The Case For Investing In Water

Have you thought about investing in Water? It could be your star investment.

Have you seen the movie “The Big Short”? For those who haven’t, this movie tells the true story of hedge fund manager Michael J. Burry, one of the few who realized the credit and mortgage bubbles, investing in the downgrade on mortgages Subprime through CDS (credit-default swaps) before the bubble burst.

Well, although many called him crazy at the time, this great manager is currently focusing on a single investment, specifically a raw material. Do you know which one? Water.

What’s the difference between water and other raw materials?

Unlike Oil, Natural Gas, Gold, Maize, etc … there is no market to buy and sell Water. But there are other ways to invest in water, which we will see below.

And what is the attraction of water as an investment? Very simple, water can not be replaced and we all need it to live.

Why invest in water?

That 70% of the planet’s surface is covered by water is something we will probably all have learned in school. But what they did not tell us is that fresh water, which we care for, represents 2.5% of the total water. And to top it off, only 1% of the fresh water is accessible. This means that only 0.01% of the planet’s water is actually available to 7.4 billion people.

In addition, demand for potable water and related goods and services is growing at a much higher rate than population growth. How much water would you say it takes to grow an orange? 5 Liters. And for a kilo of meat? 5,000 liters of water! 3/4 of water use corresponds to agriculture, a sector that will increasingly need more resources due to the increase in world population.

And the million dollar question … How can we invest in Water?

There are 3 ways:

  1. Buy water rights
  2. Invest in water-rich farmland
  3. Invest in companies related to water (utilities, infrastructure, equipment)

In this case we are going to focus on the third point. There are several companies related to water, such as companies that build desalination plants, dams maintenance, water treatment, and even technology companies focused on finding new ways to clean water.

As for listed companies, we could divide it into:

Water utilities: The largest and most American are American Water Works Company (AWK) and Aqua America (WTR).

Water infrastructure and equipment companies:

There are more related companies and you can view them here, but if we are not experts and we want to diversify to obtain the real profitability of this sector, we can buy ETFs that invest in these companies. Much simpler, efficient and above all, cheap!

Is it immoral to invest in water?

Again, water can not be bought or sold directly like other commodities such as gold and oil. Thus, one can not directly speculate with it by altering prices. The development of irrigation systems will increase, water transport will be improved, more powerful desalination plants will be built with new water cleaning technologies, etc …

And it is true that speculation in raw materials, particularly in food, may be negative for most of the population in certain situations (I am the first one I do not like to see food prices go up as I think it affects millions of people without economic resources).

On the other hand, do the benefits outweigh the negatives? Without speculators, many companies would not be able to survive, such as pharmaceuticals dedicated to developing cures against cancer.

In conclusion

Fresh and clean water is, like oxygen, the most important element for us,difference being that it is a scarce commodity and in growing demand. Those of us in developed countries assume that having clean water is normal, but we must have a global vision and understand that the real context is quite different. Dr. Michael Burry was right before. Do you want to potentially miss out on him being right again?

Leave a Reply

Your email address will not be published. Required fields are marked *