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Water the Untapped Opportunity

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Every time I see the film The Big Short, I’m constantly pondering the prophetic remark that appears at the conclusion of the film. “Michael Burry is concentrating all of his trading on one commodity: water.”

The film ‘The Big Short,’ based on Michael Lewis’s book ‘The Big Short: Inside the Doomsday Machine,’ is about investors who predicted the credit and housing bubble collapse in 2008 and entered into trading activity to take advantage of their prediction, earning billions of dollars as a result. Dr. Michael Burry, who is portrayed by Christian Bale in The Big Short, is a real-life hedge fund manager who did just that.

Since the film’s release, Burry has become increasingly vocal about his investment views on water. Here is where my wheels started turning on the issue of water. Why is it that one of the few analysts and traders to correctly predict the housing bubble burst in 2008, and who made a good profit from that prediction, now focuses all of his attention on water? What can he possibly see when he thinks about it, and how can I get involved?

First and foremost, H2O is essential for life.

Every single person on this planet needs water to survive, which makes it a very valuable commodity. There are only a finite amount of freshwater resources available, and with the world’s population continuing to grow, the demand for water is only going to increase. I’m talking about the same guy that was correct on the 2008 financial crisis, so there must be something to back up his interest in water. This individual made billions by shorting the Subprime Loan market, so what kind of return or profit can he anticipate from investing in H2O? And this is where the heart of the issue lies: how can I get involved?

A few ways to get involved in water as an investment are:

-invest in companies that specialize in H2O treatment or transportation

-buy shares of utilities companies

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-look for exchange-traded funds (ETFs) that focus on water-related investments.

While these are all great methods, the better approach to this investment technique would be to hear what Dr. Michael Burry has to say on the subject himself. “I think agricultural land, particularly fertile farmland with access to water, will be quite valuable in the future,” he stated in a 2010 interview with Bloomberg. He also said that “Fresh, clean water is going to become increasingly scarce, and I think its value will continue to go up.”

So there you have it, coming from the man himself. Dr. Michael Burry is investing in H2O because he believes that it will become an increasingly valuable commodity

as time goes on due to the finite nature of freshwater resources. Water is political and litigious. “Water transportation is impossible because of both political and physical factors, so acquiring water rights didn’t make much sense to me unless I was pursuing a greater fool theory of investment; which was not my objective. What became apparent to me is that food is the most effective way to invest in water ……. With this method, it is possible to grow food in water-rich regions and transport it for sale in water-poor areas. This is the most peaceful way of distributing water, and it can be profitable over time, ensuring that this redistribution is permanent. A bottle of wine requires around 400 bottles of water to produce.”* Burry has found the H2O that is contained within food to be a new form of investment opportunity.

*https://greenbackd.com/2010/09/08/bloomberg-on-burry/

I never considered H2O from this viewpoint, and I’m sure that many of you never have either. What I like about this approach is that it isn’t linked to a particular financial instrument such as a stock, ETF, or ETP. There isn’t any need for a chart to illustrate an intricate formula to deconstruct this fundamental truth: take water, grow food, and sell it in areas where H2O is scarce. Of course, there are always going to be inherent risks with any investment, and this is no different. Droughts can occur, which will obviously have an adverse effect on crop yields. Also, the price of oil can play a role in the cost of transporting food to water-scarce areas.

Investing in H2O is a unique opportunity,

and I think it’s one that is definitely worth considering. It’s an investment that can have a positive impact on the world, and it’s something that we all need to survive. Dr. Burry’s idea may provide and preserve wealth for people seeking alternative assets. The majority of the Earth’s surface is covered in water, with 70 percent of it being freshwater. 2.5% of the world’s water is used to grow crops and produce food that we consume. Furthermore, only 1% of freshwater is readily available because the other 99% is stored in glaciers and snowfields. That leaves approximately 0.007 percent of the planet’s water for 7 billion people to utilize.

According to the United Nations, water usage has increased by over twice the rate of global population growth in the last century. We use about 30% of the planet’s total available renewable supply of H2O. The U.N. predicts that, in just a few years, this percentage will be 70%. By 2025, 1.8 billion people will live in water-scarce areas, with two-thirds of the globe’s population living in water-stressed locations. According to a report from The American Society of Civil Engineers (ASCE), by 2020, there will be a $84.4 billion deficit in funding for water infrastructure growth. The report also states that by 2040, this number will rise to $106.5 billion.

This pattern offers the potential of investment possibilities in firms involved in the following sectors,

improving water supply. Activities such as water exploration, desalination, and wastewater treatment are included on the list. Firms which focus on H2O efficiency, such as those that make drought-resistant seeds or irrigation technology, are also interesting. And finally, firms that distribute and trade H2O can take advantage of pricing disparities around the globe.

If you can’t afford to buy lush farmland with H2O on site near the Amazonian rainforest but still want to participate in the activities listed above, investing in firms engaged in these industries might be an option for you. SJW Corp. (SJW), Middlesex Water Co. (MSEX), and York Water Co. (YORW) are water utilities that focus on providing clean water to their customers. Aqua America, Inc. (WTR) is another water utility with a nationwide reach. Calgon Carbon Corporation (CCC), Nalco Holding Company (NLC), and Severn Trent plc (SVTLY) all engage in water treatment activities.

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SJW is a conglomerate with four branches: San Jose Water Company, SJW Land Company, SJWTX Inc., and Texas Water Alliance Limited. The companies have an interest in developing new H20 projects as well as acquiring and developing land.

SJW Group (SJW)

SJW

SJW

Chart courtesy of yahoo 5/9/22

MSEX is a water and wastewater utility provider for municipalities and private clients in New Jersey and Delaware.

Middlesex Water Company (MSEX)

These stocks have shown consistent and substantial gains over the previous five years, suggesting that they may be sleeping giants. If the commodity of water keeps on growing in secondary industries, Dr. Burry’s prospects and fortune-hunting enterprises involving H2O have a chance of coming true in the same way as his bet on the collapse of the subprime loan market.

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