Why Michael Burry of the Big Short is Investing in Water. Put your Money where the Water is!
If you’re not familiar with the film Big Short, it’s definitely worth a watch. Based on the Michael Lewis’s book ‘The Big Short: Inside the Doomsday Machine’, it tells the story of four investors who predicted the credit and housing bubble collapse in 2008 and decided to bet against Wall Street, earning billions of dollars in the process.
Dr Michael Burry was the first of these investors who predicted the housing bubble and is portrayed by the Batman star Christian Bale.
If Burry was able to make $1 billion betting against the housing market in 2008, he’s wouldn’t be a bad person to follow in his investment advice.
The last line of the movie sees a printed placard:
“Michael Burry is focusing all of his trading on one commodity: Water”.
So why does he think all the money is in water?!
For many it was seen as a perplexing statement as unlike other commodities like oil, cotton or gold there is no market to trade water.
But why invest in water?
I’m sure you’ve been feeling the heat of the worldwide heatwave, with many finding it a welcome break from the wet summers that Brits have become accustomed to. But as world temperatures rise it is putting further stress on the already strained water resources.
Only 1% of the world’s water is available water, and in the end only 0.007% of the world’s total water is available to fuel and feed the world’s 7 billion people. However by 2050, world demand for water is expected to be 40% greater than supply as a result of increased demand, rising population and climate change. As a result water scarcity is expected to affect half of the world’s population (5 billion people) .
But water is hard to transport, so what can we do? And where does Burry see profits in water?
In an interview with Bloomberg in 2010, Dr Michael Burry said that “agricultural land – productive agricultural land with water on site – will be valuable in the future”.
Growing food in water rich areas and selling it in water-poor areas is the least contentious and most sustainable method for water distribution.
Burry is believed to have been buying up almond farms as growing almonds takes a large amount of water – 1 gallon per almond. What seems paradoxical is that 80% of the world’s almond supply is grown in California that in the past years has been going through some of the worst droughts in the states history. As the world’s demand for almonds increases, the farmland with the best access to onsite water is the one that is going to win out in the end, gaining share as competing almond farmers run out of water and are forced out of the market place.
However, the barriers to pursuing this investment strategy are high. Investments would have to made on a regional basis and would require significant amounts of capital. Not ideal for the average investor.
So how do average investors, or those who want to get investing start?
Some starting points:
The Guggenheim S & P Global Water Index ETF (NYSE:CGW) is (according the vintage value investing) one of the best funds to invest in if you want exposure to water-related companies.
The S&P Global Water Index itself tracks 50 companies from around the world that are involved in water related businesses.
Alternatively pack up, buy a farm with water on site, and wait for the money to roll in.
At the age of 5 I went to school dressed as a farmer on a “What do you want to be when you grow up day”, perhaps that dream will become a reality!