{"id":3520,"date":"2018-08-14T17:32:17","date_gmt":"2018-08-14T17:32:17","guid":{"rendered":"https:\/\/nationalland.com\/blog\/?p=3520"},"modified":"2023-03-28T15:53:11","modified_gmt":"2023-03-28T19:53:11","slug":"managing-risk-diversification","status":"publish","type":"post","link":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/","title":{"rendered":"Managing Risk Through Diversification with Timberlands"},"content":{"rendered":"

Diversification is a risk reduction strategy illustrated in the idiom \u201cdon\u2019t put all your eggs in one basket.\u201d This implies we risk everything by relying on one asset, firm, idea or approach. However, in practice, anyone seeking to \u201coutperform\u201d the market needs to concentrate their investments in some way that yields sufficient excess gains to account for the costs and effort required to generate those gains.<\/p>\n

Warren Buffett often compares his approach of large bets on businesses he understands with investing in a portfolio. He notes how Berkshire Hathaway created most of their money from a small group of excellent businesses<\/a>. When speaking to students, Buffett talks about the benefits of his \u201c20-slot rule.\u201d With this rule, he could:<\/p>\n

“Improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches \u2014 representing all the investments that you got to make in a lifetime\u2026under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”<\/em><\/p>\n

In practice, we as individuals \u201cpunch slots\u201d and concentrate our efforts through investing in our careers and skills, securing promotions and bonuses, building up our businesses and allocating excess funds to pay down debt or grow long-term positions in low cost, heavily diversified index funds. However, asset managers \u2013 and all of us \u2013 can have a different context when diversifying our investment portfolios under management.<\/p>\n

Diversification Mistakes and Recommended Strategies<\/strong><\/p>\n

Three mistakes and misunderstandings we observe in efforts to diversify investment portfolios that may or may not hold timberland include:<\/p>\n

Overdiversification<\/u>. Effort spent increasing a position from 1.0% to 1.5% of a portfolio could be better spent sleeping, reading or cleaning gutters. Most portfolio diversification can be obtained by including just a few assets in a portfolio. Progressively adding one more asset has a diminishing effect on risk. In my book,\u00a0Forest Finance Simplified,<\/em> and in our workshops, we talk to the marginal benefits and risk management implications (up and down) of diversification. For a stock portfolio, for example, most diversification is captured with 8 to 10 stocks. And for timberland portfolios, most diversification occurs with 3 or 4 tracts that meet a specific set of criteria related, primarily, to their location relative to each other.<\/p>\n

Obfuscation<\/u>. Complicated portfolios lack clarity, transparency and, often, effective controls. If the investment strategy of the portfolio is hard to explain or understand, then it will also be hard to manage and implement. In forestry, for example, many investors or asset managers address this by employing simple strategies that focus on a specific geography or species or age class. In turn, these focused strategies concentrate effort and mitigate risk.<\/p>\n

Overhead<\/u>. Fees matter. Index fund pioneer and Vanguard founder, John Bogle, said, \u201cYou get what you don\u2019t pay for.\u201d His message: minimize fees.\u00a0Building teams of active managers adds overhead while reducing the potential impact, positive or negative, of any specific strategy.<\/p>\n

This guest post is courtesy of Brooks Mendell, Ph.D., President and CEO at Forisk Consulting, a Georgia-based firm that specializes in forest-industry, timber-REIT,\u00a0bioenergy, and timber-market research. For more information, visit\u00a0www.forisk.com<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Diversification is a risk reduction strategy illustrated in the idiom \u201cdon\u2019t put all your eggs in one basket.\u201d This implies we risk everything by relying on one asset, firm, idea or approach. However, in practice, anyone seeking to \u201coutperform\u201d the market needs to concentrate their investments in some way that yields sufficient excess gains to … <\/p>\n

Continue reading “Managing Risk Through Diversification with Timberlands”<\/span><\/a><\/p>\n","protected":false},"author":41,"featured_media":5520,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true},"categories":[9],"tags":[825,174],"jetpack_publicize_connections":[],"yoast_head":"\nManaging Risk Through Diversification with Timberlands - National Land Realty News<\/title>\n<meta name=\"description\" content=\"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Managing Risk Through Diversification with Timberlands - National Land Realty News\" \/>\n<meta property=\"og:description\" content=\"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\" \/>\n<meta property=\"og:site_name\" content=\"National Land Realty News\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/nationallandrealty\/\" \/>\n<meta property=\"article:published_time\" content=\"2018-08-14T17:32:17+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-03-28T19:53:11+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/nationalland.com\/blog\/wp-content\/uploads\/2021\/08\/iStock_000011176057_Large-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1920\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Brooks Mendell, Ph.D.\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@ThisIsYourLand\" \/>\n<meta name=\"twitter:site\" content=\"@ThisIsYourLand\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Brooks Mendell, Ph.D.\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\"},\"author\":{\"name\":\"Brooks Mendell, Ph.D.\",\"@id\":\"https:\/\/nationalland.com\/blog\/#\/schema\/person\/81d759503919bbebab794d19ab1eb433\"},\"headline\":\"Managing Risk Through Diversification with Timberlands\",\"datePublished\":\"2018-08-14T17:32:17+00:00\",\"dateModified\":\"2023-03-28T19:53:11+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\"},\"wordCount\":534,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/nationalland.com\/blog\/#organization\"},\"keywords\":[\"diversification\",\"Timberland\"],\"articleSection\":[\"Timberland\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\",\"url\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\",\"name\":\"Managing Risk Through Diversification with Timberlands - National Land Realty News\",\"isPartOf\":{\"@id\":\"https:\/\/nationalland.com\/blog\/#website\"},\"datePublished\":\"2018-08-14T17:32:17+00:00\",\"dateModified\":\"2023-03-28T19:53:11+00:00\",\"description\":\"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.\",\"breadcrumb\":{\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/nationalland.com\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Managing Risk Through Diversification with Timberlands\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/nationalland.com\/blog\/#website\",\"url\":\"https:\/\/nationalland.com\/blog\/\",\"name\":\"National Land Realty Blog\",\"description\":\"News, insights and information on buying and selling land\",\"publisher\":{\"@id\":\"https:\/\/nationalland.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/nationalland.com\/blog\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/nationalland.com\/blog\/#organization\",\"name\":\"National Land Realty\",\"url\":\"https:\/\/nationalland.com\/blog\/\",\"sameAs\":[\"http:\/\/www.instagram.com\/nationallandrealty\",\"https:\/\/www.linkedin.com\/company\/2448696\/\",\"http:\/\/www.youtube.com\/nationallandrealty\",\"https:\/\/www.facebook.com\/nationallandrealty\/\",\"https:\/\/twitter.com\/ThisIsYourLand\"],\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/nationalland.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/07\/3Color_Small_Final.png?fit=324%2C180&ssl=1\",\"contentUrl\":\"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/07\/3Color_Small_Final.png?fit=324%2C180&ssl=1\",\"width\":324,\"height\":180,\"caption\":\"National Land Realty\"},\"image\":{\"@id\":\"https:\/\/nationalland.com\/blog\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/nationalland.com\/blog\/#\/schema\/person\/81d759503919bbebab794d19ab1eb433\",\"name\":\"Brooks Mendell, Ph.D.\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/nationalland.com\/blog\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/08\/Brooks-Mendell-Headshot-xlarge-e1503926719893.jpg?fit=96%2C93&ssl=1\",\"contentUrl\":\"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/08\/Brooks-Mendell-Headshot-xlarge-e1503926719893.jpg?fit=96%2C93&ssl=1\",\"caption\":\"Brooks Mendell, Ph.D.\"},\"description\":\"Dr. Brooks Mendell is President and CEO at Forisk, where he leads the firm\u2019s research program. Founded by Dr. Mendell in 2004, Forisk publishes the Forisk Research Quarterly, which provides market analysis, operations research and timber forecasts to senior management and investors in North America\u2019s forest products industry and timberland investing sectors. Dr. Mendell is an internationally recognized business advisor, researcher, and speaker in the fields of forest business, timberland investing, wood bioenergy and business communications. He has broad domestic and international experience supporting small businesses, Fortune 500 corporations and public organizations. His industry experience includes roles in harvest operations, wood procurement, management consulting, and academia. A Fulbright Scholar, his forestry-related books include \u201cLoving Trees is Not Enough,\u201d \u201cForest Finance Simplified,\u201d and \u201cAunt Fanny Learns Forestry: Managing Timberland as an Investment.\\\" Dr. Mendell earned BS and MS degrees at M.I.T., an MBA at the University of California at Berkeley, and a PhD in Forest Finance at UGA.\",\"sameAs\":[\"http:\/\/forisk.com\"],\"url\":\"https:\/\/nationalland.com\/blog\/author\/brooks-mendell-ph-d\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Managing Risk Through Diversification with Timberlands - National Land Realty News","description":"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/","og_locale":"en_US","og_type":"article","og_title":"Managing Risk Through Diversification with Timberlands - National Land Realty News","og_description":"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.","og_url":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/","og_site_name":"National Land Realty News","article_publisher":"https:\/\/www.facebook.com\/nationallandrealty\/","article_published_time":"2018-08-14T17:32:17+00:00","article_modified_time":"2023-03-28T19:53:11+00:00","og_image":[{"width":2560,"height":1920,"url":"https:\/\/nationalland.com\/blog\/wp-content\/uploads\/2021\/08\/iStock_000011176057_Large-scaled.jpg","type":"image\/jpeg"}],"author":"Brooks Mendell, Ph.D.","twitter_card":"summary","twitter_creator":"@ThisIsYourLand","twitter_site":"@ThisIsYourLand","twitter_misc":{"Written by":"Brooks Mendell, Ph.D.","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#article","isPartOf":{"@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/"},"author":{"name":"Brooks Mendell, Ph.D.","@id":"https:\/\/nationalland.com\/blog\/#\/schema\/person\/81d759503919bbebab794d19ab1eb433"},"headline":"Managing Risk Through Diversification with Timberlands","datePublished":"2018-08-14T17:32:17+00:00","dateModified":"2023-03-28T19:53:11+00:00","mainEntityOfPage":{"@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/"},"wordCount":534,"commentCount":0,"publisher":{"@id":"https:\/\/nationalland.com\/blog\/#organization"},"keywords":["diversification","Timberland"],"articleSection":["Timberland"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/","url":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/","name":"Managing Risk Through Diversification with Timberlands - National Land Realty News","isPartOf":{"@id":"https:\/\/nationalland.com\/blog\/#website"},"datePublished":"2018-08-14T17:32:17+00:00","dateModified":"2023-03-28T19:53:11+00:00","description":"Diversification is a risk reduction strategy meant to help people invest their money in a variety of assets.","breadcrumb":{"@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/nationalland.com\/blog\/managing-risk-diversification\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/nationalland.com\/blog\/managing-risk-diversification\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/nationalland.com\/blog\/"},{"@type":"ListItem","position":2,"name":"Managing Risk Through Diversification with Timberlands"}]},{"@type":"WebSite","@id":"https:\/\/nationalland.com\/blog\/#website","url":"https:\/\/nationalland.com\/blog\/","name":"National Land Realty Blog","description":"News, insights and information on buying and selling land","publisher":{"@id":"https:\/\/nationalland.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/nationalland.com\/blog\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/nationalland.com\/blog\/#organization","name":"National Land Realty","url":"https:\/\/nationalland.com\/blog\/","sameAs":["http:\/\/www.instagram.com\/nationallandrealty","https:\/\/www.linkedin.com\/company\/2448696\/","http:\/\/www.youtube.com\/nationallandrealty","https:\/\/www.facebook.com\/nationallandrealty\/","https:\/\/twitter.com\/ThisIsYourLand"],"logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/nationalland.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/07\/3Color_Small_Final.png?fit=324%2C180&ssl=1","contentUrl":"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/07\/3Color_Small_Final.png?fit=324%2C180&ssl=1","width":324,"height":180,"caption":"National Land Realty"},"image":{"@id":"https:\/\/nationalland.com\/blog\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/nationalland.com\/blog\/#\/schema\/person\/81d759503919bbebab794d19ab1eb433","name":"Brooks Mendell, Ph.D.","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/nationalland.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/08\/Brooks-Mendell-Headshot-xlarge-e1503926719893.jpg?fit=96%2C93&ssl=1","contentUrl":"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2017\/08\/Brooks-Mendell-Headshot-xlarge-e1503926719893.jpg?fit=96%2C93&ssl=1","caption":"Brooks Mendell, Ph.D."},"description":"Dr. Brooks Mendell is President and CEO at Forisk, where he leads the firm\u2019s research program. Founded by Dr. Mendell in 2004, Forisk publishes the Forisk Research Quarterly, which provides market analysis, operations research and timber forecasts to senior management and investors in North America\u2019s forest products industry and timberland investing sectors. Dr. Mendell is an internationally recognized business advisor, researcher, and speaker in the fields of forest business, timberland investing, wood bioenergy and business communications. He has broad domestic and international experience supporting small businesses, Fortune 500 corporations and public organizations. His industry experience includes roles in harvest operations, wood procurement, management consulting, and academia. A Fulbright Scholar, his forestry-related books include \u201cLoving Trees is Not Enough,\u201d \u201cForest Finance Simplified,\u201d and \u201cAunt Fanny Learns Forestry: Managing Timberland as an Investment.\" Dr. Mendell earned BS and MS degrees at M.I.T., an MBA at the University of California at Berkeley, and a PhD in Forest Finance at UGA.","sameAs":["http:\/\/forisk.com"],"url":"https:\/\/nationalland.com\/blog\/author\/brooks-mendell-ph-d\/"}]}},"jetpack_featured_media_url":"https:\/\/i0.wp.com\/nationalland.com\/blog\/wp-content\/uploads\/2021\/08\/iStock_000011176057_Large-scaled.jpg?fit=2560%2C1920&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p7sjRT-UM","_links":{"self":[{"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/posts\/3520"}],"collection":[{"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/users\/41"}],"replies":[{"embeddable":true,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/comments?post=3520"}],"version-history":[{"count":5,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/posts\/3520\/revisions"}],"predecessor-version":[{"id":8451,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/posts\/3520\/revisions\/8451"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/media\/5520"}],"wp:attachment":[{"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/media?parent=3520"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/categories?post=3520"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nationalland.com\/blog\/wp-json\/wp\/v2\/tags?post=3520"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}