What is one of the hottest and under-appreciated assets on Earth this decade?

Is it Zoom, which skyrocketed 500% this year?

Or perhaps it’ll be Amazon, the king of stay-at-home names already up 72% this year.

Surely it must be Moderna or Pfizer, leaders in the mad rush to develop a COVID-19 vaccine?

Dr. Michael Burry has a different answer.

“Hold on,” you’re thinking. “Who is Michael, and why should I care?”

You and everyone else would have said the same before the 2008 financial crisis.

When he saw early warning signs that the global economic bubble would burst, Burry correctly predicted trouble and shorted the housing market. Burry’s legendary short of subprime mortgage loan CDO’s right before the great financial crisis made hundreds of millions for his investors while adding to his own personal wealth, and his name ascended to prophetic status through the book and film “The Big Short.”

Dr. Mike Burry as played by Christian Bale in the 2015 film “The Big Short” and right, the real Dr Burry
Dr. Mike Burry as played by Christian Bale in the 2015 film “The Big Short” and right, the real Dr Burry.

Now, Dr. Burry is focusing on a new asset: farmland.

The Strongest Asset in a Bear Market: Dirt

Burry told Bloomberg, “I believe that agricultural land – productive agricultural land with water on site – will be very valuable in the future… I’ve put a good amount of money into that.”

The Huffington Post, Forbes, Seeking Alpha, The Motley Fool, and other respected financial media outlets have nodded to Burry. His rotation into farmland and water makes a lot of sense in today’s environment.

Burry isn’t alone in his line of thought, as the number of searches for “Michael Burry farmland” has skyrocketed alongside “Big Short Michael Burry” and “Michael Burry investing”. Some of the smartest investors on Earth are becoming farmland investors, and they have quietly accumulated farmland assets.

historical risk vs return for U.S asset classes - 1993-2017

Farmland has a negative correlation to many traditional investment vehicles

As an example of heavily invested famous names, Warren Buffet famously bought a 400-acre plot of farmland in 1996. Buffet claimed in 2014 that “28 years later, the farm has tripled its earnings and is worth five times or more what I paid.”

Over the next three decades, the UN forecasts the global population to increase to about 10 billion. One can imagine the impact on farmland investments with an over 30% increase in mouths to feed.

Where We Are Today:

The housing market around the world is looking insanely overextended. Home sales cracked a 14-year high in the U.S. even as homes are less affordable than ever. In the UK, house prices also surged to an all-time high.

Median U.S home price up 30% so far into the pandemic

And Australia’s booming housing market is considered by many to be overheated.

Farmland is the opposite of what can turn out to be an expensive liability. It’s an asset that appreciates over time while also producing a steady income. It’s the only real estate type that can provide peace of mind whether you’re in the middle of a recession or the top of an overheated bull market, and it’s one of the best inflation hedges.

There’s No Asset Quite Like Farmland

As the pandemic fades, companies that surged thanks to lockdowns will likely come down to Earth. The writing is already on the wall– smart money is searching for safer places to park their assets.

smart money / dumb money confidence

Meanwhile, the World Bank expects agricultural production will need to balloon about 70% by 2050. Can you say the same for Peloton stationary bikes?

From family offices to pension funds, there is a growing interest across the board for investing in farmland. Yet, it’s still a drop in the bucket, especially when you consider the massive change of hands we expect to see in agricultural landholdings in the coming decades and all the more mouths to feed.

Is Farmland a Good Investment Now?

Dr. Burry weighs in: “I’m interested in finding investments that aren’t just simply going to float up and down with the market…The incredible correlation that we’re experiencing – we’ve been experiencing for several years – is problematic.”

These are just some of the reasons Dr. Burry and others are choosing farmland assets:

  • Far less competition

When you consider the importance of agricultural land, it’s surprising to learn how informal and disorganized the sector truly is. As of 2016, only 0.5% of total global farmland is from an institutional investment. Most farmland globally is made with personal investments and privately-held as small family farms.

global farmland values compared with key commodities

Despite its potential, farmland is significantly undercapitalized. 

However, the pace is picking up. Institutional investment in farmland is growing 8-10% each year. From 2005 to 2017, the number of Food and Agriculture (F&A) funds blossomed from 38 to 446, with their cumulative AUM topping $73 billion.

  • Traditional investing strategies are failing

The classic 60/40 portfolio split between stocks and bonds is underperforming as the Fed holds rates near zero for the foreseeable future. Fund managers are increasingly allocating funds to riskier investments, and that’s not something you want in a portfolio when you’re close to retirement age.

  • Less alpha in fewer places, with no uncorrelated assets within sight

Some people are going all-in with gold, silver, and industrial metals like copper. Others are betting on Bitcoin and other cryptocurrencies. But none of these give you the peace of mind and below average risk that physical land, one of the best performing asset classes, does.

Other active investors look to China, the only economy that has managed to grow in 2020. However, China’s economic picture is not as rosy as it seems, and they are currently the world’s largest agricultural importer.

The global agricultural productivity (GAP) index

Agriculture will need to become more productive in the future. 

Farmland, as an investment asset class, has historically outperformed stocks and bonds with double-digit annual returns over the past four decades and without much volatility.

“We could enter into a market where losing nothing is the best-performing asset,” says Phil Toews, chief executive of Toews Corp., which manages $1.9 billion in assets. A real asset like farmland, which at worst preserves your capital, makes a strong case with an outlook like that, especially as the global population continues to grow.

Should You Invest in Water?

We can’t talk about Burry and not mention his predictions about the water market.

Burry likes almonds. Why?

The almond tree uses five liters of water per seed, and more and more people are crazy about almond milk.

Logically, Burry bought up farmland real estate in regions with enough natural water supply to feed a thirsty almond tree.

“What became clear to me is that food is the way to invest in water,” Barry told The Intelligencer (nymag.com). “That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable.”

You can also invest in the iShares Global Water Index to gain exposure to the rising demand for water. However, Barry’s strategy is more future-proof. Owning water-rich farmland has more than a few benefits over investing in a broad derivative like an index.

iShare global water index ETF

Global water demand will increase by 20% to 30% by 2050, most of which will go toward agriculture. However, the FAO estimates that only about 30% of land on Earth is suitable for rainfed agriculture.

Agricultural import-dependent countries like China are already experiencing a dire water crisis. With all these facts before us, it’s clear where the market for water and agricultural land with cheap and easy access to water will go.

And that ties in closely with our top pick for the best region in the world to invest in agricultural real estate today.

Colombia has a more significant amount of rainfall overall than any country on the planet. Plus their agri-business sector is enormous, and in the process of formalization.

total annual rainfall

Colombia has some of the highest annual rainfall averages of any country on Earth 

Colombia’s pushing ahead of its neighbors with both formalization and infrastructure advancements, and the economic value they’re tapping is tremendous.

Bottom line:

The most obvious selling point of agriculture land over most other major asset classes and alternative assets, other than its productive potential and instant diversification, is that they’re not making any more of it. The demand for arable land is infinitely rising.

It doesn’t take a genius like Michael Burry to realize what happens when demand drastically outstrips supply

Due to the extreme demand for water, arable land with easy access to regular rainfall comes at a premium to end all premiums. Despite all that, agricultural investments in emerging economies like Colombia remain affordable, highly profitable, and mostly untapped by large capital. Fill out the form below to learn more and how you can buy farmland directly and add the high yield potential of productive farmland to your portfolio today.

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