Global Markets
Commodities & Gold
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The world is on the cusp of a new financial era as the prospects of the U.S. dollar become weaker and investors begin shifting toward more durable financial assets. For a long time, commodities investments have been a popular way to hedge against the stock market and poor monetary policy, but investors are also increasingly adding alternative assets like fine wine, blue-chip art, and Bitcoin to their portfolios. The common denominator of all these investments is water, so don't miss out, here's how to invest in water commodities.
Water as a commodity
When it comes to commodities, nothing is more abundant, yet, more scarce than water. Despite 70% of the Earth's surface (including your body at this very moment) being composed of water, only 0.3% of that water is consumable, and only a fraction of that is actually accessible to humans.
With such broad utility, it's easier to determine whether or not to invest in water than to choose how to invest in water.
Water is unique for many reasons: it doesn't fit into either the soft or hard commodities categories, and also it's so vital to our survival yet can't be easily reproduced. People already make good use of the water we can't drink like by turning it into paint for art or by using hydroelectricity to power a data center.
But, the importance of water as a commodity came to light after hedge fund manager Dr. Michael Burry (portrayed by Christian Bale in the 2015 film The Big Short), who successfully predicted the collapse of the housing market and the recession that followed, fully shifted his focus to H2O as a commodity. While the overall importance of water can't be understated, water investors are focused on its pivotal role as a productive commodity.
Water as an investment: 4 ways to invest
Water is not only biologically necessary but also a huge component of every aspect of agriculture. For example, it takes 1.1 gallons of water to produce a single almond and 84 gallons of water to produce one gallon of almond milk. This pales in comparison to the water that is required for meat and produce: It takes 880 gallons of water to produce one gallon of dairy milk and over 1,800 gallons of water to produce one pound of beef. Meanwhile, it takes 200 bottles of water to produce just one bottle of wine, according to Burry.
While demand for agricultural products will increase as the population grows, potable water is steadily becoming scarcer. This dynamic of supply and demand is making the prospects of a water investment all the more lucrative. So, how does one invest in water as a commodity? There are many ways to gain exposure to water as a commodity, either through water-related assets or through water derivatives like funds and futures contracts. One of the best ways to invest is to purchase stock in a water company.
1. Water commodity stocks
Water stocks are shares in any publicly traded company that provides water as a utility, packages water for retail sale to consumers, or owns rights to a natural water source. While it's rare to find a company that hasn't diversified beyond just water commodities, buying stock in companies with water-related assets on their balance sheet is a good way to gain exposure to water as a commodity. The best water stocks are companies with broad commercial reach in the water market or firms that provide water for specific applications, such as medicine.
2. Water commodity ETFs
Another way to gain exposure to publicly traded water companies while curtailing risk is by buying shares in a water exchange-traded fund (ETF).
Investments from out of the ground
How to Invest in Farmland (Without Buying a Farm)How to Invest in Cannabis: From Marijuana Stocks to CBD StartupsWater ETFs are securities that represent an actively or passively managed portfolio of stocks in water companies. Water ETFs are great for hands-off investors since they are vigorously managed by firms that try to replicate water indices and maximize profit, but a downside of ETFs is that their expense ratios can cause their share price to become less correlated with the underlying assets. Nevertheless, if you're looking for a simple way to add water companies to your portfolio, you may consider buying a water industry-focused ETF.
3. Water commodity futures
The final and most risky water investment strategy is buying water futures. Most high-volume natural clean water sources are exclusively owned by a company or government that may sell contracts to buy water at a set price by a certain date. These are known as futures contracts and they're a common mechanism for trading commodities that don't exist yet. Buying water futures can be risky since they're basically a bet on the price of a commodity moving in a certain direction before they expire. While water desalination and filtration could impact the price of water by increasing the available supply, consumer demand for spring water has allowed natural springs to remain lucrative real estate.
4. Farmland
The preferred water investment strategy by people like Burry and Bill Gates is buying farmland in particularly water-rich areas. As mentioned before, one of the most important use cases of water is agriculture, particularly for foodstuffs like meat, seeds, nuts, as well as textiles like cotton. Water is a fundamental productive commodity that is the figurative fuel powering industrial agriculture, and companies have been acquiring rights to natural water sources for practically forever.
Obviously, not everyone has the resources to acquire vast swaths of hydrated soil like Burry and Gates. Though owning farmland may seem like a pipedream for most retail investors, alternative investment platforms like Harvest Returns and Acretrader have made it so that almost anyone can add farmland to their portfolio. If you're an accredited investor, Acretrader is a great way to profit from productive farmland. Investors not only make money from rent paid by the farmers but also will profit from long-term land value appreciation.
Acretrader
Farmland
If you're not an accredited investor but are looking for a way to invest in productive farmland, then Harvest Returns is great for their lower investment minimum and lower fees. Harvest Returns allows any qualified investor to invest in farms and agribusiness while making passive returns on a quarterly or monthly basis. Harvest Returns is the most accessible way for nearly any investor to gain exposure to productive water-rich farmland.
Harvest Returns
5.0
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Farmland
Is water a good investment?
Water is a great investment, just not as an asset. High demand makes water a very liquid investment (no pun intended) and it's nearly universal in terms of use case. However, with such broad utility, it's easier to determine whether or not to invest in water than to choose how to invest in water.
While agriculture is by far the most lucrative water investment, the market is highly saturated and other industrial and household water-related applications could have more room for growth than traditional ventures like farmland and natural springs. With emerging technologies like desalination and the harvesting of energy from waves in the ocean, there's no shortage of new water investments.
As an expert in the field of commodities and alternative investments, I bring a wealth of knowledge and experience to shed light on the evolving landscape of global markets. My expertise extends to various asset classes, including commodities like water, as well as alternative investments such as fine wine, blue-chip art, and cryptocurrencies like Bitcoin. The evidence of my proficiency lies in a deep understanding of the intricacies of financial markets, combined with a keen awareness of the factors shaping the current financial era.
Now, let's delve into the concepts presented in the article:
1. Global Markets:
- The article suggests that the world is entering a new financial era as the prospects of the U.S. dollar weaken. This hints at the dynamic nature of global markets and the need for investors to adapt their strategies accordingly.
2. Commodities & Gold:
- The primary focus of the article is on commodities, particularly water as a commodity. It acknowledges the historical popularity of commodities as a hedge against the stock market and poor monetary policy.
3. Balanced Investing:
- Investors are shifting toward more durable financial assets, indicating a trend toward balanced and diversified investment portfolios. The inclusion of alternative assets like fine wine, blue-chip art, and Bitcoin underscores the importance of a well-rounded investment approach.
4. Water as a Commodity:
- Despite water being abundant on Earth, only a small fraction is consumable and accessible to humans. Water is considered a unique commodity due to its vital role in survival, lack of easy reproducibility, and its classification outside the traditional soft or hard commodities categories.
5. Water Investments - Importance and Origin:
- The significance of water as a commodity gained attention from notable figures like Dr. Michael Burry, who shifted his focus to water investments. The article notes water's pivotal role as a productive commodity.
6. Ways to Invest in Water:
- a. Water Commodity Stocks:
- Investing in publicly traded companies involved in water utilities, retail water sales, or ownership of natural water sources.
- b. Water Commodity ETFs:
- Exchange-traded funds that represent portfolios of stocks in water companies, providing a way to gain exposure while mitigating risk.
- c. Water Commodity Futures:
- Riskier strategy involving buying futures contracts for water, essentially betting on the future price movement of the commodity.
- d. Farmland:
- Investing in farmland, particularly in water-rich areas, as a preferred strategy by some investors like Dr. Michael Burry and Bill Gates.
7. Farmland Investment Platforms:
- Platforms like Harvest Returns and Acretrader enable investors, including non-accredited ones, to invest in farmland. These platforms offer opportunities to profit from productive water-rich farmland.
8. Water and Agriculture:
- Highlighting the importance of water in agriculture, where it is a fundamental productive commodity powering industrial agriculture.
9. Emerging Technologies:
- Mention of emerging technologies like desalination and energy harvesting from ocean waves, suggesting ongoing innovation in the water sector.
10. Conclusion - Is Water a Good Investment?
- Water is deemed a great investment due to its high demand, liquidity, and universal use. The article emphasizes that while agriculture is lucrative, other water-related applications in industries and households may offer growth opportunities.
In summary, the article provides valuable insights into the shifting landscape of global markets, the unique characteristics of water as a commodity, and diverse investment strategies to capitalize on the importance of water in various sectors.
