“Who wants yesterday’s papers
Who wants yesterday’s girl
Who wants yesterday’s papers
Nobody in the world.”

Shelf life is a big problem not only in the newspaper business but in most industries. The most basic example is bread. Day-old bread (which, usually, is actually several days old) is dry and stale and is used for stuffing or maybe bread pudding. And it sells at a big discount to fresh bread.

At the other end of the spectrum is microprocessors. Moore’s Law tells us that the number of transistors on a chip will double every two years. Which means that chips begin losing their value shortly after they are manufactured. And that’s why you can get an older laptop much cheaper than the latest model.

If you are a manufacturer, shelf life is something you need to think about. Put another way, if you’re not sure you can sell it quickly, you don’t make it.

Why did the economy tank for most of 2009? Because companies slashed production. And why was GDP up dramatically in the fourth quarter of 2009? Because businesses started to restock their depleted inventories.

Shelf life is an important consideration from an investor’s point of view as well. If a company has stockpiled too much inventory, you can guess its sales are not meeting expectations. And in most cases, you can bet that its inventory is depreciating in value. That means lower profits at best, and losses at worst. The end result? Lower share prices.

No Expiration Date

One industry with no worries about shelf life is timber. The reason I love timber is that even when it isn’t consumed immediately, it doesn’t start to lose its value… like bread, microprocessors, and newspapers.

Mother Nature pays no attention to economic cycles. As long as there is rain and sun, your investment in timber continues to grow!

It Grows on Trees

How good is it to have Mother Nature working for you?

Well, let’s start with the fact the NCREIF (National Council of Real Estate Investment Fiduciaries) Timberland Index has returned an average of 12.8% over the last 20 years. Compare that to 7.8% for the S&P 500 over the same time period.

Not only that but, according to legendary investor Jeremy Grantham, it’s risen 3% more than inflation for the last 90 years. So it’s beaten stocks and it’s been a great inflation hedge.

Anything else?

It has been a good investment in bear markets. During the Great Depression, timber was up 233% while stocks were down 70%. In fact, timber has a very low correlation to stock market returns. Institutional investors love that. And so should you.

The $114 billion Florida Board of Administration has been looking for a timberland manager for the last several months. The $11.6 billion Kansas Public Employees Retirement System is considering its first timber investment. And these are just the latest entrants. Timber has been a part of many endowments and pension plans for years.

Investment Options

Until recently, timber has been the exclusive province of large institutions. Why? Because direct investments in timber require very deep pockets.

Today, there are several options for individual investors, including two ETFs. In November 2007, Claymore Securities launched the Claymore/Clear Global Timber Index ETF (CUT). You might also look at iShares S&P Global Timber & Forestry Index Fund (WOOD).

There are also a number of timber REITs, including Plum Creek Timber (PCL), Potlatch (PCH), and Rayonier (RYN). Weyerhaeuser (WY) is expected to convert to an REIT this year.

Knock on Wood

I recommend the iShares ETF (WOOD) for investors looking for exposure to timber. WOOD is 35% REITs, including the REITs mentioned above and WY. This ETF has moved up a bit with the rally in the market, so look to buy it when it moves below its 200-day moving average of $35.

And don’t buy your position all at once. Invest only 25% of your eventual position near term. Buy the remainder of your position in 25% increments on market corrections. And don’t forget your trailing stops.

For more specifics on how to profit from timber and other hard assets, I recommend that you subscribe to Sound Profits.