Time to Think Inside the Box

We spend a lot of time thinking about things that other people don’t. The most common question we ask at strategy meetings is “What do other investors hate right now?” That’s our playground – whatever everyone else doesn’t like. Greek stocks, maybe. Europe. Auto parts companies. Condos in Beaverton. Whatever.

But sometimes it pays to think about the mainstream, or at least look at it through our own weird lens. One fact that stands out is that if I am counting correctly, we’ve had a number of so-so weather years, vis-a-vis growing crops. Not just here, but worldwide. We had a good corn year in 2011, but a bad wheat year. This year corn looks like a bust in the US. In 2010, Russia’s drought decimated its harvests. Looking worldwide, crop production has not kept up with population increases in the past few years, driving down grain reserves, and periodically causing price spikes.

Likewise, we’ve had at least four years of very low housing construction in the US, and at least two natural disasters that roiled the timber-lumber-construction chain: a tsunami in Japan and earthquakes in Chile. All these harms seem to be reversing; in particular, housing is picking up in the US. Nobody’s looking, but lumber and other timber product prices have been strong for several months now.

While crop prices are in the news, the media isn’t connecting the dots – linking up the year-after-year shortfalls in various crops in various places that are adding up to declining grain reserves; and I don’t think anyone except the odd timber geek is noticing the increasing number of log trucks on the roads and rising prices at Home Depot. Investing in agriculture in particular has been “hot” for a while, although many of the stocks have suffered a hangover with the soft economy. These probably deserve another look. And many timber companies haven’t participated in the market rebound since 2008 at all.

Right in front of us – two worthwhile investment ideas “inside the box.”