the sounds of the woodpecker knocking about again.
“So what’s the hard part?” asked Aunt Fanny.
“Patience,” I said. “The hardest part is taking the time to get familiar with the local market to properly find and evaluate investment opportunities.”
The woodpecker moved back to the favored ash tree.
“And,” I added, “when the numbers look good, move fast.”
Click here to learn about “Applied Forest Finance” on February 3rd in Atlanta, Georgia. The course details necessary skills and common errors associated with the financial analysis of timberland and other forestry-related investments.