A Year-End Look at “Super-Concentration”

Today’s piece is the fourth in our year-end series on the dangers of a “super-concentrated” portfolio. It shows how the correlation bogeyman has even grabbed ahold of trees.
 
Owning productive timberland has traditionally been a great portfolio diversifier. Trees don’t care about a “flash crash” or the Nasdaq, they just keep growing. And buying the stuff at a good price in a private deal is always a good idea. Even publicly traded timberland stocks typically provide portfolio diversification.
 
#-ad_banner-#But as you can see from today’s chart, timberland stocks are also moving in lockstep with the overall market
 
Below is a two-and-a-half-year chart that plots the performance of the benchmark S&P 500 stock index (black line) alongside two of the largest timberland stocks, Plum Creek Timber (green line), and Potlatch (blue line). Both Plum Creek and Potlatch own huge swaths of American timberland… and both sport extremely similar price action to the overall market. Even timberland is moving in the “risk on, risk off” trade these days…