Is Your Next Best Investment Decision… Water?
You know about Michael Burry by now, even if you don’t remember his name. The eccentric hedge fund manager, famous for his story line being played out in Hollywood’s “The Big Short,” now is well known for putting everything, and I mean EVERYTHING, on the line to short the housing market by betting against mortgage-backed securities.
Not to get too technical here — but basically he bet that the whole market for homes and mortgages would turn upside down in a huge way. This played out, now as we know, in two big ways — 1) American had a tough time paying their monthly mortgage bill, and 2) when Americans went to refinance their mortgages (remember those super-attractive little 3 and 5-year ARMs?) that their house — or the loan’s collateral, was worth less than the loan. This, in essence, created a cash call by the bank —and the homeowner had to come up with cash or default on their loan. I hate to relive it because it was a rough time in American history. Burry called it the whole way.
In retrospect this crash seems obvious by now — and we wonder how we didn’t see it coming. I was a stock broker at the time, and my clients know that I was talking about it. In fact, my practice doubled in size in 2008 and 2009 because I was able to see the crisis coming and adjust quickly and accordingly. But I digress.
Remembering those days of 2007 and 2008 is like remembering the roaring tech-induced bull market of the early 2000s-no one wanted to admit it, or as a result, deal with it. After all, considering the ramifications of the possibilities was disastrous.
Although a little early on his call, Burry got it right. In a huge, a freakin’ HUGE way. Burry made nearly a billion bucks on his bet that things would go south.
So it begs to ask — what is the boy up to now?
Seems that he is making some huge bets on water. Yah that’s right. Boring WATER.
Before we go on, I want to take a second to explain what I’m doing with this post, and with the corresponding portfolio I’ve put together at Motif Investing. You can find that portfolio, and invest in that portfolio, here.
There are a lot of sources that offer information to allow you to follow Burry’s lead on investing water.
They’re all trash.
Let me explain.
Burry isn’t discussing how he’s placing his bet on water. He’s not discussing if he’s trading the commodity. Or investing in desalination plants. Or investing in water utilities. Unless you hear it from Burry himself, don’t believe anyone knows exactly what he’s doing. And that’s how he’s going to be successful.
Believe me. I’ve done the work and the research. And he’s simply laying low. But it’s still worth examining the merits of the investment theme, and that’s what we’ll do here.
As we make sense of different opportunities in water, we’ll update the portfolio at Motif Investing. It’s easy for you to add more to the investment (anytime you want, or on a regular frequency). And when I change up the portfolio you’ll get a notification to rebalance. Log in to Motif if you want. They make it super simple. Push the “Rebalance” button and boom — Motif takes care of the rest.
Only 1% of the world’s water is available for drinking. That’s why analysts and investors see a big wave of water-related investing ahead. — Kopin Tan, Barron’s, March 20, 2017.
What you Need to know First
Though Burry was early to the call on his bets against the housing market, the entire process took only about three years. In the world of investing, this is a pretty short window.
I don’t believe water is the same type of play. It’s a longer play.
There could be an amazing amount of wealth created by betting on water (we’ll get to the merits of this investment strategy next). But it’s not going to be this quarter or this year (as many other bloggers would have you believe). It’s not even going to be as short of the 3-year time horizon as Burry’s previous investment bet.
It’s going to be longer.
This portfolio is a five, a ten or even a twenty-year hold. I think this is a Berkshire Hathaway sort of investment strategy. I’ve written about Buffett’s work with Berkshire Hathaway several times before, but to remind you, Buffett turned $10,000 into $80 million (after taxes on gains) in about 35 years. You can see also what happened here with $250 in 1980.
That investment story WILL be created again.
And for those that are lucky (or skilled or wise) enough to not only identify this opportunity, but then stick with it for the long haul (this takes more talent and emotional work than you would think), the investment will pay off mightily.
I’m a long time investor in Buffett’s Berkshire Hathaway.
But I do not believe that the investment vehicle will match it’s historical returns going forward. And neither does Warren. So what does have a fighting chance to be our race horse that boosts our returns and gives us amazing conversations for cocktail parties?
You guessed it.
So here’s what you need to know first before reading on.
This is NOT a get rich quick scheme. I encourage you to ignore the writers and bloggists and journalists and analysts that claim there is quick returns to find in water opportunities over the next 3, 12 or even 36 months. If you invest in this theme because of the compelling case below, then stick with me and stay focused. We’re going to do this.
I want you to consider this an investment strategy for your retirement money. For your long term money. I want you to get excited to really emotionally invest in WATER. I want you to educate yourself on the opportunity. On why it is so interesting. I want you talk about it when you are out with friends. And colleagues. I want you to hit me up on Facebook or Twitter (@pearlypigmoney) because you’re so damned excited to discuss water. I want you to challenge my thesis.
I want you to be motivated to know why you are investing in what you are investing.
And I hope you’ll let your colleagues, friends and family know that this guy at the Pearly Pig helped you out with formulating your strategy. I hope you’ll share this article. And I hope you’ll continue to keep up on this opportunity, continuing to gauge whether its the right opportunity for you.
The MERITS of Water as an Investment Strategy
- Only 1% of the world’s water is available for drinking. (About 75% of the globe’s surface is covered with water. But only 1% is drinkable. Yikes.)
- Population growth will grow human use. Don’t know if human population growth is as dire as the message in “Inferno,” but we are growing. Nearly at 8 billion people worldwide, human population growth has proven to be exponential. And humans not only drink water, but so do the plants and animals they eat. You do the math.
- Widespread commercial use of water in everything from hydraulic fracturing to manufacturing is growing. This is due to, yes, human population growth. As well as technological advancements.
- Increased inquiries and price-quoting activity from the consultants and engineers that initiate big water projects is growing significantly.
- The world is struggling with groundwater issues. Flint, Michigan. China. India. All over the world.
- The world’s populist movements (Brexit & Trump), regardless of conservative or liberal slant, are yelling for infrastructure upgrades. Just in America, according to the Environmental Protection Agency, more than 1/3 of all water infrastructure/pipes need upgraded or replaced. That’s only the U.S.
- Global water use per capita was 350 liters per day in 1900. By 2000, it had nearly doubled to 640 liters.
- Infrastructure investment has been put off by politicians since the financial crisis of 2008.
- China has 20% of the planet’s population but only 7% of renewable water resources.
- Stocks within this strategic them have grown based on earnings, but not on multiple (P/E) expansion. This still could come as investors embrace the theme. (Bruce Jenkyn-Jones, co-manager of London-based Impax Asset Management).
- Water is in fixed, limited supply. Until we figure out how to create supply (does this notion go against physics as we know it?), then this reality creates significant friction, causing the many problems, against the reality that our human population is growing.
What We’re Doing About It
There’s no doubt I’ve started investing in this long-term investment strategy. I think it is not only great for cash that is sitting in checking and savings accounts, doing nothing, but for IRAs and 401ks too. If you have any questions on how to do this, please reach out to me at firstname.lastname@example.org.
Furthermore, we’re doing this through our portfolio at Motif Investing. You can find that here.
About the Pearly Pig
My goal with my work at the Pearly Pig is simple. I want to discover compelling investment strategies, themes and ideas to invest in, and I want to share what I’m doing so you can follow if you’d like.
If there is any money involved with me discussing different themes or service providers, I’ll let you know. I value transparency.
I hear over and over again that people just let their extra cash sit in checking and savings accounts. It frustrates the hell out of me that, if that’s you, you’re missing out on a significant bull market. You’re being left in the dust. And there’s only one person to blame.
But I’m here to help.
Or even worse. Are you that buddy of mine that found a solution to that no interest checking and savings account? Are you walking around with a puffed up chest or a turned up nose because you’re getting the money-growing-game right? Did you take that extra cash out of savings and checking and “invest” in a CD? Ugh.
I was a stock broker and financial advisor for nearly 15 years. And I’ve ran a successful venture capital company since I sold my financial advisory practice in 2012. I love finding interesting and fun things to invest in for my family’s own portfolio. I don’t like boring. Especially the stories in which we choose to invest.
The Pearly Pig is my solution to share with you what I’m doing so you can follow along.
Transparency is key, and I’m dedicated to always let you know what we’re up to on the financial front. Nothing difficult about that.
Motif pays us $1 for every trade in our portfolios. They don’t pay the Pearly Pig for anything else. Yet. Hope they do someday :) I’ll let you know if they do.
I invest in several platforms, and none of them pay me. If they ever do, I’ll let you know. You need to know if there is a potential conflict of interest. I’m doing my best for my family’s portfolios. You need to do the best for yours.
I use almost exclusively TD Ameritrade and Motif Investing to grow my wealth. However, I have money at Ameriprise, Stash, RobinHood and Acorns also. None of them pay me to mention them. I’ll let you know if they ever do.
Okay that’s about it. Hope you find time to take advantage of this long term trend called water. Of course, this needs to be right for you and your family. I am not a financial advisor, and I’m not pretending to be one. Simply put — it’s your job to figure out what works for you.
Thanks for following along — more to come!
Ryan @ The Pearly Pig