Thematic Investing: Blue Gold

When it comes to absolutely critical commodities, there's no question that clean water is at the top of the list. You need it. I need it. Every single person in the world needs it. It's without doubt the most precious commodity on the face of the planet. No matter what country you live in, or whether you're rich or poor, there is nothing more important to basic human survival. Whoever, controls water literally controls life on Earth. Therefore, investing in clean water -- a whopping $460 billion global market -- has often been dubbed "blue gold" because of the immense profit potential this resource holds.

Currently, the world is struggling to cope with a very serious clean water shortage in more than 80 countries around the globe - this problem is approaching "crisis" level. Even today in America's own backyard we see 20% shortages; for example, The California Drought Impact Report (February 27, 2009).

As research has uncovered, people worldwide use vastly different amounts of water in their daily lives. On average, a US citizen uses nearly 158 gallons (600 liters) each day (bathrooms, cooking, food, drinks, hot water-cleaning, laundry, car wash, heating etc.), whereas people in some of the world's poorest countries must make do with less than 10% of that amount. The single biggest reason for the discrepancy is the scale of a country's infrastructure.

The US EPA estimates that over $3 billion is spent each year in the US on repairing and upgrading the drinking water infrastructure alone, and costs are expected to increase significantly. The US industrial demand alone for clean water is driving the growth of water technologies, currently a $6 billion market, and is expected to grow into a $20 billion market by 2012.

For all the talk about oil, natural gas, and even electricity, those resources pale in comparison to clean water, the essential commodity for life and whose global demand will continue to increase by at least 20% - 35% within the next 10 years. Regions affected by clean water shortages include, North America, Europe, South America, Africa, Middle East/India, and parts of Asia.

In fact, as recently as November 2008, the US Director of National Intelligence Reports, “Global Trends 2025 – A World Transformed” estimates, forecasted that by 2025 over 1.4 billion people in 36 countries will be without sufficient water for drinking and agricultural needs. Further, many leading innovative R&D centers in the world - for example; “The Dr. James Martin Institute for Civilization, Science & Innovation, University of Oxford” calculates that unless aggressive steps are implemented within the next 20 years to treat clean water as a critical strategic global issue, significant portions upwards of 20% of the species found on Earth will not survive becoming extinct as a result.

The two major issues in the world pertaining to water are supply and cleanliness. As the world’s population increases to over 10-billion people by 2045, the supply of water is being stressed due to greater consumption, which drives the need to increase and improve water treatment. In addition, many developing countries lack the basic infrastructure to provide their growing populations access to clean water, even when the treatment facilities are in place. The research shows in particular industry sectors offering the potential for significant returns include “water/waste-water treatment,” “water infrastructure,” and “clean water technologies.”

To learn more, read our Introduction to Thematic Investing. Green Valley strives to identify global themes that we believe are most likely to be important long-term drivers of the global business environment. Then we use intensive fundamental research and a wide array of quantitative tools to invest in companies that stand to benefit as these themes unfold. We believe this approach we help us to steer clear of trouble and stay focused on what's working, and making money.

Green Valley Wealth Advisors | Oct. 15, 2009

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