Friday, September 4, 2009

Why tropical trees are low risk high return!

Tropical tree nursery in Vichada, ColombiaThe first thing you need to do is get away from the kind of short term thinking that causes so much trouble for investors. Many people enter the stock market thinking that short term is one week and long term is two weeks. If you stop and think about it, what they are really doing is throwing the dice in hopes of a magical quick return on investment. As any business owner will tell you, it takes years of careful management and strategy to build a profitable business with consistent returns. Too many public companies and mutual funds try to short term please investors, leading to poor performance in IRA’s, RRSP’s and pensions.

Meeting a Eucalyptus pellita tree
Once you accept that it is going to take 10 years to see a return, the next question is how big a return? Bank savings pay from .75% to 2% a year. Savings bonds, CD’s, GIC’s and Treasury Bills pay between 2.5% to 5% a year. People with stock portfolios are ecstatic if they can average a 10% a year return, rarely consistent and always risky. Contrast that with people who invest in low risk tropical trees and hardwoods. It is not unusual to have annual growth of from 30% to 40% non-compounded. For example, Amazonia Reforestation pays its investors a return of about 33% per year non-compounded. An investment of $4,000 USD will produce a return on investment of $17,000 USD in 10 years time. In contrast the same $4,000 USD making 10% compound interest over 10 years produces only slightly over $10,000 USD, assuming no recessions or other risks.

Controlled burns protect plantationsSo what are the risk factors? The obvious risks are drought, fire, flood, disease and pests. All of these risk factors are greatly reduced using modern forestry practices. Tropical trees are planted in places where there are consistent and predictable weather patterns, making drought and flood problems minimal. Fire breaks and controlled burns of surrounding areas, together with strict underbrush controls make fire risk negligible. In fact, some species of tropical trees, like the Saladillo and Congrio are actually natural fire barriers. Disease and pests are limited by multi-species cultivation, meaning a good tree plantation does not have all of its eggs in one basket. This greatly reduces the incidence of pests and diseases, which may be further controlled with spraying and frequent harvests in 10 to 12 year cycles.

Seedlings from nursery in bags
Best of all, the investor does not need to buy stock or shares in the forestry company. Rather, the investor has the option of buying the tropical trees directly. For example, Amazonia Reforestation issues Tree Ownership Certificates to its investors for the exact number of trees they own in the plantation. This joint venture approach has the added due diligence benefit of allowing the investor to come and see, touch and hug their trees any time they want. The plantation or forestry company provides the land, the tree nurseries, the planting, the know-how, the management, the harvesting and the ultimate sale of the timber, and shares those proceeds with the investor on a low risk, high return basis. See

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