I meant to post this earlier but didn’t really get down to it. Now that I’m sick and had some time on my hands, I thought I’ll make myself useful since I can’t possibly stay in bed all day.
I was invited to an investment talk on agarwood some time ago. Another friend was recently invited too and we chatted about this and I shared my views on this. So I guess, I might as well share it here. Frankly speaking, I can’t recall much on the details of the investment by now. So pardon me, if I got some of the investment details mixed up. But it really doesn’t matter whether I remember the details or not because if you are really interested, I’m sure someone out there would be more than happy to share. And if you are investing into it, it matters more the terms that you are being offered, not the terms that I was offered.
But if you have ever heard about this investment, the question on most people’s minds is whether this could be a potential scam.
And my answer is, I can’t tell. Not simply with the information from that sales presentation anyway.
I think at this point, I should clarify that I’m not new to alternative investments or investments in plantations. But I didn’t make any investment in this area after the talk and I didn’t really bother to research further into this after that.
But what I can share here are thoughts that I’ve gathered from my past investing experience for reference. It is not the purpose of this post to encourage or discourage a person from investing into agarwood.
Investing in agarwood would fall under what I’d classify as an ‘alternative investment’. And with this classification, I would attribute a ‘high risk and a high return’ label on it. And generally, for such investments, I would expect a minimum of 8% return annually. Agarwood, based on the presentation that I went to, the returns could hit 20% conservatively, so in terms of returns, they seem to make the mark.
Agarwood seems like a viable business (if it works out). On the part of business viewpoint, extracting some liquid from trees and after undergoing some refining processes, there are indeed profits to be made.
But one reason why I didn’t invest was simply because this industry was foreign to me. Ask me about F&B business, property business or even oil business, I have some knowledge. But not agarwood.
I do not understand how easy/hard it is to grow an agarwood tree? Does it really take 7 years to grow one? What are the climate that is suitable and whether agarwood trees are suitable for growth in Thailand or wherever they are? How hardy are the trees and what happens when the trees are unfortunately infested? If really and unfortunately the trees don’t grow and yet I can promised my returns, I’ll be worried because as a legitimate business, someone has to bear the risks of loss, so the question is who and how? Of course, as a business, we can minimise all these risks right from the start by proper use of pesticide etc to control the quality that the trees grow in. So do the company or their partners have the expertise in this?
Usually, for an extraction and refining business model, much of the profits is made from the refined product more than the extracted raw product. It is also rare to find a company well-versed in both the extraction and refining process. In this case, the extracted product is known as ‘tola’, an ingredient used to make perfume. The reason for the high return is apparently the scarcity of ‘tola’. So the end product perfume costs a lot more..I’m not a fan of perfume either, so I also do not understand who will buy an expensive bottle of perfume nor understand where these markets are. Therefore, I chose to stay away because I can’t immediately verify these broken links and didn’t have the time to.
If agarwood trees are very profitable, and with the amount of labour and technology required, then theoretically, it should also help improve that country’s infrastructure and economy as well. Like I’ve mentioned before, I didn’t go into finding any further details on the locations and the economy.
However, there is something unsettling for me at this point of time. After I attended one agarwood presentation, there seem to sprout a number of different companies all seem to be about investing in agarwood and extracting the oil. Assuming, these companies are not created by the same entity to create a false impression, I’m quite surprised that so many companies can appear to take advantage of this profitable business, is the entry barrier so low? I would have thought that a certain level of skills, knowledge and technology would be required to be in this business. This sudden sprout also leads me to the next question – In the face of competition, and with a sudden increase in trees being grown and resin or oil being produced, can the price of the ‘tola’ still sustain as what was original presented at the talk? Because the end selling price would directly affect my return.
In the presentation I went to, I was told that the output can only be extracted after 7 years. But in another presentation my friend went, the returns could be seen after the 2nd year, so which is which? I’m confused.. because of my lack of information.
And the other reason why I didn’t go ahead with agarwood investment is because there are many more alternative investments out there vying for our investment money. To get back my money only after 7 years is way too long for my liking. and it’s not like the investment amount is little. With proper investment strategies and so many options available, I could reap a return similar to the conservative estimated return for agarwood.
So I didn’t choose to invest in agarwood because I didn’t understand this investment. Also the time frame is too long for my liking. And the amount required is beyond my comfort level for an alternative investment. So if you are looking to invest in this, I would suggest doing your research and necessary planning to ensure that our investments fit snugly into our financial goals.
