| no comments in Forest Finance & Economics

Common Errors and Potential Tools for Evaluating Investment Strategies in the Timberland and Forest Products Industries

Understand how to understand and frame the current situation. [That was not a Rumsfeldian typo.] Executives and investors make, or don’t make, decisions on how to allocate capital and other resources based on their understanding of the current situation. On average, our team supports over $1 billion in capital projects, transactions and plant construction in the timberland and forest products industry each year. While everything may not look like a forestry situation or timber market, I have learned that few situations are that unique. For example, common errors and sources of resistance to “scraping the ice off of the windshield” include:

  • Failing to consider the view from the other side of the table. In forestry, when we own something – when we buy land and grow trees – we tend to see things from that point of view. And yet owning timberland is but one side of a two-sided equation. What does a mill see? When a forest products firm thinks about building a mill, what does it look for? Understanding this helps us assess timberland values and timber prices and forest management strategies. Conclusions from this type of analysis and research are relative. It’s a constant comparison of one market to another, of one region to another, GIVEN an assumption about the economy.
  • Imposing rigid projections for the economy. Nobody forecasts the economy well; it’s a hard place to create value. For capital budgeting and investment strategies in forestry, prioritize understanding how THIS local timber market or THAT local wood basket will perform relative to every other given an assumption about the economy. Massive economic growth? “These timber markets are positioned to outperform those.” Brexit? “Those markets would be affected this way, and those timber markets that way.” And so it goes.
  • Forgetting to test opinions and data sources. When thinking about information and the situation, consider the source. Who is telling you this and where do they get their information? Very few people I know have a process for testing their own ideas and assumptions, or testing and thinking about the data and information they hear from others.
  • Creating goals via fiat rather than by analysis. There is a difference in pushing for stretch targets and disregarding the projections from your team and replacing them with a decree of what they should be. I have heard too many times executives say their direct reports sandbag their budgets and expectations, and that they need to be pushed. Well who made them sandbaggers in the first place? (If that’s even true.) Padding the numbers is a response to the organizational environment. In most cases, it’s a culture that punishes missed numbers rather than risk taking. As an approach, this is totally legitimate, but just understand what you have, why you have it, and how this lines up relative to what you actually want from your team, career and portfolio.


At the end of the day, we need to systematically aggregate the facts and organize them in ways that bring to the forefront an understanding of how things work. That means part of our responsibility and obligation is to develop a true sense of the current situation. Without that, it becomes difficult, if not impossible, to plan and strategize for the future. We must confirm the facts as best as possible given the time and resources available, get varying points of view on what they mean, think for ourselves what makes sense – is this operable? Doable? Actionable? Viable? – and if we remain unsatisfied with where we are, get back to getting more data and viewpoints.

When we conduct analysis, it is our responsibility to be transparent and truthful in our assumptions and analysis, and practical and clear in communicating recommendations and ideas.  We want to have an integrated feel of the situation if possible, and at least a systemic understanding, if not. For me, this means, regardless our role, we must be able to:

  • Identify and communicate key issues for a given situation, strategy or investment;
  • Differentiate and explain the pros and cons of alternate approaches to the analysis; and
  • Analyze and value the opportunities and alternatives.


For most “market assessments” or questions related to “where do we fit in?” with respect to the current industry or trends over time, a “recipe” or framework can help to aggregate and organize whatever information we have available to help tell the story. Porter’s Five Forces and other frameworks fall into this toolbox. We often apply a “SWOT Analysis” to evaluate the current situation – both internal and external, as well as current and future – for a firm, industry or investment. The exercise helps capture and organize the ideas and facts in a systematic framework related to the Strengths, Weaknesses, Opportunities and Threats of and to the business. Let’s consider each for a moment:

  • Strengths: internal attributes, skills, abilities of the business, products, team, and reputation.
  • Weaknesses: include concerns or things that need attention or help; these also tend to be INTERNAL attributes that should be within the control of the business or investment managers to improve (if you choose to).
  • Opportunities: represent external chances to gain market share, improve distribution, address legislative changes, account for changes in customer preferences or new technologies. These can be opportunities that get evaluated and ranked relative to the business or investment strategy and strengths and weaknesses of the team
  • Threats: also external, exogenous issues that can threaten the industry or relevance or competitiveness of the business or the investment under consideration.


The process of completing the SWOT analysis provides a useful exercise to get everyone’s “fingerprints” on the assessment. Ideally, this can lead to building on and enhancing strengths while accounting for, mitigating, or addressing weaknesses.

Which analysis is correct? Which decision is right? Wrong? Good? Bad? These questions, for the purpose of analysis and framing the current situation, can mislead the team and us into groundless conjecture and wasteful dialogue. Rather, we look to have frameworks and approaches that help us understand the available facts within the appropriate context. If the facts and data weaken our working assumptions or previous understanding, we should revisit the working assumptions and not modify the facts. Perhaps a different framework can help, but the goal is to understand how things work and, if possible, why. We need a firm place to stand.

See the world, and the situation, the way it is, not the way you want it to be or think it should be. To make effective decisions, conduct effective analysis, and develop effective strategies, we must understand how things are, how things actually work. If we can’t be honest with ourselves and our teams about the facts on the ground as we know them versus our opinions of how the market “should” work, we impose bias and risk into our analysis. We become irrational.


The post includes topics addressed in the upcoming “Case Studies in Timber Finance and Forest Industry Capital Investment” on January 18th, 2017 in Vancouver, Washington. This course takes place the day before the 4th Annual “Mapping the Course” Conference sponsored by the Western Forestry and Conservation Association. For more information, click here.

Leave a Reply

← Back to blog