How To Make 55% In 5 Years... Right Out Of The Tap

Today I want to share with you an important – and timely – “secret” about the Bush family. As you’ll see, it has to do with an investment idea that’s hardly on anyone’s radar, too.

But first I’ve got a question for you…

Would you want to be president of the United States?

I remember back in the day having that conversation with my buddies about whether if given the chance we would each want to be the president of the United States. The general consensus was how could it not be tempting to want to be regarded as the most powerful man on Earth?

I mean at the time we were having this conversation, it was pretty clear being president was a good way to meet girls (our priorities were a little different back then)…

My take on the issue then and now was a big “no thank you.” Not because I didn’t want to meet girls, but because I was afraid that the job would put in front of me information that I would prefer not knowing.

For me, the world can be scary enough without learning the details of events that would keep me up at night. Some things are better left unknown.

While there is some information that I’d prefer to stay in the dark about, I would imagine there would also be information available to the president that could be a wonderful advantage when it comes to investing.

Talk about an informational edge. Some of what the president sees isn’t just information that is hard to dig up — it is information that is actually classified and unavailable to nearly everyone else.

That is why I found something that the Bush family did during George W.’s second term very intriguing.

The Bush family bought the rights to water. They bought the rights to a shockingly large amount of water.

In total, the Bush family in 2005 and 2006 purchased 298,840 acres of land, in the Paraguayan Chaco, of all places. I don’t think the intention here was to have a nice vacation spot. This land sits squarely on top of one of the largest freshwater aquifers in the world, called Acuifero Guarani.

Source: analissabrambilla

Acuifero Guarani covers roughly 460,000 square miles (or 1,200,000 of my Canadian kilometers) under parts of Brazil, Paraguay, Uruguay and Argentina. It is estimated to contain about 8,900 cubic miles (37,000 cubic kilometers) of water.

I have a hard time wrapping my head around 37,000 cubic kilometers, but I’m certain it is a lot of liquid. For some perspective on how big that is, consider that just the footprint is nearly three times the size of the state of California.

Wouldn’t you love to know what high-level intelligence the Bush family has been privy to over the years that would make them go out and buy hundreds of thousands of acres of water rights in a remote South American country?

I would, but after a little reading, I don’t think it is a terribly difficult puzzle to piece together.
Luckily, we don’t have to be president to recognize the huge opportunity here.

Today in North America, we have a water crisis on our hands — most notably in California, where unprecedented rationing has recently been ordered. But for the most part, we are blessed with a lot of fresh water relative to our population.

The rest of the world, for the most part, is not so lucky.

While researching this article, I came across a piece of 2008 research from Credit Suisse that estimates that two-thirds of the world’s population are likely to live under water-stressed conditions by 2025. That is a lot of people, and 2025 isn’t very far out in the future.

It seems strange to think that a planet that is 70% covered by water doesn’t have enough of it. The problem is that not much of that 70% is available for human consumption.

Source: University of Nebraska

Ninety-eight percent of the water on Earth is salt water.

Of the other 2%, 87% almost of it, is trapped within glaciers and is also inaccessible. Using my trusty calculator, I can tell you that means that only 0.25% of the water on our planet is fresh water (underground or in rivers and lakes).

Investing in Water — Not Many Options

If you choose to invest in the financial markets, the reality is that you are competing against people with genius-level IQs. I’ve looked at myself in the mirror and wondered what possible advantage I could have on them.

Surprisingly, I had an answer. Patience.

One of my favorite investing quotes of all time comes from the legendary trader Jesse Livermore: “After spending many years on Wall Street and after making and losing millions of dollars, I want to tell you this: It was never my thinking that made the big money for me. It was always my sitting.”

The long-term opportunity that investing in water presents gives you a great chance to get exposure to a sector that is going to have the wind at its back for a very long time. This is an opportunity to make money by being patient.

From what I’ve observed, patience is not a tool in the toolbox of most high-IQ Wall Street traders. We can beat Wall Street by taking the long view, and investing in water is a great way to do that.

What I find a bit challenging about getting exposure to water is that there aren’t a lot of opportunities out there.

The big investment banks and private equity players can get exposure to water by investing billions in infrastructure projects. The Bush family and T. Boone Pickens can get exposure to water by purchasing hundreds of thousands of acres of land on top of an aquifer.

I’ve looked at a lot of publicly traded companies that have some exposure to water, but the problem is that for many of them, their water business is only a small part of their total bottom line.

Since getting exposure to water is a long-term macro call, I think avoiding taking on specific company risk is a great way to go. That means buying a diversified (and low-cost) ETF is a nice option.

The water challenge the world is facing is truly a global problem. Therefore, of the four available water ETFs, my favorite is the one that offers the most international exposure.

The ETF is the Guggenheim S&P Global Water ETF (NYSE:CGW), and it seeks to perform in line with the S&P Global Water NR Index.

Here is how the historical performance of the fund looks:

Source: Guggenheim

The ETF is up more than 10% annualized for the past five years, but it is the next 20 years that interest me. I believe that it is over the long term that water-focused investments will outperform.

The ETF has 52 different securities with an average market capitalization of $10.4 billion, so it is made up of big, solid companies. The top three positions held by the ETF look like his:

Geberit AG (7.37% of assets): Founded in 1874 and headquartered in Switzerland, Geberit develops, produces and sells water installation systems, cisterns, faucets piping and drainage systems.

Pentair Inc. (7.33% of assets): Based in the United Kingdom, Pentair describes itself as global manufacturer of water and fluids solutions, valves and controls and thermal management solutions.

United Utilities Group PLC (5.89% of assets): Also based in the United Kingdom, United Utilities is one of the country’s largest water and wastewater companies. In total, it supplies 7 million people in England their water for drinking.

The expense ratio for the ETF is 0.65%, which is tied for the lowest of the four water ETF options. Expenses should be low for an index-mimicking investment.

The geographic distribution of the ETF’s holdings as of Dec. 31, 2014, is split as follows:

When it comes to water, the more international the better, as far as I’m concerned.

You don’t have to be a past president of the United States to know that in the coming decades having water in your portfolio is a good idea. You just need the patience to allow that exposure to pay off for you.

Is over 10% annualized return worth a little patience? I think so.

Keep looking through the windshield,

Jody Chudley
for The Daily Reckoning

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