Why Is Michael Burry Investing in Water?

Michael Burry is a notable investor known for his contrarian bets and analytical research. He gained recognition for predicting the 2008 financial crisis, detailed in “The Big Short.” His firm, Scion Asset Management, takes positions counter to market sentiments, and his track record draws attention to his investment choices. His portfolio is scrutinized for future trends, and his focus on water-related investments has sparked interest, prompting questions about his reasons.

Michael Burry’s Investment Philosophy

Michael Burry’s investment philosophy is rooted in deep value analysis, influenced by Benjamin Graham’s principles. He meticulously researches companies and assets to identify those trading below their intrinsic worth, seeking situations the market has overlooked. This approach involves thorough examination of financial details to uncover “hidden gems.” He prioritizes protecting against downside risks.

Burry is known for his contrarian mindset, willing to go against the crowd to find opportunities. He believes market inefficiencies create mispricings that diligent investors can exploit. His strategy involves buying “unpopular companies” at their lowest point and selling them once their value is recognized.

His research process is fundamental and “bottoms-up,” focusing on detailed analysis rather than broad market trends. He looks for companies with solid fundamentals, low price-to-earnings ratios, and attractive growth prospects. Burry emphasizes that “sheer, outrageous value is enough” for an investment, even without immediate catalysts.

A long-term outlook characterizes his investment strategy. He holds undervalued stocks until the market acknowledges their true worth, prioritizing sustainable growth over quick profits. This patience allows him to capitalize on market inefficiencies. His approach is not limited by geography, industry, or market capitalization, as he seeks the cheapest stocks regardless of origin.

This rigorous, independent thinking enables Burry to identify unconventional assets. His focus on fundamental value and market mispricings provides the framework for his interest in resources like water, which may be undervalued but hold significant long-term potential. His methodology underscores a disciplined pursuit of value in obscure or overlooked sectors.

The Case for Water Scarcity

Water is a finite resource; only a small fraction of Earth’s total supply is readily available freshwater. Most of the planet’s water is saltwater, and much of the freshwater is locked in glaciers or deep underground. This limited accessible supply faces increasing pressure from global trends.

Population growth is a primary driver of rising water demand. As the global population expands, so does the need for water for domestic consumption, sanitation, and food production. The world’s population is projected to reach 9.7 billion by 2050, straining freshwater resources. This increased demand often leads to over-extraction of groundwater and reduced river flows, exacerbating scarcity.

Urbanization also contributes significantly to water stress. As more people move to cities, demand for water for residential use, cooling systems, and infrastructure increases rapidly. Urban areas, despite occupying a small percentage of land, consume substantial water. This rapid urban expansion can strain local water supplies, especially with inadequate infrastructure.

Agricultural demands represent the largest share of global freshwater withdrawals, accounting for approximately 70% of all water consumed annually. Feeding a growing population requires increased irrigation for crops, much of which is lost due to inefficient systems and evaporation. Livestock farming also requires considerable water.

Industrial consumption further intensifies water scarcity. Industries use substantial water for cooling, processing, and as a raw material. While industrial water use accounts for about 20% of freshwater withdrawals, it also contributes to pollution through contaminated wastewater. This pollution degrades water quality and harms ecosystems, reducing usable water supply.

Climate change significantly compounds these challenges. It alters precipitation patterns, leading to more frequent droughts and severe floods. Rising temperatures increase evaporation and reduce snowpack and glacier melt, crucial freshwater sources. These climate impacts reduce water availability predictability and compromise water quality. The combination of these factors creates an accelerating problem of water scarcity, making water an increasingly valuable and contested resource.

Burry’s Water-Related Investments

Michael Burry’s interest in water as an investment differs from acquiring shares in public water utilities or technology companies. His strategy centers on physical assets: agricultural land with inherent water rights. He believes productive farmland with water access will become increasingly valuable.

Burry’s core philosophy is “food is the way to invest in water.” He believes growing food in water-abundant regions and transporting it to water-scarce areas is the most practical method for water redistribution. This approach avoids the political and logistical complexities of directly transporting large water volumes.

His reported investments focus on securing irrigated farmland in areas with reliable natural water supplies. Reports indicate interest in almond farms, recognizing the high water demand of crops like almonds. This focus underscores his belief that embedded water in food products represents a tangible and profitable asset.

These holdings reflect a long-term view, seeking to capitalize on increasing global freshwater scarcity. By acquiring land with established water rights, Burry aims to secure access to a fundamental resource for agricultural production. This strategy contrasts with more liquid investments like water ETFs or stocks, emphasizing direct ownership of the resource.

Scion Asset Management includes water and farmland in its investment focus, alongside other long-term assets like gold. This strategic allocation highlights a belief in the enduring value of tangible resources facing growing demand and diminishing supply. His approach to water investment is tied to the physical realities of resource availability and agricultural productivity.

Understanding Water as a Strategic Asset

Water is increasingly recognized as a strategic asset due to its fundamental role in all life and economic activity. Despite covering much of the Earth, readily available freshwater is limited, making it a finite and irreplaceable resource. This inherent scarcity positions water as a foundational component in a world facing growing resource constraints.

The demand for water is largely inelastic; significant price changes do not drastically alter consumption for essential uses like drinking and hygiene. People cannot easily reduce their water intake for survival, making it a necessity. This inelasticity contributes to its economic stability and long-term value, as demand remains relatively constant regardless of price fluctuations for essential uses.

Economically, water’s value is influenced by its competing uses: municipal supply, agricultural irrigation, and industrial processes. While water for irrigation often has a lower unit value compared to urban or industrial uses, its sheer volume in agriculture makes its economic impact substantial. The value of water rights, which grant legal access to a water source, can vary significantly depending on factors like quantity, reliability, and transferability; rights separated from land often trade at a premium.

The growing recognition of water as an economic good drives efforts to manage it more effectively. Water scarcity can lead to substantial economic losses, impacting industries, agriculture, and overall GDP. Temporary disruptions in water service can significantly affect business operations.

Assigning an appropriate value to water encourages more efficient use and investment in related infrastructure and technologies. This market-based approach, while complex due to social and ethical considerations, promotes conservation and ensures long-term water security. As global demand continues to rise amidst finite supply, water’s strategic importance as an asset will intensify.