Nov 03, 2009 @ 12:50 pm
The simplest way to make a genuine fortune - we're talking 20 to 50 times your money here - is to buy assets no one wants and wait for them to be wanted again.
In fact, we met someone who did it firsthand a few months ago. Over breakfast with Bob Quartermain, the president of Silver Standard Resources (NASDAQ:SSRI), your editor got the first-hand account of the company's development.
Quartermain, a geologist by training, started at Silver Standard in 1985 when the precious metal bubble had just imploded. He had one goal: acquire silver assets. Silver projects were cheap and plentiful and Silver Standard was buying them.
To make a long story short, this strategy took Silver Standard from a company holding a few dozen "worthless" silver projects to a leading silver mining giant worth more than $1 billion today.
Early investors who spotted this opportunity made 20 to 50 times their original investment or more.
Now it's looking like it's happening all over again in another industry no one wants to touch - timber.
I know, I know...timber!...who wants timber? But please, here me out.
The "Insider" Advantage
For obvious reasons, timber is out of favor. Housing starts are still at multi-year lows. Lumber prices are down nearly 70% from their housing bubble peak. And shares of leading timber companies have recently been downgraded by analysts at JP Morgan, Credit Suisse, and other firms (could there be a better buy signal?).
There is, however, one industry insider who may be pulling together another Silver Standard-style success - only in timber. Even if it pays off only half as big though, it's definitely worth a look.
Last week I was doing some research on a very early stage opportunity for President's List readers and sat down for lunch with Rick Doman. The Doman name is a big one in the timber industry. Herb Doman, Rick's father, built Doman Industries from the ground up. Herb started the company in 1953, listed it publicly in 1964, and eventually grew it into a $1 billion timber company.
When Herb left the company in 2001 it was in rough shape. It was weighed down by too much debt and Rick took the reins to lead a restructuring. Rick took the company from the verge of receivership to a $1 billion turnaround success story in about three years.
Rick spotted the housing bubble and realized the great times would not last forever. He knew the mistakes timber companies made in the 90s with debt and other structural mistakes because he witnessed them firsthand at Doman Industries. And when the newly reborn Doman Industries (under its new name Western Forest Products - TSX:WEF) was headed down the same road, Rick got out of there.
Over the next five years he would keep close tabs on the industry though as a consultant. Basically, he charged institutional investors thousands of dollars to tell them not to buy timber.
Frankly, you'd be hard pressed to find someone who knows the industry better. And that's why your editor became very interested when we found out Rick was getting back into timber. After all, we know the value of the opportunity to accumulate assets no one else wants (who wants timber now?) and we had to get together to learn what he's doing, why he's doing it now, and what the real opportunities are out there.
The Real Future of Timber
Now, when you think timber (technically, softwood timber in this case), you think housing. The two industries are practically joined at the hip. Housing construction drives timber demand.
So when housing starts climbed to the rate of 2.2 million per year at the peak of the bubble, lumber prices surged too. Lumber climbed from $250 to $300 per 1,000 board feet at the start of the decade to more than $450.
The great times wouldn't last forever. Lumber price collapsed when the housing bubble burst. They fell from the $450 peak to less than $150. The downturn forced companies to curtail production and sawmills to shut down as the industry contracted.
As I write, lumber prices are still under $200 and timber is still out of favor. But there's actually a lot to get excited about.
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