Why you should invest in water like Michael Burry
The Big Short's investor who predicted the 2008 crash now only has one commodity.Meryl D'Souza January 29, 2017
Since 2008, every film that won top honours at the Producers Guild of America (PGA) Awards had gone on to win the Oscar in the Best Picture category. We say had because that little statistic changed last year when The Big Short took the Best Theatrical Motion Picture award at the PGAs but lost out to Spotlight at the Oscars.
The movie, based on Michael Lewis’s book The Big Short: Inside the Doomsday Machine, told 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. The first of those investors to predict the crash was Dr. Michael Burry, portrayed by Christian Bale in the movie.
Peculiarly, the final shot of the film was a line that read: “Michael Burry is focusing all of his trading on one commodity: Water.” Odd, isn’t it? In a world where everyone keeps telling you to invest in oil and gold, the man who earned his Scion investors 489.34 per cent returns is taking a completely different route.
But how exactly does one invest in water? Since the film's release, Burry himself has given further explanation to his single commodity interest. “I believe that agricultural land, productive agricultural land with water on site, will be very valuable in the future,” Burry told Bloomberg in 2010. “And I’ve put a good amount of money into that.”
The 46-year-old further elaborated in a 2015 interview with New York magazine when he said, “What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.”
Understanding the magnitude of water investment, or the problems that exist for it to be considered a valuable commodity, largely depends on your location. If you live in certain areas of Lebanon for example you’ll know water shortage is a very real thing, among a host of other problems. But if you live in the Gulf states or almost anywhere in western Europe, the chances are you’re spoilt enough to think this is just tosh.
From our budding years at school, we’re taught that 70 per cent of our planet is covered by water. While this is true, freshwater – the form of water that is useful to us humans – only comprises 2.5 per cent. To make matters worse, 99 per cent of that 2.5 is trapped in glaciers and snow fields, meaning only one per cent of freshwater is actually accessible.When you know that you can understand why the World Economic Forum listed water crises as the third greatest risk facing the world today, and the ninth most likely to happen.
According to the United Nations, water scarcity already affects 1.2 billion of the estimated 7.4 billion people on the planet. Environmental sleuths predict that by 2025, an estimated 1.8 billion people will live in areas plagued by water scarcity, with two thirds of the world’s population living in water-stressed regions.
But wait, it gets worse: according to the American Society of Civil Engineers (ASCE), looking at the current rates there will be an $84.4 billion gap by 2020 between what we’re spending on water infrastructure and what is actually needed. So not only are we losing out on our water sources, we’re also hugely underprepared to tackle any issues that may arise in the future.
It’s basic economics from here on in. Scarcity drives demand, which drives prices. As the world continues to lose in the battle for water, the commodity will become more valuable. Michael Burry is known to be a risk-averse investor, only making investments when he predicts near-certain returns, as was the case with the 2008 crash.
It seems certain then that in the very near future, water is going to become an incredibly valuable commodity, and one you should be investing in. Go ahead, make a quick buck while mankind continues to destroy the world one step at a time.